By Tony Munroe and Emi Emoto
TOKYO (Reuters) - Japanese companies are turning increasingly to overseas acquisitions to drive growth, buy technology and build market share, spurred by a stagnant domestic economy, shrinking population and largely unburdened by subprime credit damage.
The retreat of private equity firms from the global buyout stage and lower valuations thanks to slumping stock markets are helping smooth the way for outbound acquisitions from a country with a chequered deal-making history.
"We have global operations and we'd like to further expand that," Shuzo Sumi, chief executive of Tokio Marine Holdings Inc (8766.T: Quote, Profile, Research, Stock Buzz), told the Reuters Japan Investment Summit this week.
Tokio Marine, Japan's largest non-life insurer, completed the purchase this year of Lloyd's of London insurer Kiln Ltd for 442 million pounds ($881 million), marking the largest overseas acquisition by a Japanese insurer.
Tokio Marine generates 15 percent of its business overseas and hopes to expand that to 20-25 percent by 2015.
"We have been focusing on emerging markets but to be a real global player, we need to build significant positions in the U.S. and Europe, where the markets are big," Sumi said.
Already this year, outbound acquisitions from Japan total $24 billion, according to Thomson Reuters data, nearly matching the haul for all of 2007. The increase partly mitigates the 69 percent drop in inbound deals this year, to just $5.8 billion.
"We are seeing a very, very clear trend which is that of outward M&A growth and activity," Steven Thomas, managing director and head of M&A at UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) in Japan, told the Reuters Summit.
For a graphic on Japanese M&A, click here
While private equity firms drove the surge in global M&A activity and valuations in recent years, banks have all-but stopped financing such deals, removing competition for industrial, or "strategic" buyers, said Hiromi Yamaji, executive vice president in global investment banking at Nomura Securities.
The firm was the top advisor on Japanese M&A deals.
"Strategic buyers have the competitive edge now because banks are shy about lending to financial buyers. This must be one of the best periods of time for strategic buyers to buy abroad," Yamaji said.
However, Japanese buyers face unique challenges overseas: they must overcome language and cultural barriers, and sellers typically demand cash instead of shares. In the 1980s, Japan had a reputation for overpaying. More recently, Japanese companies are viewed as overly cautious.
DRUGS, FOOD, BANKS
Drug companies have been the biggest outbound acquirers, thanks to Takeda Pharmaceutical Co Ltd's (4502.T: Quote, Profile, Research, Stock Buzz) $8.1 billion deal for U.S. biotech firm Millennium Pharmaceuticals and Daiichi Sankyo Co Ltd's (4568.T: Quote, Profile, Research, Stock Buzz) $4.6 billion purchase of a controlling stake in India's Ranbaxy Laboratories (RANB.BO: Quote, Profile, Research, Stock Buzz). Continued...
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