Japan Inc poised for global shopping spree

TOKYO (Reuters) - Cash rich Japanese conglomerates are keen to take advantage of the turmoil in financial markets to expand overseas and are courting private equity funds to help them avoid past mistakes.

Japan Inc is armed with a yen near 2-½ year highs against the dollar, new advisers and cash in the bank after years of prudent spending.

"Japanese companies are now in a good position as share prices are falling around the world and they are reaching out to advisers who can help them add value for their targets," said Gary Chan, an investment banker at UBS Securities Japan.

In many cases they even have an open invitation to invest.

"Bankers organizing auctions of foreign assets are now approaching Japanese corporations who generally have ample cash for acquisitions," said Hiroshi Kondo, a managing partner at law firm Baker & McKenzie in Tokyo.

Sumitomo Heavy Industries (6302.T) has teamed up with U.S. buy-out fund TPG TPG.UL for an unsolicited $532 million bid for U.S. semiconductor equipment maker Axcelis Technologies (ACLS.O).

Private equity firms have mainly focused until now on helping Japanese companies with organic growth.

CITIC Capital Partners, the private equity arm of China's largest conglomerate CITIC Group, for example, helped Japanese beverage firm Pokka and tableware company Narumi boost their sales in Asia.

Only the largest and most international of Japanese firms have worked with private equity in the past on major overseas acquisitions, such as Sony's (6758.T) investment in movie studio Metro-Goldwyn-Mayer with TPG and Providence Equity Partners.

DEJA VU?

Past Japan Inc's forays abroad have often ended in tears, partly through overspending, picking the wrong targets or failing to adapt to foreign business culture.

During the country's asset price boom between 1985 and 1991, Japanese snapped up trophy assets such as California's Pebble Beach golf club and Manhattan's Rockefeller Center. Many of those deals ended in bankruptcy and ignominious retreat.

The dotcom bubble saw another ill-fated splurge abroad.

Japan's dominant mobile phone group, NTT DoCoMo (9437.T), eventually wrote off $9 billion on stakes it bought in overseas companies such as AT&T Wireless and KPN Mobile when it could not get agreement on common mobile standards.

Overseas acquisitions have risen again, hitting 349 deals worth $25 billion last year, up from a low of 150 deals worth $4.1 billion in 2003, Thomson Financial data shows, but bankers say it is different this time around.

Japan's manufacturers are now trying to buy firms that will fuel earnings growth as opposed to acquiring trophies, and they have the cash to pay for expansion.

Mitsubishi Heavy Industries (7011.T), Japan's biggest heavy machinery maker, and clothing group Fast Retailing (9983.T) have said they want to expand overseas and are waiting for the right opportunity.

A survey by Japanese bank Nomura found that 400 of Japan's biggest corporations held cash equivalent to 9.5 percent of their assets in the year ended March 2007, above 9.2 percent for U.S. companies and 7.4 percent for British firms.

But some are not so sure that partnering private equity funds is the ideal solution.

"It can be difficult to harmonize the objectives of strategic and private equity buyers -- the private equity buyer has to have a means to exit, typically within 3-4 years," said Ted Johnson, head of law firm Paul Hastings in Tokyo.

A successful push abroad is crucial for Japanese companies who are scrapping over a shrinking home market.

Japan's falling birth rate means its population is expected to drop 30 percent by 2050. Competition at home is also fierce due to a cultural aversion to letting flagging companies fail.

"Japanese companies recognize the need for M&A as their home markets are saturated and competitive. In Japan, competitors don't go away - they just weaken," said UBS's Chan, who believes private equity is in an ideal position to help Japan Inc.

(Additional reporting by Nathan Layne, Editing by Ian Geoghegan)