Dispatch from Japan – 2012

Dear Friends,

I recently returned to Japan for a week of meetings with companies in Tokyo and Osaka, and universally found a strong appetite to acquire businesses outside Japan. The growth of the Japanese economy has been flat and the market is relatively mature, so in recent years there has been a heavy focus on expanding through overseas acquisitions, with a particular emphasis in Asia.

But this year, the topic was the Senkaku crisis, which has severely disrupted relations between Japan and China. Tensions are very high, and this has caused difficulties for Japanese firms with heavy investments in that market. For years, Japanese firms have invested in China in order to benefit from a rapidly growing market, right on Japan’s doorstep. This has accelerated in recent years – over the past two years alone, Japanese firms have collectively invested $19.9 billion in China. These investment activities have left them significantly exposed to actions the Chinese government may take that could impact their business, to say nothing of the volatility of public opinion in China.

So the message I heard this year was that firms are turning their attentions toward the other side of the Pacific, to North America, as well as to Europe—stable markets with relatively lower growth than China, but without the political risk or the historical dynamic that continues to cause issues with China and some other East Asian markets.

Company boardrooms are mostly focused on increasing their sales in faster-growing markets, either organically or through M&A. There is still a very high level of cash on company balance sheets in Japan, and, despite recent weakening, the yen is still quite strong by historical standards, which positions companies well for foreign acquisitions.

We are also seeing some renewed interest in corporate divestitures, which has been a relatively quiet part of the Japanese healthcare M&A scene in the recent past. These present good opportunities for foreign buyers to acquire a foothold in Japan, or to expand an existing Japanese effort.

Below is an analysis of mid-size and large public Japanese healthcare companies, and recent transactions in the industry. Please give us a call if there is anything we can do to assist you with your Japan M&A strategy.

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