The idea of Japanese corporates acquiring foreign companies is by no means a new phenomenon. In fact, during the first half of 2017 the value of Japan’s outbound M&A reached $34bn (€28bn). What is significant is the acceleration of such deal-making and the increasingly fundamental role M&A is playing in the quest to achieve growth outside of Japan and build global market leadership.
The UK is often considered a highly desirable target geography, in part due to the weakened pound but also the strong cultural and linguistic alignment. To date, the majority of deals have focused on the engineering and insurance industries, however increasingly Japanese staffing companies are seeking established and profitable UK headquartered recruitment businesses.
Initially spearheaded by Recruit Co, activity levels are ramping up with other Japanese staffing firms slowly entering the UK market through acquisition. These include, Outsourcing Inc, Trust Tech Inc and most recently Quick Co Ltd. The target companies span a range of industries, from IT through to engineering, automotive and other industrial sectors.
Whilst there is a myriad of drivers behind the cross-border deal activity, undoubtedly M&A levels have drastically risen following the introduction of Abenomics, a multi-pronged economic program aimed at reinvigorating the economy. At the front and centre of this reform policy is the necessity for Japanese corporates to allocate capital more effectively and justify huge cash balances. This presents corporates with a range of options, one of which is to deploy capital through acquisitions.
Abenomics, however, is not the only factor at play. Faced with a declining population, international acquisitions act as a form of contingency for corporates to help offset the negative impact on the long-term prosperity of the economy. This, in combination with negative interest rates, act as a further stimulus to engage in M&A.
In addition, Japanese companies are increasingly transferring their manufacturing capabilities overseas to provide better local access to clients, which in turn is generating greater appetite for Japanese staffing companies to acquire local recruitment businesses to support such expansion. The point is best illustrated by Trust Tech’s acquisition of MTrec Limited who is a preferred supplier for a number of Japanese auto parts makers in the North East of England.
There is no question that in the near term the trend is set to continue and will be further supported by the recent positive GDP growth reported by Japan’s Cabinet Office.
Mark Maunsell, Clearwater International and Japanese affiliate of Clearwater International – Tomoyuki Izumi, Pinnacle