Have funds, will travel. Japanese groups are looking overseas for deals like never before. SoftBank’s bid for Sprint is only the latest. With balance sheets heavy with cash and a lacklustre home market, deals are an obvious way to go – at least in the eyes of fee-hungry bankers. Yet corporate Japan’s acquisition history shows a pattern of being all cashed up, but a rotten record of figuring out where to go.
Investors should brace themselves, however. Nearly half of Japanese companies feel deals are the best way to use their funds, according to a GCA Savvian survey. But remember Nomura’s purchase of Lehman assets in 2008, or Toshiba’s acquisition, with Shaw, of Westinghouse in 2006? Over the following three years, the acquirers’ shares lost four-fifths and two-thirds respectively.
Indeed, Japan’s biggest cross-border deals saw buyers’ shares fall a fifth on average in a year and by half after three. Sure, dealmakers the world over tend to be punished (rightly) by investors. But the scale of the losses seem specific to Japan: among the biggest US cross-border deals, acquirers ended three years up a sixth on average while in the UK they were broadly flat. It is not that Japanese companies have ventured abroad much less either. Their biggest deals including SoftBank’s latest, total $120bn, not far short of US groups’ $130bn overseas spend. There could be a timing issue, of course: confidence in a company is not entirely independent of the wider market. But timing, and its effect on perceived success, is a dealmaking skill in itself.