Outlook on M&A by Japanese companies from an influential investment fund
KKR Japan CEO Hirano; overseas investments, a focus on the U.S.; joint acquisitions with trading companies
Jo Kawakami, Nikkei Veritas, May 1, 2016
It seems that M&A involving Japanese firms has slowed this year, what are your thoughts
(Hirano) Growth prospects for firms that depend on Japan are limited, that hasnt changed. And a recently somewhat stronger yen means that overseas acquisition targets can seem less expensive, while funding from banks and other has become easier. I dont think that the appetite of Japanese firms for overseas acquisitions will fade away. Slower growth may lead to a decline in M&A targeting emerging economies but for Japanese companies the key factors are focusing on businesses where there is a strong outlook for demand, growing share in business areas that you know well, and raising ROE.
Globally, KKRs watchword for this year is adult swimmers only because of the sense of uncertainty in the world economy and stock markets. Even professional investors will be taught a painful lesson if they cant see when the tides are turning. The country in the best condition seems to be the U.S. I wouldnt be surprised if we see more Japanese businesses pursuing acquisitions in the U.S. market.
What role can investment funds play in the Japanese market
At present, KKR is proposing joint overseas acquisitions with Japanese businesses such as trading companies. In M&A, the key to success is to conduct asset appraisals before an acquisition and integrate operations after. KKR has global expertise in both these areas. There are many risks in integrating operations when conducting an international acquisition. In Japan, businesses should leverage the expertise of international investment funds.
Why has KKR positioned Japan as one of its key markets
We launched our US$6bn Asia fund in 2013 and we have ample funds. Japan is a large economy and an attractive area of investment for KKR. In particular, we are focusing on large companies that are selling off businesses. To date we have acquired Panasonic Healthcare and Pioneer DJ and we would like to make further such investments. Our areas of interest include electronics- and automobile-related businesses, retail and other consumer businesses, and healthcare. Panasonic Healthcare Holdings sales in FY2017 are expected to be double the FY2014 level and its EBITDA 2.5 times larger at 43 billion yen. Utilizing KKRs global network in January this year, Panasonic Healthcare acquired Bayer AGs Diabetes Care business, realizing a long-overdue vertical integration.
Regarding KKRs expansion of its investment targets to listed companies, Mr. Hirano says, Through reforms in governance, companies in Japan are beginning to place more emphasis on management for the benefit of shareholders. We believe that this has created an environment in which management and investors can speak to each other easily, and we have therefore decided to extend our investment targets to listed companies. Our total investment will be around 100 billion yen and each investment would be in the range of a few tens of billion yen.
He goes on to say that, We do not engage in activist-type activities like demanding increased dividends in a short period of time. Instead, we think about working with business in the long term of 3-5 years, and how to increase their business value. There are many companies in Japan that are strong in technology and human resources. The role of an investment fund is to help them realize this value.
Summary translation of Nikkei Veritas article, published May 1, 2016