With Japan’s economy advancing at a sluggish pace, companies are turning to M&A for growth—fully two-thirds of the value of Japanese corporations’ overseas foreign direct investments now are in the form of M&A. It’s to the point where Japan’s outbound M&A deal value has jumped 34% annually over the past three years and now accounts for 50% of Japan’s total M&A activity. In fact, when Bain & Company recently interviewed 100 top Japanese executives, 70 of them said they are considering overseas expansion.
Often sitting on excess cash, these companies venture overseas for opportunities to boost earnings, enter a new market by acquiring an existing player, or buy capabilities that are costly or time-consuming to build. It also is a way for Japanese companies to respond to the pressures imposed by the new corporate governance code. There are four common types of outbound deals: those that expand an acquirer into adjacent businesses; those that expand a core business; those that help a company learn about a market or adjacency before diving in; and deals that are necessary for gaining access to a market that requires foreign companies to partner with local enterprises.
But our experience working with Japanese companies across a range of industries on their outbound deals tells us that they could be gaining much more from M&A.
Japanese overseas acquirers are no different than their counterparts in other countries—they tend to generate the most value from outbound M&A when they both apply general best practices and tailor their approach for different types of deals. Here’s a simple example. When a Japanese company buys a minority stake in a Malaysian company, it typically assumes limited ability to exert influence on that company. A single seat on the board can feel inconsequential. Moreover, language and cultural barriers come into play. However, the best acquirers invest to build a relationship with the board and management team and develop a methodology for staying connected and influential, often with “soft” tools.