Investment banking experts at JP Morgan and Deutsche Bank are predicting Japanese companies to heavily target the Australian market in 2020 to boost revenue growth.
Alex Cartel of Deutsche Bank has cited that as the Japan’s domestic market has been largely driven by an aging population, growth in the local market has been harder to come by. Thus more companies are now heavily applying M&A strategies to boost growth.
“The best way to increase revenue growth, clearly they’ve formed the view, is to grow via outbound M&A.”
Mr Cartel also noted that with capital being far cheaper in Japan, firms are encouraged to pursue aggressive bids, as had been seen in the case of Carlton United Breweries and Dulux group over 2019.
Whilst the size of the deals from Asahi Group and Nippon Paint respectively were worth collectively almost $20 billion, Mr Cartel said that these deals were merely a sign of things to come. “We don’t judge forward activity in terms of deal size, but just the volume of this trend. We have the Asahi-CUB deal; we had Dulux bought by Japan; we had the packaging assets of Orora going to Japan.”
“That’s quite a lot of volume … it’s across sectors, it’s all different sizes.”
Backing up this prediction is an Australian Public M&A report prepared by leading law firm Herbert Smith Freehills. The report highlighted that 14 percent of all bids for local companies originated from Asia in the 2019 financial year. These Asian acquisitions have amount to roughly $18.4 billion. This figure also represents 40 per cent of the total $45.9 billion value of mergers and acquisitions last financial year.
While China is viewed as another dominant player in the foreign takeover space, with a $1.5 billion bid lobbed for organic food company Bellamy’s Australia as one example of their buying power, Mr Cartel holds the view that inbound M&A from China is declining. This has largely been replaced by inbound M&A coming from Japan.
Vice Chairman of J.P. Morgan Simon Ranson said that provided you sit within the guidelines set by The Foreign Investment Review Board, it is expected that your deal gets approved.
Simon Ranson also mentioned that private equity firms made up about a quarter of all foreign takeovers. Australia is attractive to offshore private equity firms due to the low Australian dollar, among other reasons.
What has also made Australia a prime destination for acquisitions is that offshore investors view Australia’s risk and return characteristics stacking up relatively well across the board. This is because of both Australia’s regulatory framework which allows transactions to get done.
Mr Ranson is also confident that geopolitical developments would have little impact on the local takeover scene.
“The uncertainty of what was happening in England and the US-China trade tensions didn’t have direct impacts on domestic Australian businesses,” he said.
“The impeachment process, US election and potential for further US/China tariffs are all issues that will have a relatively limited direct impact on Australia too.
“We expect that 2020 will be better. We strongly feel it will be better.”
Source: Australian Financial Review, January 6, 2020, 12.00am