Japanese mergers and acquisitions

CORPORATE Japan is heading overseas at a faster pace than usual. In recent days, four deals have been announced. Although each is small, and not yet completed, they reveal a lot about the direction that firms are headed in, in their efforts to globalise and reduce dependence on the anaemic domestic market. Consider:

• Kirin, a drinks company, will pay around ¥85 billion (almost $1 billion) for about 15% of Fraser & Neave, a leading drinks firm in Malaysia and Singapore (which brews Tiger beer, a house favourite at Asia view).

• JFE Steel will pay ¥90 billion for about 15% of JSW Steel in India, to produce high-grade steel for India's burgeoning car industry.

• Daiichi Sankyo, the third-biggest company in Japan's pharma industry, offered to buy up to 20% more of Zenotech, an Indian maker of generic drugs, building on a stake it received in 2008 when it acquired another Indian generic-drug maker, Ranbaxy.

• Monex, Japan's biggest internet stockbroker, reached an agreement to acquire Boom Group, a Hong Kong-based online brokerage, for an undisclosed sum. 

"There is a healthy 'second wave' following the credit crunch," write Kazuhiro Iino and Gideon Franklin of Mizuho, a big Japanese bank, in a recent research report. There was a surge in the number of deals struck in 2009, they explain, but those were mostly in distressed assets; now on the block is a raft of "higher-quality companies, which is more suitable for typical Japanese corporations."

In the first half of 2010 Japanese overseas M&A activity has been robust, growing 28% by volume from 2009. Strikingly, the number of Japanese acquisitions in Asia almost doubled compared with the first six months of last year, to reach 73 deals, according to Recof, an M&A consultancy and research firm.

Behind the trend is a new urgency on the part of Japanese firms that used to rely heavily on the domestic market. Those businesses are grasping that they will need to tap foreign markets to offset the damage done by lacklustre consumer spending, an ailing economy and a gradually shrinking population at home. As we recently noted, this is one way to address Japan's genteel decline. Such transactions are likely to continue proliferating as overseas share prices stay weak and the yen remains strong (now at a potent ¥87 to $1)—which helps make Japan Inc's war chest go even farther.

Update: On July 29th Softbank, a big Japanese mobile operator, took a $150m stake in Zynga, an online games company in Silicon Valley, as part of an alliance to distribute digital games in Japan. It is an investment, not an acquisition—but it is another demonstration of how Japan Inc has been racing into overseas deals.