The Asia-Pacific region experienced a strong year for mergers and acquisitions (“M&A”) in 2018 and the level of M&A activity in this region is expected to continue in 2019. It was anticipated that 2018 would be a busy year with regards to M&A for Asia-Pacific companies and these predictions proved to be true. In the first six months of 2018 alone, Asia-Pacific companies had announced M&A deals that totalled $734 billion. In particular, Japan had a record year for foreign M&A transactions. Last year, Japanese companies announced 1,000 offshore M&A deals which were worth a total of $191 billion. The most prominent of these deals was the takeover of Shire plc by Takeda Pharmaceutical Company Limited. This takeover was worth $62 billion, making it the largest overseas acquisition ever made by a Japanese company.
Possible Reasons for Japan’s Outward Focus
There are several reasons why Japan has focused its search for opportunities abroad, such as the country’s declining population and relatively static economy. Another reason why there has been a notable increase in overseas deals and why this trend will likely continue in 2019 is due to the strong cash reserves that Japanese companies currently have. It was noted that Japanese companies hold over $890 billion in cash. These substantial reserves are causing companies in Japan to feel pressure from their investors to spend the money carefully. It appears that the preferred method of utilizing these resources is investing in M&A, as opposed to apportioning the money as dividends. The increase in cash and pressure to spend it wisely, in addition to attractive opportunities to grow their businesses abroad, are reasons why there have been greater offshore deals for Japanese companies and why this trend will likely continue. In fact, despite the surge of foreign M&A deals and the banner year that Japan had in 2018, it is predicted that the country will have a new record year for cross-border deals in 2019. Further, as the United States appears to be the largest developing market, it will be a country of particular interest for Japanese offshore investment.
As 2019 has just begun, only time will tell whether Japan’s affinity for foreign deals and the high levels of M&A in the Asia-Pacific region as seen in 2018 will continue.
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