In the 2017-2018 calendar years, that investment was again robust with 68 announced or completed merger and acquisition deals involving a Japanese corporation, of which 53 were acquisitions and 15 were divestments. In 2017, Japan overtook the United Kingdom to rank second (behind the United States) with cumulative investment in Australia of $A93 billion - a 100 per cent increase since 2009.
“Australia ranked 6th for the number of Japanese outbound M&A deals in 2018.”
Driven by a combination of Australia’s robust economic conditions and population growth (currently second in the G20), 29 Japanese companies entered the Australian market for the first time while Australia ranked 6th for the number of Japanese outbound M&A deals in 2018 (it was the 12th ranked nation in 2000).
One of the noticeable trends we’ve seen is the number of mid-market deals in ‘non-traditional’ services sectors.
A large proportion of transactions were in the business-to-business and business-to-consumer (both products and services) sectors, reflecting a distinctive ‘second trend’ of direct investment into Australia that was first identified in the 2016 article “Japanese Investment in Australia – Lessons Learnt”.
This movement into these new sectors, which began in the late 2000s with beverage giant Kirin acquiring Australian brewer Lion Nathan, National Foods and Dairy Farmers; rival beverage giant Asahi Group acquiring Schweppes; and insurer Dai-Ichi Life acquiring Tower Life (now TAL) has been bolstered by Abenomics.
Historically, the 1957 Commerce Agreement laid the foundations for business cooperation between Australia and Japan. It heralded a flurry of Japanese investments aimed at securing minerals, energy and food supply. This was achieved through minority interests in natural resources and agriculture joint ventures, a trend which continues today in these sectors.
Over time, Japan’s focus shifted from securing supply for what was a fast-growing, resource-poor nation to seeking a natural hedge against the country’s now ageing and declining population.
From the mid-2000s, acquisitions increased markedly across almost every sector of the Australian economy. This distinct ‘second trend’ has resulted in an unprecedented level of Japanese direct investment in Australia.
Japanese businesses are now bringing their own capabilities and know-how into Australian companies, in addition to capital. A pattern has emerged of acquisitions targeting overseas markets in order to chase revenue and profit growth.
A recent change in Japan’s corporate governance code, conferring greater power on shareholders to push for high returns and growth strategies, has further motivated overseas M&A activity.
These trends bode well for the continued expansion of the Australia-Japan relationship, along with the recent acceleration in Japanese foreign investment generally, which is being driven by an accumulation of huge cash reserves; the shrinking Japanese domestic economy due to the continued decline and ageing of the domestic population; a renewed push from boards and shareholders to pursue growth; and historically low domestic interest rates set by the Bank of Japan.