Japanese Outbound Acquisitions: Explaining What Works

283 Pages·2019·3.75 MB·English

by  Shigeru Matsumoto

SHIGERU MATSUMOTO
JAPANESE
OUTBOUND
ACQUISITIONS
Explaining What Works
Japanese Outbound Acquisitions
Shigeru Matsumoto
Japanese Outbound
Acquisitions
Explaining What Works
Shigeru Matsumoto
Graduate School of Management
Kyoto University
Kyoto, Japan
ISBN 978-981-13-1363-9 ISBN 978-981-13-1364-6 (eBook)
https://doi.org/10.1007/978-981-13-1364-6
Library of Congress Control Number: 2018951791
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P
reface
Although a company has taken all the necessary steps before an acquisi-
tion, they still fail in managing the target after the transaction. Why do
Japanese companies repeatedly fail in their cross-border M&As, and how
can they succeed in these acquisitions? This book aims to answer these
questions.
I have 20 years of experience in advising on M&As, proposing deals to
clients in Japan and overseas, and assisting in related negotiations. On
many occasions, I have accompanied clients overseas and negotiated with
local target companies and their shareholders. While there have been deals
that were successfully negotiated from start to finish, there have also been
deals where the negotiations failed at the last minute. Overall, the hurdles
to be cleared before closing a deal are much higher in cross-border than
domestic transactions because the business environments of the two par-
ties to the deal are different.
Even when the other party is initially considered a good target, many
potential deals fall through for reasons such as poor chemistry between
management, feasibility of synergy is lower than anticipated, local regula-
tion issues around the target company’s business, and, of course, an irrec-
oncilable gap between a seller’s expected price and the price a buyer can
justify (this gap is particularly high in emerging countries).
Japanese companies carefully consider acquisition opportunities.
Therefore, the deals for which they are able to reach an agreement are
those for which they have carefully carried out their due diligence, using
professionals such as accountants and lawyers, and conducted negotiations
until they were satisfied. Thus, for such acquisitions in which all the
v
vi PREFACE
necessary steps were taken, potential synergy was identified, and the acqui-
sitions were conducted with the confidence that they would be
successful.
However, even when these companies have taken all the necessary
steps, in many cases companies are not able to deliver what they antici-
pated. There has been a constant stream of failures in which the acquiring
company incurred a major loss. The acquiring company is placed under
the spotlight by the media and markets at the announcement of the acqui-
sition, but it is not unusual for the company to find itself under the spot-
light once again, this time, when it records an extraordinary loss on the
impairment of goodwill, or when it decides to withdraw from the business
they acquired.
As a banker who proposes the benefits of outbound acquisitions to cli-
ents, I am extremely concerned with the question of why businesses fail
after an acquisition. Bankers are involved only until the acquisition is com-
pleted, but they do not participate in the business after that. Once the
overseas acquisition is completed, what path will it take and what will the
outcome be? Explain what works. Alongside my continuing work, finding
the answers to these questions was my motivation for embarking on my
Ph.D. research at Kobe University.
At the start of this research, I collected data on the outcomes of 116
outbound acquisition deals conducted by Japanese companies, specifically
those with an acquisition price of 10 billion yen or more and those for
which at least 10 years have passed since the acquisition. I found that in 51
cases out of 116, or nearly half, the acquiring company had already sold or
withdrawn from the business, with a total of 2.8 trillion yen spent on the
acquisitions for these failed businesses. When also considering the man-
agement resources invested after the acquisitions, failed acquisitions come
at a high cost to acquiring companies.
Many M&A-related books provide guidance on the practical and tech-
nical aspects of conducting an acquisition, such as due diligence, valua-
tion, and financing. However, in this book, I attempt to focus not on
those techniques but on post-acquisition management, especially in the
cross-border transactions from my research results. It would seem that the
high probability of failure in overseas M&As cannot be improved merely
by gaining expertise in practical aspects of transactions.
Acquiring companies invest enormous amounts of resources into an
acquisition, so for the investment to be worthwhile, the business needs to
succeed with significant profit growth, not just break even. While the
PREFACE vii
processes and practices at the time of the acquisition are important, they
focus on how to avoid failure, but what is required to achieve success is the
ability of the management to go beyond those transaction skills.
This book starts Part 1 by questioning the conventional rationale of
overseas M&As. The many failures indicate the potential for major misun-
derstandings during discussions or negotiations about the benefits that
acquisitions can provide. Further, through a long-term evaluation of
Japanese overseas acquisitions up to the present time, I attempt to divide
the cases into successes and failures and to identify the fundamental factors
behind the failures.
In Part 2, I explain the points in common among Japanese companies
that have used their acquisitions to successfully develop a global business.
Further, I consider strategies of successful companies, using the example
of IBM as a “local company” that has achieved significant profit growth by
utilizing M&As.
Finally, in Part 3, I summarize the lessons learned from the overseas
M&A successes and failures that have been considered in this book thus far.
Kyoto, Japan Shigeru Matsumoto
c
ontents
1 I ntroduction 1
1.1 Discussion in the Board Room and the Landscape
Outside the Company 1
1.2 Trillion Yen Deals: The Likelihood that an Acquisition Will
Succeed 5
1.3 Analogy Between Outbound Acquisition and Professional
Baseball 10
1.4 The 30 Years Since Japanese Outbound Acquisitions Became
Full-Fledged 14
Part I The Nature of Failure 17
2 The Five Pitfalls 19
2.1 The Five Benefits of Acquisition Sought by Managers 19
2.2 Three Case Studies Illustrating the Pitfalls Within the
Potential Benefits 22
2.3 Is an Acquisition a Good Deal When the Yen Is Strong? 35
2.4 Correcting Illusions Surrounding Overseas Acquisitions 38
Reference 47
3 Measuring Performance of Japanese Outbound Acquisitions 49
3.1 How Do You Measure the Success or Failure of Acquisitions? 49
3.2 The Three Criteria for Determining Success or Failure 53
ix
x CONTENTS
3.3 Only 9 Deals Were Successes, While 51, or Nearly Half, Were
Failures 58
References 63
4 The Causes of Failure: Case Studies of Eight Failed
Acquisitions Ending in a Sale or Withdrawal at a Loss 65
4.1 Case Study 1: Matsushita Electric Industrial (Panasonic) 67
4.2 Case Study 2: Yamanouchi Pharmaceuticals (Astellas Pharma) 70
4.3 Case Study 3: Mitsubishi Motors 73
4.4 Case Study 4: Renown 77
4.5 Case Study 5: NKK (JFE) 80
4.6 Case Study 6: JUSCO (AEON) 84
4.7 C ase Study 7: Dainippon Ink and Chemicals 87
4.8 C ase Study 8: Asahi Glass 91
4.9 Summary of All of the Failed Deals 94
5 T he Nature of Failure: Why Do Companies Fail in Overseas
Acquisitions? 107
5.1 W hat Separates Successes from Failures in Overseas M&A? 107
5.2 T he Nature of Failure in Outbound Acquisitions 118
References 141
Part II W ays of Fighting for Success 143
6 C ase Studies of Eight Successful Deals that Realized
Sustainable Profit Growth After Acquisitions 145
6.1 T he Idea at the Time of the Acquisition 145
6.2 Case Study 1: Kuraray 147
6.3 C ase Study 2: Sumitomo Electric Industries 152
6.4 Case Study 3: Ricoh 155
6.5 C ase Study 4: Ito-Yokado Group 162
6.6 Case Study 5: Terumo 166
6.7 C ase Study 6: Japan Tobacco 172
6.8 C ase Study 7: Shin-Etsu Chemical 177
6.9 C ase Study 8: Toray Industries 185
Reference 191
CONTENTS xi
7 A Model of M&A: Lessons from IBM’s Acquisitions
and Divestitures 193
7.1 Why Learn from IBM? 193
7.2 10 Years of IBM; 10 Years of Fujitsu (2002–2011) 195
7.3 Points in Common Between IBM’s Management and that of
Japanese Companies 197
7.4 How Has IBM Realized Profit Growth? 200
7.5 The Three Key Approaches that Serve as Successful Lessons 213
Reference 217
8 What Should Be Done to Succeed? 219
8.1 Due Diligence Is No Guarantee of Success 219
8.2 Where and with Whom to Fight After an Acquisition 222
8.3 What to Compete with After an Acquisition? 226
8.4 A Short-Term Decisive Battle or a Long-Term War? 230
Reference 234
Part III Lessons from Failure and Success 235
9 Three Lessons for Top Management 237
9.1 Lesson 1 238
9.2 Lesson 2 243
9.3 Lesson 3 249
Reference 254
A fterword 255
A cknowledgment 257
A ppendix 259
R eferences 265
I ndex 271