Population trends deliver boost for Japan's micro M&A boutiques
13/02/2017 04:42
* Micro M&A boutiques carrying out much more work
* Boutiques' profits and shares up strongly
* Weak demand, lack of successors driving small mergers
By Junko Fujita
TOKYO, Feb 13 (Reuters) - Boutique advisers specialising in
micro-M&A for mostly family-run firms are enjoying a boom in
Japan, as an ageing, shrinking population brings in the
boundaries on the country's small business landscape.
There are no industry-wide figures for deals between 500
million and 1 billion yen ($4.4-$8.8 million), but boutique
advisers say they are benefiting as owners look to merge their
businesses to cope with dwindling demand or as they reach
retirement without a successor.
Japan's population, already the oldest among developed
economies, is projected to shrink by a third by 2060.
Nihon M&A Center Inc 2127.T , the largest of the three
publicly listed boutique advisors, said on Jan. 30 nine-month
profit to end-December had risen 34 percent to a record 5.3
billion yen on sales of 15 billion yen.
"Japan's population is shrinking ... Ultimately none of the
small companies will be able survive by itself," said Yasuhiro
Wakebayashi, chairman and founder of the company.
"They have to be part of larger firms to grow. That is going
to be a trend in this country, so the M&A market will only
become bigger."
Nihon M&A brokered 406 deals in the first nine months of the
financial year ending in March, comfortably on the way to
beating the previous year's 420 total.
Smaller rivals Strike Co 6196.T and M&A Capital Partners
6080.T are also capitalising on the trend, brokering a
combined 106 deals in the last financial year, up 23
percent on the previous year and 74 percent on the year before
that.
Reuters has previously reported that private equity firms in
Japan have had a similar boost to business after a long period
of torpor, based on the same demographic imperatives.
urn:newsml:reuters.com:*:nL3N1C52VX
"We are in a niche overlooked by big institutions," said
Kunihiko Arai, president of Strike.
M&A activity among bigger businesses, arranged by financial
heavyweights such as conducted has been Nomura Holdings
8604.T , Daiwa Securities Group Inc 8601.T and Mitsubishi UFJ
Financial Group Inc 8306.T , grew only 4.3 percent to 2,137
last year, while deal value fell 10 percent to 6.2 trillion yen,
Thomson Reuters data show.
SHARE GAINS
Investors in the advisors have also benefited.
Shares in Nihon M&A Center gained 56 percent in the past
year and M&A Capital Partners shares almost tripled,
outperforming a 48 percent gain in the Tokyo Stock Exchange's
Topix Securities Index .ISECU.T . Strike shares have more than
doubled since listing in June.
Nobuko Inui, 59, who owned four dispensing pharmacies in
Osaka, western Japan, was among those helped by Nihon M&A.
Last year Inui sold the business she set up in 1994 to
Tokyo-based, privately held Kraft Inc, which operates 630
pharmacies nationwide. Inui found it hard to stay competitive as
the government cut drug prices to reduce mounting healthcare
costs.
"Drugs stores are under pressure to improve and diversify
our services, but a small company like mine could not afford to
hire more pharmacists, so I decided to sell my business," said
Inui, who runs the pharmacies for their new owner.
Strike says more consolidation is likely in the 7.8 trillion
yen dispensing pharmacy market, where a big player like Ain
Holdings Inc 9627.T , with about 1,100 outlets, controls just 3
percent.
Small firms are the backbone of Japan's economy, accounting
for 99.7 percent of its 3.8 million companies and employing
about 70 percent of the workforce, according to government data,
but many are closing their doors as owners age.
Last year a record 29,583 companies closed, up 8.2 percent
on the previous year, according to Tokyo Shoko Research Ltd.
The boutiques largely get deals through referrals from
regional banks and local accountants.
"There are cases where companies can keep their operations
by conducting M&As. That means jobs are protected, which is
good for revitalising local economies," said Tomoharu Sato,
assistant manager in the corporate banking department for Toho
Bank Ltd 8346.T in Fukushima city.
"We rely on the small boutiques' networks to respond to the
needs of clients seeking merger partners from further afield and
in a limited time."
Such deals also provide a fillip to larger companies
struggling to find organic growth.
Tokyo-based construction materials maker S E Corp 3423.T
is predicting a decline in net profit for the year ending March
on rising labor costs, but one bright spot is a steel-frame
construction firm it bought for 230 million yen in 2015 from
Hiroshi Morita.
Morita, 47, still runs the firm, based in Yonago city in
western Japan, under its new name S E Tekken.
The unit's sales have grown about 40 percent to around 850
million yen since the acquisition.
"Small companies play a vital role for bigger firms by for
example supplying key product parts," said Masashi Seki, manager
for Tokyo Shoko Research.
($1 = 113.5500 yen)
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Graphic on Japan's ageing population http://tmsnrt.rs/29VjmUo
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(Reporting by Junko Fujita; Editing by Will Waterman)
((813-6441-1840, junko.fujita@thomsonreuters.com, Reuters
Messaging: junko.fujita.thomsonreuters.com@reuters.net))
Keywords: JAPAN M&A/