Next Up: Japan M&A

Reuters article from a couple days back indicates where the next M&A activity will be taking place: Japan. Hedge funds have showed an increased interest in the country. The yen has certainly strengthened recently, especially in comparison to other forms of currency, and M&A deals have begun to come to light. To be more specific, Nippon Steel Corp and Sumitomo Metal Industries have announced plans for merger.

Here are a number of reasons Japan is looking promising going forward:

1. Heavy rebounds in the countries exports has increased the cash reserves for many companies within the country.

2. General strong profitability (even without the exports) gives Japanese firms a total of about $2.5 Trillion in cash to work with.

3. Japan is also riding the wave of investment going into other Asian nations  and is seeing its trickle-down effect in their own country.

Comments from industry professionals indicate the deals should continue to flow in 2011.

“The feedback from our Japanese prime brokerage client base as to the opportunity set and expected returns for 2011 has been more positive than previous years,” said Marlin Naidoo, hedge fund capital group head in Asia-Pac for Deutsche Bank.

“Additionally we are also seeing pan-Asian managers materially increasing their exposure to the Japanese market.”

It is interesting that in past years, Japan seems to have been avoided by any outside investment, but maybe it is time for Japan to come out of the rut it has been experiencing for the better part of a couple of decades. But we all know that Japan has its own problems as well. Japan is still fighting high unemployment, long-term structural debt, overregulation, and political risk and hedge funds’ primary bet is not one of growth or cheap valuations.

As Kirby Daley, senior strategist of Newedge’s prime brokerage unit stated in the Article: “Any positive catalyst there could … be like lighting a match on timber. It might burn quickly but there would be money to be made there”

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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