Friday, 14 August 2009

Auto Supplier Consolidation

From the steamy heat of mid-August Osaka, o-hisashiburi (it's been a while).

Continuing on the consolidation theme, it's interesting that there don't appear to be any large Japanese funds buying up companies to drive consolidation. This is happening in the USA and Europe either driven by companies pursuing consolidation as a strategy or by funds assembled for the purpose.

Is this because Japanese management shrewdly recognise the extreme difficulty in achieving real value from M&A activity, because they are simply too risk averse or because they recognise that they lack the breadth of management talent to make cross-border, post-merger integration work?

Probably all of the above.

In the past, this was not a problem. Hanging on to the coat tails of Toyota, Nissan, Honda et al was as good a strategy as any. These days, the rallying cry across Japanese industry is "Globalise or Die". Easier said than done (the former, that is).

Some deals have taken place (Takata - Petri, NSG - Pilkington), but many more have failed (purchase of FAG, purchase of Karmann, purchase of SKF....) and many have not even got as far as identification of a potential partner/target.

M&A managers in the big Japanese financial institutions complain constantly of the difficulty of getting even as far as due diligence.

Interest remains high despite the problems, but is mainly focused on individual deals.

So should Japan Inc focus on getting more two party deals successfully through to closure or start thinking big and looking at industry consolidation on a global scale?

Let me know what you think.

Sunday, 17 May 2009

Reactions to reactions to reactions to the flu

The sequence of events has been interesting.

First, people fall ill and die in Mexico. The government closes down significant parts of Mexico City. The WHO issues a level 4 pandemic threat alert.

Japanese newspapers report the threat.

The WHO raises the pandemic threat alert to level 5. 

Japanese media report the increased threat alert level and run articles on the reactions to the threat around the world.

Japanese media are vilified by the Japanese government and public for over-reacting and exaggerating the threat level.

Following mass travel to infected areas by the Japanese public during the Golden Week holidays, permitted by the Japanese government, the disease starts to spread in Japan and local governments react by closing schools in Kobe and Osaka.

One wonders how the media is expected to report this...

Thursday, 9 April 2009

Automotive Consolidation - Asian Influence

Ashvin Chotai of Intelligence Automotive Asia and I have just given a seminar at Chatham House in London on the outlook for automotive M&A activity in Asia and outbound from Asia.

Although activity has dropped (90 deals in 2007, 30 in 2008), companies are still picking up some of the opportunities thrown up by the global turbulence. In the first quarter we saw purchases by Motherson Sumi - Visiocorp of Europe, Geely -DSI of Australia and BeijingWest - Delphi Brakes and Suspension business. Geely is now rumoured to be looking at SAAB. We expect to see more activity from Chinese and Indian companies although they face serious challenges in managing the assets purchased.

The prevailing view in Japan is that companies have to expand overseas or die, due to the unfavourable demographics in their home market. The currently strong yen should help, once the effect of the drop in production volumes has passed.

Japanese companies face problems in completing purchases, however. The prospect of an NSG - Pilkington situation, where NSG concluded that they lacked the management resources to run the combined global business and handed over the management to Pilkington executives, is seen as a serious obstacle. Nevertheless, many companies are trying to implement a strategy of overseas expansion by acquisition. One recent non-automotive example is the purchase of myonic, a small German specialist bearing producer, by Minebea.

Korean companies face a number of obstacles in purchasing overseas assets, not least, a weak Won. They also lack experienced international managers to run the acquisitions. Nevertheless, the conventional wisdom seems to be that companies will have to expand abroad or lose out to Chinese competition. This perception should continue to drive M&A activity. The assembly of a war chest for overseas acquisitions by the KDB is a positive sign of this strategy.

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