Japanese State Fund Predicts Rise in Overseas M&A

The government-backed private equity fund, Innovation Network Corp of Japan (INCJ) said its investment in overseas acquisitions by Japanese companies is likely to increase this year, helped by a stronger yen and an increase in asset sales abroad, writes Reuters. The INCJ is armed with a 1.9 trillion yen ($24.7 billion) war chest, including funds already committed to investments and has been aggressively chasing after deals with the aim of boosting the competitiveness of Japanese businesses in global markets, writes Reuters.

(Reuters) – A Japanese state-sponsored fund behind a string of headline-grabbing deals said its investment in overseas acquisitions by Japanese companies is likely to increase this year, helped by a stronger yen and an increase in asset sales abroad.

“We have been receiving a lot of (requests for investment in) overseas acquisitions. We are likely to see a substantial number of such deals this year,” Kimikazu Noumi, CEO of Innovation Network Corp of Japan (INCJ), said in an interview on Tuesday.

“There are many asset sales given the situation in Europe, and Japanese companies, with a record amount of cash at hand, are not seeing many attractive investments at home,” he said, adding that a stronger yen is also encouraging the trend.

The government-backed private equity fund, armed with a 1.9 trillion yen ($24.7 billion) war chest, including funds already committed to investments, has been aggressively chasing after deals with the aim of boosting the competitiveness of Japanese businesses in global markets.

The INCJ provides financing for Japanese companies’ overseas acquisitions through equity participation. Last year it decided to invest $680 million to acquire a 40 percent stake in Swiss-based meter maker Landis+Gyr, with the rest provided by Toshiba.

The fund is also investing in acquisitions of water supply businesses in Australia and Chile by Japanese consortiums including Mitsubishi Corp (8058.T) and Marubeni Corp (8002.T).

“There are many deals (involving overseas acquisitions) in our pipeline, including those in the service sector. We may be able to announce something concrete within a few months,” Noumi said.

The fund has invested or committed to invest in 20 deals totaling 355 billion yen ($4.6 billion) since it was set up in 2007.

The INCJ is best known for engineering a deal that will merge small display panels of Sony (6758.T), Toshiba (6502.T) and Hitachi (6501.T). The fund will invest 200 billion yen to acquire a 70 percent stake in the venture, Japan Display.

Asked if the gigantic state-backed fund is undercutting private competition, Noumi said some of the deals could not otherwise be done, including Japan Display, which took about a year and a half for a deal to be agreed after the fund first broached it.

“It is not about distressed businesses or companies. And rivals do not want to show their hands to others. A neutral equity (provider) is needed in such a situation,” he said.

Given its growing deal pipeline, Noumi said the fund is expanding its staff, recruiting M&A lawyers and bankers. Currently it has about 80 employees.

“We need global talent, people who can work in a global business environment,” he said, adding that it received hundreds of applications for positions.

WON’T TAKE ZOMBIE COMPANIES

Noumi, 66, is a former executive at Norinchukin Bank. An agriculture major at college, he joined the lender for Japan’s farm co-op system in 1969 and rose through its ranks including a stint in New York. He became later chairman of Aozora Bank (8304.T).

Known for his down-to-earth personality, he occasionally shows the feisty side of a student activist-turned-banker.

He said his fund is not a state-backed bailout body to keep alive “zombie companies,” mindful of public criticism of other government-sponsored entities such as the Industrial Revitalisation Corp of Japan.

Noumi said the mission of his fund is to provide financing to businesses with growth potential, not to fund corporate turnarounds with taxpayers’ money.

“A variety of people may express a variety of wishes to us, but we cannot do deals that do not match our mission,” he said. ($1 = 76.8500 Japanese yen)

(Editing by Michael Watson)