Falling share prices in the banking sector especially interfered with several high-profile merger plans, and shareholders in bank stocks and owners of securitisations all waited nervously to see if their assets would be hit by fallout from the US subprime loans problem. Nonetheless, there were many reasons for market participants to be cheerful as overall volumes of announced M&A and DCM activity increased, and some pioneering Japanese firms consolidated domestically or sought to expand overseas. Euromoney’s inaugural Japan deals of the year highlights the year’s outstanding deals, chosen because they were well-executed, because they were especially bold or unusual in concept, and because they exemplify expected trends in capital markets in the near future.
The Euromoney Japanese Digest has published a comprehensive list of deals of the year. The full list of winners is:
Best M&A deal (Japanese target): Permira’s acquisition of Arysta Lifescience
Best M&A deal (Japanese acquirer): GCA Holdings’ acquisition of Savvian (see GCA reaches out to buy US peer, Euromoney, February 2008)
Best M&A deal (Japanese target and Japanese acquirer): Isetan’s acquisition of Mitsukoshi
Best IPO deal: Sony Financial Holdings
Best equity follow-up deal: Millea Holdings
Best equity-linked deal: Resona Holdings convertible preference share
Best yen bond deal: City of Yokohama
Best international bond deal: East Japan Railway Co.
Best samurai bond: Citi
Best structured product: Société Générale’s LDF TARN Note
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M&A:
Best M&A deal (Japanese Target): Permira's acquisition of Arysta Lifescience
At a glance:
Target: Arysta Lifescience Corporation
Acquirer: Permira
Size: JPY250 bn
Announcement date: October 22nd
Advisers to target: Goldman Sachs, Lehman Brothers
Advisers to acquirer: JP Morgan
This was one of the hardest-fought categories, with several standout deals suggesting that more and more foreign firms are looking to make acquisitions in Japan as low stock prices here make valuations look attractive. Citigroup's purchase of the remaining shares of broker Nikko Cordial looked like a bold if risky play, but the acquirer’s own declining stock value meant a renegotiation of terms had to take place. Meanwhile US retailer Wal-Mart looked to buy out the remaining shares in Seiyu, hoping to make the Japanese firm a wholly-owned subsidiary and improve its performance.
Both of these deals saw foreign firms looking to complete acquisitions of Japanese firms in order to build market share. This year's winning deal, however, sees a European private equity firm making its first landmark buyout transaction in Japan at a time when global conditions for financial sponsors are tough and the young Japanese private equity market is struggling.
Permira's acquisition of agrochemicals firm Arysta Lifescience is one of the largest ever Japanese private equity transactions. Permira had to compete in a highly competitive auction for the right to buy Arysta, and it won through high bidding and also because it had the necessary funds available. JP Morgan acted as sole financial adviser to Permira and the fact that its client won the auction demonstrates the US bank's increasing ability to win the top mandates in Japan. Meanwhile Goldman Sachs and Lehman brothers, advising both Arysta and Olympus Capital Holdings, the firm selling Arysta, will be pleased to have secured a high price for the asset in a successful auction despite a global credit shortage.
Best M&A deal (Japanese Acquiror): GCA Holdings' merger with Savvian
At a glance
Target: Savvian
Acquirer: GCA Holdings
Size:JPY 90 billion (estimated)
Announcement date: October 30
It was an outstanding year for GCA, as the independent advisory firm beat off competition from much larger investment banks to win mandates on the year's biggest deals: Citi's acquisition of Nikko Cordial and Mizuho Securities' merger with Shinko Securities. Both deals suffered setbacks related to falling stock prices in the banking sector, but GCA's ability to win prized mandates like these emphasizes the important advantage that being an independent firm can provide.
Not content to rest easy, GCA then announced move late in the year that marks a significant step for the firm and for Japanese financial institutions in general. Although GCA's bid for US counterpart Savvian is not the largest deal, its implications are huge as it marks the first time a Japanese company will use its own stock to merge with a foreign corporation since a ban on such transactions was lifted in May. The plan is for Savvian-currently a private company- to set up a parent company in Japan, which GCA will then acquire through a stock swap once it has established its own holding company.
The deal was made possible by GCA's success earlier in the year, keeping its stock price high and thus allowing it to use its own shares to acquire the US investment bank. By paving the way for more transactions using a similar strategy GCA has boldly encouraged more business that it can itself capitalize on; although the deal is not yet complete its innovative structure, brave timing and the overall success of GCA's year make it a deserving winner of the award.
Best M&A deal (Japanese Target and Japanese Acquiror): Isetan's acquisition of Mitsukoshi
At a glance
Target: Mitsukoshi
Acquirer: Isetan
Size: JPY 295bn
Announcement date: August 23
Advisers to target: Daiwa Securities SMBC
Advisers to acquirer: Mitsubishi UFJ securities
This deal represents both a triumph of negotiation and healthy preference for commercial sense over corporate pride. Mitsukoshi is a Japanese icon with over three hundred years of history behind it, and its acquirer Isetan is both smaller and younger. Isetan's greater profitability, however, meant it was in the driving seat when it came to negotiations and in the face of a stagnant domestic market the two companies' ability to reach an agreement bodes well for their futures.
The deal, set to be completed on April 1 2008 when the two firms set up a joint holding company, sees the Japan's fourth and fifth largest department store chains join to create the nation's biggest. The two firms contrast in many ways: Isetan appeals to younger shoppers, has a stronger Tokyo presence and has been more profitable recently, while Mitsukoshi has a more upmarket reputation, a greater presence across Japan and has struggled lately. The combined two firms should be able to complement each other well, and in doing so provide a textbook demonstration of the power of M&A to strengthen business in difficult environments. For such a high-profile deal with two national institutions it was almost inevitable that local firms would be brought onboard as advisers, and indeed Daiwa securities SMBC and Mitsubishi UFJ provided solid guidance to the two department stores as they negotiated their agreement.