Despite the global downturn, Japanese companies are still looking to invest in Australian assets - a trend that lawyers say looks set to continue. Ralph Grayden reports.
The global financial crisis might have hit most M&A practices hard, but Martin Shakinvosky, a partner at Freehills whose clients are often drawn from the beverage and fast moving goods sector, has continued to work on big ticket deals.
Shakinovsky, along with fellow Freehills partner Kristin Stammer, recently led the team that advised Cadbury on its A$1.1bn sale of Schweppes Australia to Japanese brewing giant Asahi. It was a complex transaction - not least because Cadbury Schweppes had operated as a fully integrated company before offloading Schweppes, its beverages arm, and the dealings with Asahi were conducted through translators. It also involved significant contractual, IP, employee relations and information technology issues, and was conducted over a time period Shakinovsky describes as "intensive".
In August the firm acted for another Japanese brewer, Kirin Food Holdings Australia (as parent company of National Foods), in relation to National Foods' A$784m acquisition of Dairy Farmers, while other firms, including Minter Ellison, Baker & McKenzie, Buddle Findlay and Bell Gully, have also worked on deals in the sector that have involved Japanese purchasers. Shakinovsky believes it is no accident that these acquisitions have taken place in the middle of a global recession or originated from Japan.
"The beverage and fast moving goods industry is, by nature, fairly recession proof and has probably seen moderate but consistent growth, and people are more interested in strong cash flow now than they were," he says. "There are strong synergies between the Japanese and Australian economies, with high disposable income, and high consumption of soft drinks. They are probably the two most developed and sophisticated economies in the Asia-Pacific region."
Shakinovsky also points out that in a market as concentrated as Australia's, Japanese companies, who are new to the Australian market, do not necessarily face the same regulatory problems as some existing operators. For instance, while Coca-Cola had negotiated first buying rights to Schweppes in 1999, it was already the largest player in the Australian soft drink market, through its stake in Coca-Cola Amatil. Adding Schweppes to its existing business and seeking to combine the two largest soft drink businesses in Australia may have given rise to discomfort on the part of regulators.
Steven Glanz, a partner at Baker & McKenzie, advised Asahi on the Schweppes deal and believes that Japanese interest in the Australian and New Zealand market is growing. "The Japanese market is a very mature one. Many companies have traditionally been very domestic in their focus. Now Japan has an ageing population and very limited growth opportunities," he says. "They need to look outside Japan to grow now. A number of well-known exporting companies have all taken a little bit of a hit on their balance sheet. The next tier down is in very good shape, so that's leading them to look outside the Japanese market."
The trend is not just limited to the Australian market, although Australasia and Southeast Asia accounted for an increased proportion of Japanese acquisitions in the first quarter of 2009. In the first quarter of this year, Japanese companies bucked the global trend by registering a 65% increase in the amount of M&A activity, giving it the highest volume of deals in the Asia-Pacific. That activity is dispelling several myths about the Japanese corporate psyche, especially with regards to its sluggish movement and reluctance to engage in M&A.
It is something that Sacha Judd, a partner at New Zealand firm Buddle Findlay, has also noticed. She acted for Japanese company Suntory on its NZ$1.3bn (A$1.1bn) acquisition of Frucor from Danone Asia. The deal involved a number of bidders and, like the Schweppes sale, was conducted very quickly. "Suntory is principally a private company and more light on its feet," she says. "We were dealing with an experienced deal team who had made a number of acquisitions. There are still other Japanese companies who, because of internal governance, would be slower to respond than expected and need to go through more layers. Japanese businesses are now used to making acquisitions in Western jurisdictions, so there were no significant cultural clashes."
However, Shakinovsky says there are still some cultural differences in the way that Japanese companies approach an acquisition. For instance, when Asahi took over Schweppes, there was no culling of senior management. "Schweppes' entire management team was retained and Asahi made it quite clear that was going to happen from the start," he says.
Glanz adds: "The Japanese are very hostile to hostile M&A, but have a long history of doing M&A. They are very mindful and sensitive of the impact that it has on individuals, and the relationships in a company."
Shakinovsky, Judd and Glanz are united in their view that the trend towards Japanese buyers entering the Australian and New Zealand market is one that is likely to continue in the near future - although the big deals in the beverage sector may be over for the time being. "Consolidation and stratification in the industries will continue," Shakinovsky says. "These major acquisitions are probably finished for the moment, but companies will still be looking at efficiencies and supply chains." ALB
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