By Tor Ching Li
Are the days of big-ticket foreign purchases by Japan Inc. over? They are, it seems, for now.
In 2008, Japanese companies spent a record $76 billion on foreign acquisitions. In 2009, the deal making has taken an about-face. The value of overseas purchases is down 66%, Dealogic says, while that of domestic deals is higher than in the year-earlier period.
Regardless of location, these deals are a response to a shrinking domestic market as Japan's population grays.
Those looking abroad were encouraged by a strong yen and falling asset prices around the world. Some of those bids -- like Daiichi Sankyo /zigman2/quotes/207030186/delayed JP:4568 +1.25% 's $4.6 billion purchase of a stake in India's Ranbaxy Laboratories -- already have proved hasty: Daiichi has written off $3.7 billion of goodwill on that deal less than a year after striking it.
Those staying at home, meanwhile, hope to build up domestic market share, find meaningful cost savings and eliminate competition.
If, after a $4.8 billion tie-up announced last month, Sompo Japan Insurance and Nipponkoa Insurance can consolidate back-office functions, they will be better placed to face Japan's declining insurance market.
The domestic focus could carry through the rest of this year, in part as consolidation spurs competitors to make similar moves. Industry watchers already are hotly debating the best response by Asahi Breweries /zigman2/quotes/206211507/delayed JP:2502 +0.14% and Sapporo Holdings /zigman2/quotes/200413497/delayed JP:2501 -6.25% to merger talks by rivals Kirin Holdings /zigman2/quotes/201605850/delayed JP:2503 -1.52% and Suntory.
Even Japan's pharmaceutical companies, which have avoided domestic deal making, may seek local partners thanks to slower earnings growth and a limited drug pipeline.
That isn't to say Japan lacks the firepower to buy abroad. The list of cash-rich companies that could snap up businesses at home or abroad is long. A recent scan by Macquarie Research turned up 18 companies saddled with cash. Nintendo tops that list, followed by Oracle Corp. Japan /zigman2/quotes/203578963/delayed JP:4716 -2.58% and Trend Micro. Total net cash at these four is a huge $20 billion.
Lately, though, these and others seem to have lost the yen to spend outside Japan's borders.
Write to Tor Ching Li at firstname.lastname@example.org