Sumitomo Mitsui Financial Group Inc. (8316) said it will invest in U.S. investment bank Moelis & Co. a day after the Japanese lender disclosed its $7.3 billion purchase of Royal Bank of Scotland Group Plc’s aviation division.
Sumitomo Mitsui Banking Corp., a unit of Japan’s second- biggest lender by market value, will invest $93 million in Moelis, the New York-based firm founded by former UBS AG executive Kenneth Moelis, with completion of the transaction slated for mid-February, the companies said in a statement today. The stake represents about 5 percent of Moelis, Kiyoo Kuniyoshi, a spokesman for Sumitomo Mitsui’s brokerage unit, said by phone.
The deal is part of Tokyo-based Sumitomo Mitsui’s efforts to expand its advisory business as Japanese companies increase acquisitions abroad to take advantage of a rising yen and counter slowing economic growth at home. Japan’s three so-called megabanks led by Mitsubishi UFJ Financial Group Inc. (8306) will step up purchases this year of assets from European banks that are building capital to weather the sovereign debt crisis, said Yoshinobu Yamada, a Deutsche Bank AG analyst.
“Japanese megabanks could acquire more overseas assets in the months ahead, given that they have more than enough stamina to do so,” Yamada said today after the announcement. “The stronger yen is a tailwind for Japan Inc. to push ahead with acquisitions abroad. I expect megabanks to seal several more multibillion-dollar deals this year.”
Sumitomo Mitsui shares rose 0.6 percent at the trading break in Tokyo. They have slid 27 percent over the past year, compared with a 28 percent drop at Mitsubishi UFJ and a 36 percent decline at Mizuho Financial Group Inc. (8411), Japan’s third- biggest bank by market value.
Sumitomo Mitsui’s brokerage unit, SMBC Nikko Securities Inc., started merger advisory operations in Shanghai in January last year to win business from Japanese companies moving to faster-growing overseas markets. The bank ranked 27th globally among merger advisers last year, according to data compiled by Bloomberg. Moelis was 19th.
Koichi Miyata, president of Sumitomo Mitsui, said last month that midsized as well as large Japanese enterprises have been accelerating acquisitions overseas, and the yen’s gains helped boost the momentum of buyouts. Japan’s currency has advanced more than 7 percent against the dollar in the past year, the most among 16 major currencies tracked by Bloomberg.
Japanese acquisitions abroad climbed to about $88 billion last year, the most in any of the 12 years for which data compiled by Bloomberg are available, and more than double the amount in 2010. Cross-border deals last year include Takeda Pharmaceutical Co.’s 9.6 billion-euro ($12.2 billion) acquisition of Swiss drugmaker Nycomed.
“It’s an opportunity for us to penetrate Japan in a way that we could never do,” Moelis, 53, said of the deal with Sumitomo Mitsui during a conference call with journalists. “It’s an opportunity for their clients in Japan to access the world through a bank that they trust and a relationship that they trust if they’re going to do M&A.”
If a $93 million investment is worth about 5 percent of the company, that values the firm at approximately $1.86 billion, larger than rivals New York-based Evercore Partners Inc. (EVR), which has a market capitalization of $1.12 billion, and Greenhill & Co., with a market cap of $1.16 billion. Moelis declined to comment yesterday on the value of his firm.
While Moelis said the agreement doesn’t address financing deals, he said his firm is “enthusiastic to be closely aligned with one of the best-capitalized financial institutions in the world.”
Sumitomo Mitsui has been making acquisitions of its own. Its purchase of RBS’s aviation unit, which is subject to regulatory approval, will be the world’s biggest takeover of a leasing business. The bank and partner Sumitomo Corp. will gain control of a fleet of 206 aircraft, with commitments to buy another 87 by 2015, RBS said.
Shopping in Europe
The Japanese bank plans to buy “several hundred billion yen” of assets being sold by European lenders, Miyata said in a December interview. It agreed to buy Bank of Ireland Plc’s project-finance loans last November for about 470 million euros to back infrastructure development in North America and Europe.
Moelis, who opened his firm in 2007 after resigning as president of UBS’s investment bank, said in November that he planned to hire executives from Wall Street firms grappling with investor concern that the European debt crisis will deepen. He now employs more than 580 people in 11 offices worldwide, according to the firm’s website.
The company is looking to hire bankers in Asia and exploring whether to begin operations in France and Germany, Mark Aedy, a member of Moelis’s management committee, said last year. The U.S. firm said last January that it was buying Hong Kong-based financial advisory business Asia Pacific Advisers to expand in that region.
In November, Moelis hired Credit Suisse Group AG’s John Thorndike, an investment banker with almost four decades of experience who has advised clients including Exelon Corp. The company also hired Liam Beere, former global head of M&A at UBS in London, as a managing director for its team in Europe, the Middle East and Africa.
Moelis said his firm isn’t considering an initial public offering.
“We like being private,” he said. “It gives us a lot of opportunities to plan for the long term, to run the company on a long-term basis.”