Goldman Sachs Group Inc. is on its way to taking the top spot among advisers on Japanese takeovers for the first time in five years, supplanting Nomura Holdings Inc., as companies striving to compete globally turn increasingly to foreign investment banks.
The New York-based firm was hired for $54.1 billion of acquisitions announced this year involving Japanese companies, surpassing Nomura’s $47.2 billion, according to data compiled by Bloomberg. In 2010, Nomura held the top spot with $47.6 billion in deals, while JPMorgan Chase & Co. was second with $27 billion and Goldman Sachs at No. 7 with about $10 billion.
Overseas banks are set to occupy three of the top four spots in a market that’s headed for a record this year as clients seek advice on competing abroad while consolidating domestic operations following March’s record earthquake. Goldman Sachs, ranked No. 2 globally, won the top spot in Japan after advising on two of this year’s three largest deals.
“Foreign banks are increasingly advising on domestic deals because Japanese corporates are merging to compete overseas, and they need their global expertise,” said Koji Hirai, chief executive officer of M&A advisory firm Kachitas Corp. “Goldman’s brand has value because of its history and track record.”
Sumitomo Metal, Nycomed
Goldman Sachs advised Sumitomo Metal Industries Ltd. on its $22.5 billion acquisition by Nippon Steel Corp. in what was Japan’s biggest deal in at least five years as the companies sought to increase competitiveness with Chinese and Korean rivals. It also worked with Swiss drugmaker Nycomed on its $13.7 billion takeover by Takeda Pharmaceutical Co. as well as Hitachi Ltd. on its sale of a hard disk drive business to Western Digital Corp. for $4.3 billion.
Deutsche Bank AG climbed to No. 3 this year, with $47 billion in deals, after advising Takeda on the Japanese drug maker’s biggest acquisition, the data show. New York-based JPMorgan is fourth and Morgan Stanley’s joint venture with Mitsubishi UFJ Financial Group Inc. took the fifth spot.
Local investment banks were lower in the rankings even as their transaction volumes jumped. The brokerage unit of Sumitomo Mitsui Financial Group Inc., Japan’s second-largest publicly traded lender, is No. 7 this year; Mizuho Financial Group Inc. ranked No. 8 and Tokyo-based Daiwa Securities Group Inc., Japan’s second-largest brokerage, was No. 9, the data show.
Japan has seen 1,663 transactions valued at $141.2 billion this year to Oct. 13, a record for the equivalent period, spurred mainly by domestic deals, according to Bloomberg data.
“It’s like each industry is building a national team to play overseas, just like with soccer, rugby and baseball,” Hirai said in an interview.
Yoshihiko Yano, head of M&A at Goldman Sachs in Tokyo, said he was surprised at how quickly business rebounded after the quake. “Activity appears to have picked up as corporate management in Japan becomes more focused on the domestic industry outlook and the risk of stagnation,” Yano, 49, said in an interview in Tokyo on Oct. 5.
Goldman Sachs, which has operated in Tokyo since 1974, is poised to the take the top spot for the first time since 2006 in a takeover-advisory market that has been dominated by Nomura, Japan’s biggest brokerage, for the past four years.
Shinsuke Tsunoda, head of M&A at Nomura, said the Tokyo-based firm will “continue to leverage our unique insights into Japan and extensive global network to respond to our clients’ needs.” Nomura remains the top adviser for Japanese companies making acquisitions abroad this year, Bloomberg data show.
Nomura fell 1.7 percent to 291 yen at the close of trading on the Tokyo Stock Exchange today. The shares have dropped 44 percent this year and reached a 37-year low of 264 yen on Oct. 5. Goldman Sachs lost 3 percent to $96.15 in New York trading yesterday, taking the year’s decline to 43 percent.
Goldman Sachs has an edge with local clients on domestic transactions because more than 90 percent of its staff in the Asian nation is Japanese, according to Masanori Mochida, president of the U.S. firm’s Japan unit.
“You may think Goldman is a foreign firm, but it is fully localized,” Mochida told Keio University students at a forum on June 12, 2009. The bank has about 1,000 employees in Japan, of whom 100 do work relating to mergers and acquisitions, according to Hiroko Matsumoto, a Tokyo-based spokeswoman.
As part of efforts to seek business after the March 11 quake and tsunami, the U.S. bank tapped former Japanese Prime Minister Junichiro Koizumi to speak to 300 investors and company executives at a forum in Tokyo in June.
“Japanese firms have largely recovered from quake-related damage and are well positioned relative to their global peers because of their excess cash and low debt levels,” Yano said. Companies are urgently seeking M&A to withstand global competition, he said.
“Decision making by Japanese corporate management has become faster and more dynamic,” Yano said. “It’s a sea change from 10 years ago.”
Japanese companies have been involved in about $70 billion of cross-border deals this year, the highest since 2008, taking advantage of the yen’s appreciation to expand abroad. Japan’s currency climbed to a postwar high against the dollar in August and has gained more than 8 percent in the past six months, the best performance of 16 major currencies tracked by Bloomberg.
Capitalize on Yen
Prime Minister Yoshihiko Noda’s government is encouraging businesses to capitalize on the stronger yen to purchase enterprises overseas. The country’s three biggest banks received a combined $43 billion credit line from the Japan Bank for International Cooperation to lend dollars cheaply for acquisitions, the state-run lender said on Oct. 5.
Nippon Steel agreed to buy Sumitomo Metal on Sept. 22 in a deal aimed at cutting costs and increasing competition with overseas rivals such as China’s Baosteel Group Corp. and Korea’s Posco by creating the world’s second-largest steelmaker. As well as Goldman Sachs, Sumitomo Metal selected Daiwa, Deutsche Bank and Sumitomo Mitsui as its advisers. Nippon Steel chose Bank of America Corp., JPMorgan, Mizuho and Morgan Stanley’s venture with Mitsubishi UFJ.
Nippon Steel “seems to be shifting its focus overseas because that’s where it sees the main battlefield,” said Kenji Fujita, head of M&A at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
Masato Suzuki, a spokesman for Nippon Steel, said the company hired “several financial advisers to secure fairness of the merger ratio,” without elaborating on why it chose global firms. A spokesman for Sumitomo Metal, who didn’t want to be identified, declined to comment.
Vulnerable Japan Inc.
Other deals Goldman Sachs worked on this year include Sumitomo Mitsui’s plan to spend about 200 billion yen ($2.6 billion) making Promise Co., Japan’s second-biggest consumer lender, a wholly owned subsidiary. The Wall Street firm also advised Mizuho, Japan’s third-largest banking group, on buying 15 percent of Joint-Stock Commercial Bank for Foreign Trade of Vietnam for about $570 million.
“Japanese companies are very vulnerable; the future is uncertain because of the shrinking population, earthquake and political risks,” said Mitsubishi UFJ Morgan Stanley’s Fujita. “They have to be more conscious of the overseas market. No overseas operations, no growth.”