Deals

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Japan needs more executives like Masayoshi Son, and it needs to do more deals like the $32 billion takeover of ARM Holdings.

With plenty of cash and a currency near historic highs, Japanese companies should be forging global technology deals that could bolster the country's own flagging industry. 

Currency Strength
The Japanese yen has risen to levels not seen for two years, making overseas deals more affordable
Source: Bloomberg
Note: Chart is inverted from traditional JPY/USD quote to show the rise in the Japanese currency.

If the executives don't know where to look, they could start by copying the Chinese playbook.

In the past year alone, Chinese approaches for all or part of the hard-drive maker Western Digital and the chipmakers Fairchild Semiconductor and Micron were knocked back or held up by regulatory concerns. Such roadblocks probably wouldn't exist for Japanese companies attempting the same deals, given that the country is seen as an ally of the West.

Another possible target is Synaptics, a chip designer that was in talks to be bought by a Chinese consortium before sliding earnings prompted the bidder to back off, precluding regulatory questions.

And despite high-profile troubles at home -- such as Sharp's approach to default, culminating in a Foxconn buyout -- there are companies in Japan with the cash and the balance sheets to start making bids.

Sony, for one, has $8.7 billion in cash and equivalents and a debt-to-equity ratio of 30 percent, which is less than the 31 percent average for technology companies in the MSCI Asia Pacific Index or the 52 percent for those in the consumer-discretionary category, where Sony is often placed. (A BBB- score from S&P Global Ratings certainly poses a challenge, but not an insurmountable one, considering SoftBank bid for ARM with a BB+ rating.)

Fat Wallets
Japanese technology companies have plenty of cash available to make deals
Source: Bloomberg

Panasonic with $9 billion, Fujifilm at $5.3 billion and Canon with $5.2 billion all have cash and low debt-to-equity ratios, as does Nintendo, whose $5.1 billion suggests that its executives could be busy chasing deals while its customers run down Pokemon. Those balance-sheet figures don't include marketable securities that could boost liquidity further.

So while there are Japanese companies with the means to start being more acquisitive, the strategic logic also exists. Western Digital, for example, would be a good fit for Fujifilm, Panasonic or Hitachi -- though Hitachi's 103 percent debt-to-equity ratio might occasion a long chat with bankers first.

Robust Enough
Japanese companies have relatively strong balance sheets, often better than or in line with regional peers
Source: Bloomberg

Synaptics, which designs fingerprint sensors, wouldn't be out of place at Sony, with possible synergies at the PlayStation maker's devices unit (which as I showed in April, went from hero to dunce in less six months.) It's possible to imagine Synaptics broadening the product offerings of Canon or Nikon, given the important link between semiconductors and digital imaging.

Even some of the Chinese deals that got away, such as the failed attempt at Philips Lighting, or the revised purchase of Norway's Opera Software, are targets that Japanese companies might have been examining. Panasonic, aiming for 60 percent growth in Asia-ex Japan at its lighting business, could have done well with the Philips unit, which ended up as an IPO instead.

Opera, maker of a slimmed-down browser popular in smartphones, would have been the perfect complement to Nintendo, which just this past month has discovered what mobile can do for its franchise.

Rather than being surprised by Son's move on ARM, investors should be surprised that more acquisitions aren't being made.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net