Japan Inc hits pause button on overseas deals amid yen slide

TOKYO (REUTERS) - Japanese companies have sharply curtailed overseas acquisitions in the first three months of 2013 in a sign the recent slide in the yen could be taking some of the steam out of a record boom in outbound deals.

Japanese firms announced US$5.5 billion (S$6.8 billion) worth of overseas acquisitions between Jan 1 and March 20, down 63 per cent from the same quarter a year earlier, while the number of deals fell by more than a third, data from Thomson Reuters shows.

The slowdown overlapped with a near 20 per cent tumble in the yen against the US dollar since mid-November in a sell-off triggered by the elevation of Mr Shinzo Abe, a proponent of aggressive monetary easing, to premier.

"The yen is clearly a factor. It makes it more difficult to buy," said a senior executive in charge of acquisitions at a Japanese service company. "The yen used to be 70-something to the dollar. Now suddenly it's in the low 90's. That has an effect."

"But the truth is a lot of Japanese companies have already completed their major deals. That buying has run its course,"the executive added, in a nod to the US$300 billion worth of overseas assets snapped up by Japanese firms since 2008.

No one is predicting acquisitions will remain depressed for long, barring a collapse of the yen or significant change in the economic environment. Japanese firms are sitting on more than US$2 trillion in cash and still view overseas deals as a core strategy to grow outside their mature home market.

At its current level around 94 yen per US dollar, the yen is stronger than in early 2008 when the buying boom took off.

"Japanese companies are absolutely awash in cash at the moment and continue to feel that some of the best investment opportunities are overseas," said Mr Nicholas Smith, Japan strategist at CLSA.

While recent yen volatility may have deterred some companies from initiating new transactions, currency fluctuations will not put a dent in overseas dealmaking, said Mr Ken Siegel, managing partner at Morrison & Foerster in Tokyo.

Japanese managers are not as sensitive about currency rates as their Western counterparts because they tend to assess deals with a longer time horizon and are not interested in short-term metrics or the prospects of exiting an investment, Mr Siegel said.

Mr Siegel, who advised Softbank Corp on its US$20 billion acquisition of Sprint Nextel Corp last year, said he expected overseas dealmaking to pick up in the second half of 2013 and sees more inward investment as global property and private equity firms aim to take advantage of a softer yen.

"The inbound work will pick up by much more than the outbound work will drop off," he said.

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