Sitting on record cash piles and profits, Japanese companies are shopping for acquisitions and deal values could eventually double, says Goldman Sachs.
"Japanese M&A activity has recently begun accelerating, and we believe this could mark the beginning of a sustainable trend," said Goldman Sachs in a note published on Monday. "At 1.8 percent, Japan's ratio of M&A to gross domestic product remains one of the lowest in the developed world, but if [the ratio] rises to Germany's 4 percent, Japan's M&A market could more than double to ¥21 trillion ($174 billion) from ¥9 trillion in 2014."
In the first quarter of this year, Japanese companies splurged ¥3.9 trillion ($32.5 billion) on overseas acquisitions, a 76 percent on-year increase to the highest level in nine years, Goldman said, citing independent M&A advisory firm Recof's data. The biggest deal was Japan Post's $5.1 billion acquisition of Australia's Toll Holdings in February.
During the same period, the global volume of M&A deals rose 28 percent on-year to $606.8 billion, according to Dealogic data.
The trend for Japanese companies to seek outbound M&A as a source of growth will continue and the number of such M&A is expected to rise in 2015 and 2016," said Accenture Strategy managing director Takashi Yokotaki, who leads the Japan M&A practice, by email.