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Japan M&A Apr 09


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A brief look at trends in m&a activity in the automotive supplier industry - Asian outbound and internal

A brief look at trends in m&a activity in the automotive supplier industry - Asian outbound and internal

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  • 1. Asian Auto Supplier Consolidation David Syrad Managing Director A.K.I. Limited Director Asia Change Masters International April 2009
  • 2. Outline
    • A despatch from the region on current
    • activity, trends, drivers and obstacles.
  • 3. A.K.I. Japan On Demand Expert Resources
    • Automotive
    • Manufacturing
    • Medical Equipment
    • ICT
    • Neutraceuticals
    • Trading
    • Japan
    • Korea
    • Research
    • Strategy
    • FS
    • M&A Targets
    • Negotiation
    • Business Development
    • Management Support – Interim
  • 4. Change Masters International
    • Strategy Implementation
    • M&A pre/post deal support
    • Project Effectiveness Evaluation
    • Practical not theoretical – experienced managers as consultants
    • Established Asian network
    • Deliver in multiple languages
  • 5. Overview
    • Global shift in balance of purchasing power and market significance
    • Pioneers have shown the way – Bharat Forge, NSG, Denso
    • Continued activity – Geely, Beijing West, Motherson Sumi
    • Opportunities abound for Asian companies – how to take them and make them work – too much too soon?
    • Does it make sense to follow in the footsteps of the failed PE investors?
  • 6. Overview
    • Domestic consolidation in China is proceeding, encouraged by the government
    • Asian suppliers will participate in global consolidation but will not drive it
    • Attempts by PE funds to consolidate in other areas have not been entirely successful (this may be partly because of unreasonable leveraging post-merger)
    • Although the industry is in trouble, a lot of money has been made in the sector in times of growth
  • 7. View of M&A Activity
    • Japan started, Korea, China and India increasingly key players
    • M&A seen as common and indispensable tool for management
    • Core of growth strategy
  • 8. Reduced Enthusiasm
    • Asian Supplier Intra/Extra-Regional M&A
    • 2007: 90 Deals
    • 2008: 30 Deals (KPMG)
  • 9. Not Simple Even Internally
    • 1 st tier Japanese auto components supplier consolidation   In-In – achieved world No. 2 position
    • Acquirer too arrogant and insensitive – failed to use experienced talent
    • Lost large numbers of key personnel
    • Still losing share and failing to make profit
  • 10. Japan
    • JOEMs have established manufacturing & market bases in Asia, NA and Europe
    • Suppliers have followed, but level of internationally-experienced management resources varies
    • Shift to overseas markets or die
    • Consolidation via bankruptcy less likely – OEMs are supporting with cash
    • Consolidation in Japan more difficult due to remaining OEM links and independence of smaller suppliers
    • Out-In interest remains
  • 11. Japan
    • Demographics (decrease and ageing) and disenchantment – shrinking home market even before the crisis
    • Need overseas organisations to provide staff
    • Following OEMs still a factor
    • Have the ability to manage overseas in some cases
    • How to manage acquisitions: NSG or Denso approach – can be a source of fresh management
    • Consolidation not part of the plan – company driven not fund driven – except in the case of foreign investment funds
    • Many deals failing before due diligence – risk averse
    • Many companies still looking
  • 12. Korea
    • KOEMs have also established manufacturing & market bases in Asia, NA and Europe
    • Suppliers have followed, but lack the management experience of the large Japanese suppliers
    • Many have used temporary foreign managers to supplement skills and absorb know-how
    • Shift to overseas markets or be overwhelmed by China
    • How to manage acquisitions - can these become a source of management talent?
  • 13. Korea
    • Consolidation via bankruptcy more likely, but strong tendency to government intervention (e.g. forcing suppliers to sell stakes to foreign companies previously)
    • KDB and other investors now have a war chest for the purchase of overseas suppliers – expect to see some activity
  • 14. China
    • COEMs have established manufacturing overseas with some setbacks
    • Many suppliers are not at a global quality level and have not followed
    • Have used foreign managers to fill gaps and acquire know how – difficulty in managing them
    • Government pressing for consolidation and holding back some of the small aggressive players
    • Consolidation by bankruptcy acceptable
    • OEMs integrating vertically
    • How to manage acquisitions – domestic businesses suffer from lack of managerial skills
  • 15. China
    • Accelerate acquisition of technology and know-how
    • Domestic competition
    • Government policy
    • Government/regional participation (BeijingWest – Delphi)
    • Vertical integration (Geely)
    • Reminiscent of growth in Korea – overstretching overseas?
  • 16. India
    • IOEMs have purchased some manufacturing overseas but supplier expansion is self-driven
    • AIFTA a factor in future consolidation Thailand vs India
    • How to manage acquisitions
    • Expect to see more activity from the established players (M&M, possibly Taco)as opportunities present themselves
    • Domestic consolidation via bankruptcy is likely
    • Nepotism and succession planning problems
    • Overseas activity continuing – Motherson Sumi Visiocorp
  • 17. India
    • Bharat Forge has initiated cross-border consolidation (NA, EU) – the challenge now is to complete the process successfully
  • 18. Drivers
    • Affordability (EU – In, JP – US out)
    • Need to globalise In-Out (NSG)
    • Response to globalisation and shift in balance of power Out-In – Toyota effect
    • Breakdown of old keiretsu relationships Out-In, In-In
    • Significant management difficulties remain (software SEC, attracting talent) which favour M&A
  • 19. Showstoppers
    • In-Out – can’t find partner
    • In-Out - Lack of faith in own cross-border management ability, no experienced staff
    • Out-In – uncertainty re: profitability/ROI – very demanding market
    • Direct subsidiary establishment becoming attractive option
    • Out-In - Three way share deal problem Citi Nikko
  • 20. Showstoppers
    • Old guard resistance – Murakami investigation over Livedoor connection (Hankyu-Hanshin)
    • Vulture fund image Out-In
    • Entrenched management Out-In
    • Family sense of responsibility outweighs business logic
    • Aggressive approach from one side Out-In, In-Out