Recent M & A/JV Deal –India & JapanJapanese companies eye deals in IndiaJapanese firms are seeking acquisitions in India at a time when deals are taking longer to close andthe pipeline from developed markets is drying up.Since December 2011, there has been a sharp increase in mergers and acquisitions (M&A) mandatesfor Indian investment banks from Japanese firms scouting for targets in sectors such as specialtychemicals, retail and consumer goods, healthcare and information technology, experts said.“Every month we are looking at around four to five situations involving a diverse set of corporatesfrom Japan,” said Vikram Hosangady, head of transaction services, KPMG India. According to him,the weaker Indian rupee and relatively cheaper valuations are making investments a compellingopportunity for Japanese companies.With multi-billion dollar deals originating from Europe and the US drying up, bankers are focusing onsmall to mid size deals in the Rs. 200-500 crore range.Hosangady said the strong interest from Japanese firms across sectors is part of their consciouseffort to increase exposure to emerging markets such as India.“This is unlike the past where they seemed more opportunistic,” he said, adding that the interest ismore diverse but with a special emphasis on industrials, consumer goods and chemicals.The appreciation of the yen in the last decade against the dollar and the depreciation of the rupeeagainst both in the last one year have made India an attractive market.Mint’s Deepti Chaudhary says there has been a sharp increase in interest from Japanese firmslooking to buy stakes in Indian firms, with a weaker rupee and a stronger yen making local firmsmore attractive.“Japan is the second most acquisitive nation after the US,” said Munesh Khanna, senior partner,Grant Thornton India, a consultancy firm. “Their interest costs are minimal and Japanese companiesare cash-rich. What is also visible to them is that India has growth.”In January 2012, electrical and electronic manufacturer Mitsubishi Electric Corp. acquired Pune-based Messung Group, a manufacturer of programmable logic controllers and human machineinterfaces, for an undisclosed sum. Other prominent recent deals include Kokuyo Co. Ltd’sacquisition of a majority stake in Camlin Ltd and the formation of joint venture; Sumitomo Corp.’sacquisition of a 4.65% stake in Chennai-based VA Tech Wabag Ltd, a water-management company;and SBS Group’s acquisition of Bangalore-based Atlas Logistics Pvt. Ltd for an undisclosed amount.“With the Japanese GDP being stagnant for almost a decade, they are now looking at opportunitiesin developing markets,” said Sourav Mallik, senior executive director and head of M&A, KotakMahindra Capital Co., which is working on at least half a dozen transactions involving Japanese firmsin retail/consumer, industrials and industrial components, pharma and healthcare and logisticssectors.
Many Japanese firms also want to have sources of production closer to overseas plants so that thesupply chain is not disrupted, as it has been after the tsunami in that country and floods in Thailandlast year. That has led to strong Japanese interest in Indian auto component makers.“After the floods in Thailand, which is a large auto component base, Japanese auto companies arelooking to diversify component supply chains and India is of interest to them. India, with its largeauto ancillary industry, quality standards and cost advantage is attractive for them,” said Sailesh Rao,partner, transaction advisory services, Ernst and Young.There has also been a change in how the managements of Japanese companies perceive Indian firmsas they shift their focus from developed markets. They see diversification of country exposure andhaving alternative manufacturing bases as key to lowering risk.Also, while Japanese businesses continue to generate cash, there are minimal investment acquisitionopportunities on the home front.With the cost of capital abysmally low (as little as 0.1%), it has become more viable for Japaneseinvestors to buy assets in India, said Preet Mohan Singh, executive director and head, industrialsgroup, at Avendus Capital. Avendus is working on three-four deals in the India-Japan corridor andexpects to complete them this year.Investment bankers said however that delays in the decision-making process still mean that bothprivate equity and M&A deals take longer to conclude. Corporate governance and high valuationsare other concerns that are common across all deals, they said.Mitsubishi may establish joint venture with L&T ShipbuildingMitsubishi Heavy Engineering (MHI) will look at establishing a joint venture with Larsen and ToubroShipbuilding Ltd to set up its first overseas base outside Japan.In an email response to ET-Economic Times , Mitsubishi said that the company does not have aconcrete plan on a joint venture establishment yet, but will look carefully at the improvement ofL&Ts capability and delivery time in addition to a favourable governmental policy to support Indianshipyards.Tide Water may form joint-venture with JX NipponLubricants maker Tide Water Oil Co. Wednesday said it can consider the possibility of forming ajoint-venture with Japans JX Nippon Oil and Energy Corporation-keen to expand its business in India.Kolkata-based Tide Water, a part of the Andrew Yule group, already has a technical collaborationwith JX Nippon, Japans top oil refiner."Nippon has shown intent to expand their business in India and we are actively discussing the matterwith them," Andrew Yule chairman Kallol Dutta told reporters here.Dutta said joint-venture route is one of the possible structures that the two companies could lookfor.
Tide Water Oil executive director R.N. Ghosal said: "We are the franchisee of Nippon in India and wemarket Eneos brand on their behalf. We also have a technical collaboration with them. With theIndian market opening up, they are looking to expand their lubricant business in India. We arehoping to take a decision on this by the end of 2013."The company, which acquired Veedol International Limited from BP Plc this year, has established awholly-owned subsidiary in Dubai to serve the Middle East and North Africa regionsJapanese company ties up with Kirloskars for hospitalsSecom Medical Systems, which operates 5,500 hospital beds across 18 hospitals in Japan, is joininghands with Vikram and Geetanjali Kirloskar to set up a super specialty, 300-bed hospital in Bangaloreat an investment of Rs 200 crore.While the Kirloskars hold a 50% stake in the joint venture-christened Takshasila Healthcare andResearch Services-the remaining stake is split between the $70-billion Secom Group and ToyotaTsusho Corporation, the trading arm of Japanese auto giant Toyota. Vikram Kirloskar is an equitypartner in several Toyota ventures in India, including the car maker, Toyota Kirloskar Motor.Tatsuro Fuse, president and CEO of Secom Medical Systems, who was in Bangalore on Tuesday tosign the joint venture agreement and who spoke exclusively to TOI, said, "We are looking atoperating 20,000 hospital beds in India over the next 10 years." Secom will manage the Bangalorehospital and its director Toshimasa Yashima will be the MD of Takshasila Healthcare. GeetanjaliKirloskar, director in Kirloskar Systems, will be the chairperson. "The hospital will be completed bythe end of this year and will become operational in April next year," said Vikram Kirloskar. GeetanjaliKirloskar said the companys initial focus would be on south and west India. The next two hospitalscould be a second facility in Bangalore located towards the international airport and a hospital inPune.Suntory forms JV with Narang Group subsidiary to enter Indiasnon-alcoholic beverage market June 2012BANGALORE: Japanese conglomerate Suntory, known for its whiskies and beers, has picked upmajority stake in a subsidiary of Mumbai-based Narang Group to enter Indias non-alcoholicbeverage market.Suntory Beverage and Food Asia, which manages the M&A strategy and administration of groupcompanies of the ¥1,802.8-billion (approx Rs 1.3 lakh crore) Suntory Holdings in Southeast Asia, hasbought 51% stake in Narang Connect.The joint venture (Narang Connect is rechristened Suntory Narang) is focused on premium, healthy,coffee-based and carbonated beverages," Rahul Narang, founder and chairman of Narang Group,said.This is the groups second joint venture with a multinational, having partnered French giant Danonefor Qua and Blue water in 2010."In the next 3-5 years we will be a major player in India, right under Coca-Cola and PepsiCo, and thelargest players in the premium beverage segment," Narang said.
He did not divulge the valuation of Narang Connect, which provides coffee solutions for the Horecasegment and markets Lindt chocolates, Illy Coffee and in-house brand Karma coffee in India.Established in 1899, Tokyo-based Suntory is one of the oldest liquor firms in Japan. In India, it beganmarketing Hibiki blended whisky and Yamazaki single malt last year through a tieup with RadicoKhaitan.Suntory also makes brands such as Oolong tea, Boss coffee, recently-launched Espressoda and zero-calorie drink Pepsi Nex, which was created as part of its three-decade-old partnership with PepsiCo.Narang said the venture will launch low sugar or vitamin-infused drinks priced around Rs 30-35 for a330 ml bottle."We would look at creating localised products, which is where Suntorys research and developmentand manufacturing expertise will come into play," he added.Suntory Narang has begun locally manufacturing citrus-soda Orangina through third parties and willroll it out across markets by October. Brands CC Lemon and Boss coffee will be launched after that.Independent manufacturing was not on the immediate horizon, but the company did not rule outextensions into food categories in the future. Narang has been named the executive chairman of thefirm. Avik Sanyal has been internally promoted within Narang Group to the post of COO of the JV,which is targeting sales of 700 million Japanese yen, or about Rs 50 crore, in the first year ofoperation.Narang Group has a distribution network covering around 1.5 lakh points of sale across India, Narangsaid. Having entered the beverage segment by distributing premium bottled water Evian and energydrink Red Bull in 2003, Narang struck a joint venture with Danone in July 2010.Analysts say there is significant room for growth as the Indian packaged beverages market."Although there is intense competition in the beverage segment in terms of retail and advertising,the Indian per capita consumption of branded drinks is still very low," Devangshu Dutta, chiefexecutive at consumer goods and retail consultancy Third Eyesight, said.The total value sales of packaged soft drinks (including on-trade and off-trade) was Rs 35,150 crorein 2011, up 21.4% from 2010, market research firm Euromonitor International said. It added thatvalue sales will increase 19.5% a year to reach Rs 85,500 crore by 2016.Narang has ruled out a conflict of interest between the two joint ventures. While Danone is focusedon products in the still water segment, the Suntory JV will focus on the sparkling or carbonateddrinks segment.Instead, he said there are synergies between the two ventures. "This deal gives us scale and we canshare support functions, logistics, warehousing and IT. This helps build the businesses for all andjoint benefits of costs, including for Danone," Narang said.
Bharti Softbank, Yahoo Japan form JVBharti Softbank, a joint venture between Bharti Enterprises and Sofbank Corp, today said it hasentered into a partnership with Yahoo Japan to develop a mobile Internet portal to offer service inIndia.The two companies will form a joint venture (JV) company BSY Pte Ltd for this purpose and itsoperations in India will be headed by Madhu Nori (Head of Operations, Bharti Softbank), BhartiEnterprises said in a statement.While Bharti Softbank will support the JV to form the organisation and develop business, YahooJapan will develop technology and provide know-how.Kavin Bharti Mittal, head of strategy and new product development, BSB said, "BSY, which is BSBssecond venture, will be an important piece in our strategy to drive the uptake of mobile Internet anddata services."Bharti Softbak (BSB) was launched in October 2011 to focus on mobile Internet in India."As the Indian mobile market moves towards data led services, rich content is an area that will offerexciting growth prospects. We are looking forward to working with all mobile operators andpromote an open Internet culture on mobile," Nori said in the statement.Yahoo! Japan is the No.1 Internet portal in Japan with over 84% of total Internet users and has thelargest user-base on mobile in Japan driven by its mobile Internet portal, Bharti Enterprisesstatement said.Japan MS&AD paying $530m for NY Lifes India JV stakeJapans MS&AD is acquiring New York Lifes 26% stake in a joint venture with Max India for about530 million, in another example of Japanese companies growing appetite for overseas assets.MS&AD Insurance Group, Japans largest property-casualty insurer by revenue, is among theindustrys most aggressive in expanding in Asia through acquisitions, buying both life and non-lifeassets to secure growth beyond its weak home market.A year ago, it bought a 50% stake in Indonesias PT Asuransi Jiwa Sinarmas for about 67 billion yen.Now, one of its core units, Mitsui Sumitomo Insurance, has struck a deal for the stake in Max NewYork Life, Indias largest non-banking private insurance company, for Rs 27,300 crore, the Japanesecompany said in a statement.The 26% stake is the maximum allowed for foreign ownership in Indian life insurance companies.The deal would represent a further withdrawal from Asia for New York Life, which recently soldbusinesses in China, Thailand, South Korea and Hong Kong.Under the deal, Mitsui Sumitomo will get two seats in the board of the joint venture, which will berenamed Max Life Insurance, the Japanese company said.
The joint venture had gross insurance premiums of Rs 58,100 crore and pretax shareholder incomeof Rs 19,400 crore for the year ended in March last year, Mitsui Sumitomo said.Despite the large size of the Japanese economy there is little growth in its domestic market. That,combined with low interest rates and a strong yen, has pushed Japanese companies to aggressivelybuy up overseas assets.Japans outbound M&A activity has ramped up sharply over the past two years. In 2010 Japansoutbound deals including debt totaled USD 38.3 billion, making it the eighth most active country foroverseas M&A, according to Thomson Reuters data.In 2011 Japan became the third most active country with deals totaling USD 69.7 billion, an increaseof 82%. And so far this year Japans outbound deals have totaled USD 18.1 billion, leaving it with aNo 3 ranking, behind the United States and Switzerland.On Thursday, Japans Nidec Corp, a leading maker of micro motors used in electronic devices, said itwill buy Italian industrial motor maker Ansaldo Sistemi Industrial SpA.PAYING TOO MUCH?Japans insurers have been particularly aggressive in overseas acquisitions.Tokio Marine, taking advantage of its financial firepower, has been bagging bigger and moreexpensive deals in Europe and the United States, including a USD 2.7 billion acquisition of U.S.insurer Delphi Financial Group .Nippon Life last year said it would buy a 26% stake in Indias Reliance Life Insurance for USD 680million and in January also said it would purchase a stake in a fund management unit of RelianceCapital Ltd .And Meiji Yasuda Life Insurance Co, Japans No 2 life insurer, said in January it wanted to do deals,and was planning to acquire one or two overseas companies in emerging economies this year.Some industry executives say many prospective deals are unattractive and too expensive. Cheapborrowing and a strong currency make it easier for Japanese buyers to pay higher prices but there issome concern about paying too much.MS&AD was criticized for overpaying for Sinarmas and that has put pressure on the amount thatJapanese insurers are willing to spend, M&A bankers have said.There are also concerns that huge losses from Thailands flood damage coverage could have sappedJapanese insurers M&A war chests.In February, MS&AD said it expects a net loss of 145 billion yen for the year ended in March, hurt bymore than 200 billion yen payment for Thai flood losses.Citigroup Inc is advising MS&AD on the India deal, a source with knowledge of the deal said. Aspokesman for Citi declined to comment.MS&AD shares ended down 1% in Tokyo on Thursday, underperforming a 0.7% gain in thebenchmark Nikkei average Max India shares were up 9.3% in late afternoon trade in Mumbai.
Fujitsu Ten Limited Forms Joint Venture Companies with UNOMinda for Car Infotainment ProductsLeading Japanese automobile component manufacturer FUJITSU TEN LIMITED and leading Indianauto components manufacturer Uno Minda, NK Minda Group have agreed to establish newmanufacturing and sales joint venture companies in India for Car Infotainment(*1) products. The JVagreement was signed today at Bangalore, Karnataka.The automotive industry in India is one of the largest in the world and one of the fastest growingglobally. Considering that the number of new car sales in India exceeded 3 million in 2010, Indian carmarket has launched itself into a real motorization era and further expansion can be expected at arapid pace. This JV is an attempt to tap into the growing segment of Car Infotainment products andbring innovative products to Indian market. The JVs manufacturing facility will come up at Bawal,Haryana. The JV plans to produce Car infotainment products such as CD Tuners, Display Audios,AVNs (*2) and Speakers. The Production will start in October 2013.On the occasion, Mr. Shigematsu, President of Fujitsu Ten said, "We are confident that thispartnership can leverage the fundamental strengths of both partner companies and that this JV willoffer strong products which makes Indian customers happy. With Uno Minda providing a strongbusiness base to FUJITSU TEN LIMITEDs innovative and technically superior products, we aim tobring the best of technologies to Indian market. We will meet the expectations of Indian customerscontinuously through this JV."Mr. Nirmal K Minda, CMD of N K Minda Group, said, "Uno Minda, NK Minda Group has maintained atradition of bringing the latest automotive technologies to India. We are delighted to partner withFUJITSU TEN and are confident that this JV will create a very strong local production base to offermarket-leading, technology intensive Audio Infotainment System to Indian OEMs(*3). This JV willbring local design, product development and complete manufacturing for the very first time in Indiafor such products."Gati to set up joint venture with Japan’s Kintetsu World ExpressSecunderabad-based logistics company Gati Ltd on Monday signed an agreement with KintetsuWorld Express Inc. (KWE) to set up a joint venture in which the Japanese company will invest Rs. 267.7 crore for a 30% stake. Shift in progress: Gati CEO Mahendra Agarwal says the express distri- bution and supply chain business will be transferred to the new JV. KWE, according to a media statement, is a Tokyo Stock Exchange-listed company offering air and ocean freight services with a presence in 32 countries. KPMG Corporate Finance was the exclusive financial adviser to Gati and the transaction will be completed in the next two months. “We will transfer our express distribution andsupply chain business to the new joint venture” in which Gati will hold a 70% stake and KWE the
rest, said Mahendra Agarwal, founder and chief executive officer of Gati. The business unit willoperate under the name Gati-Kintetsu Express. Agarwal said debt worth Rs. 330 crore will betransferred to the new venture and the rest will be brought under the coastal shipping business. Asof 30 June, the company’s consolidated debt was Rs. 468.34 crore.Agarwal said the funds raised from the KWE transaction will be used to reduce debt and the jointventure will be consolidated in Gati’s financials. Gati Ltd will be the holding company and will controlthe subsidiaries. “Besides, Gati will own land and properties across the country and manage the e-commerce business, which is the road ahead,” Agarwal said.The partnership will enable KWE to further expand and strengthen its global operations, with theIndian market increasingly growing in size and importance, said Satoshi Ishizaki, chief executiveofficer of KWE.Gati dropped 9.99% to Rs. 41.90 on Monday on BSE. The benchmark Sensex rose 0.14% to close at17,772.84 points.The move is part of the company’s plan to restructure its business by creating three strategicbusiness units and introducing investors in each of these. The units include small parcel andwarehousing (express distribution and supply chain management), coastal shipping, and cold-chainservices.“We are exploring the induction of a strategic investor in our coast-to-coast shipping business, too.But there are no immediate plans to induct an investor in our cold-chain business,” Agarwal said.On Friday, Mint reported that Gati was in talks with potential investors to sell a stake of up to 25%and that it was likely to close the deal with an Asian investor. The report added that Gati was talkingto private equity investors as well.Leading logistics companies such as Allcargo Logistics Ltd and Transport Corp. of India Ltd have beenseparating their various businesses into discrete units.For instance, Allcargo Logistics has created an umbrella brand called Avashya Group that will haveunits for project logistics, warehousing, ship chartering and container freight stations.Transport Corp. has created Group TCI as the holding company that runs business divisions includingsurface transport, express distribution, warehousing, freight forwarding and coastal shipping.“Most Indian logistics companies have invested significant focus and effort on creating a networkorganically but often through buying top line inorganically. If this focus on top line has leftprofitability eroded, it might be useful to find a partner with a desire for top line as deep as theirpockets,” said Gautami Seksaria, founder and partner, Supply Chain Leadership Council, anorganization of logistics professionals in India.At least four mergers and acquisitions (M&A) deals were announced by Indian and Japanesecompanies in January. Mitsubishi Electric Corp. acquired Pune-based Messung Group, amanufacturer of programmable logic controllers and human machine interfaces, while Nippon LifeInsurance Co. purchased a 26% stake in Reliance Capital Asset Management Ltd, the mutual fundarm of the Anil Ambani-controlled Reliance Group, for Rs. 1,450 crore.
According to Bloomberg, Japanese companies have been involved in 18 transactions in India valuedat $990.69 million in calendar year 2011. In shipping and logistics alone, there have been 12investments, of which five transactions have been valued at a total of $115 million, according toVenture Intelligence, a research service focused on PE and M&As.The logistics sector has been seeing increased private equity interest in recent months. GeneralAtlantic Llc announced an investment of $104 million in Mumbai-based Fourcee InfrastructureEquipments Pvt. Ltd on 9 January. India Equity Partners invested an undisclosed sum to acquire thedomestic road operations of freight and logistics company TNT Express in India on 5 January.Warburg Pincus India Pvt. Ltd invested $100 million in Chennai-based logistics firm ContinentalWarehousing Corp. Ltd on 11 April 2011, and Aegis Logistics Ltd raised Rs. 64 crore from KaupCapital’s Infrastructure India Holdings Fund Llc on 25 February 2011.TCS and Mitsubishi Corporation to establish joint venture for ITservicesTata Consultancy Services a leading global IT services and consulting firm, and MitsubishiCorporation, a global integrated business enterprise announced the establishment of an IT servicesjoint venture, Nippon TCS Solution Center Limited, strategically targeted at providing world classinformation technology services to Japanese customers.The new company will be capitalized at 350 million yen (approx. USD 4.5 million), of which TCSJapanese entity Tata Consultancy Services Japan (hereinafter "TCSJ ), will provide 60 percent andMitsubishi Corporation 40 percent. The newly established company will be based in Tokyo.The joint venture sees the establishment of TCS first nearshore delivery center in Japan. Jointestablishment of the nearshore delivery center is aimed at capitalizing on the synergies born ofMitsubishi s domestic brand strength and local market expertise paired with the global expertise ofTCS global best practice and its Global Network Delivery Model (GNDM®), to meet the various needsof Japanese companies through enhanced service offerings.The collaboration comes against the backdrop of a strong yen, the globalization of supply chains anda growing trend toward overseas mergers and acquisitions, all of which act as a catalyst for theincreasing globalization of Japanese companies,. This has brought heightened interest in the role of"global IT services to link domestic and overseas operations. Establishment of the joint venture willensure customers experience certainty by providing the flexibility to effectively respond to global ITneeds through TCS GNDM®, while catering to interface needs through the nearshore delivery center.The new company will provide a full suite of IT services, including IT infrastructure management,system integration, application development, maintenance & operation services, engineeringservices and business process outsourcing (BPO) services. The new company s sales functions will beprovided by TCS Japan.N. Chandrasekaran, CEO TCS and Hideyuki Nabeshima, Senior Executive Vice President MitsubishiCorporation have been appointed non-executive directors of the new company in a move that willsee close coordination and participation by senior management from both sides in establishingstrategic direction. Mitsubishi Corporation and TCS have already started collaborating in a widerange of areas. The two companies have entered into discussions for the establishment of an ITsupport system, that utilizes TCS s know-how and network, for Mitsubishi Corporation s overseas
bases, and are implementing new employee training programs for Mitsubishi Corporation s BusinessServices Division and for IT Frontier Co., Ltd., a Mitsubishi Corporation group company, at TCS straining center (Trivandrum, India).Mistubishi Electric Corp acquires Messung GroupMitsubishi Electric Corporation has announced its acquisition of the Messung Group, a Pune-basedmanufacturer of programmable logic controllers (PLCs) and human machine interfaces (HMIs), itssales and distribution partner in India, for an unspecified amount.The acquisition will allow Mitsubishi Electric to accelerate its industrial automation systems businessin India and strengthen local sales and solutions.According to the statement issued here, the Messung Group will be merged with Mitsubishi ElectricIndia Pvt. Ltd, headquartered in Gurgaon. A business transfer agreement signed by MitsubishiElectric and the Messung Group last month, in December 2011, is expected to be completed by theend of March 2012 to finalise the acquisition.Operations of the consolidated business will commence in April. Messung was Mitsubishis salespartner for about 15 years.The industrial automation market in India is expected to grow by more than 10% annually, driven byincreasing demand in the automotive, textile, pharmaceutical and food and beverage industries.Mitsubishi Electric expects to leverage relationships that the Messung Group has built in theseindustries by providing technical support and solutions to industrial automation equipmentmanufacturers.The Mitusbishi group recorded consolidated revenues of US $43.9 billion in the financial year endedMarch 31, 2011.SBS Holdings acquires Atlas LogisticsJapan-based SBS Group has acquired Bangalore-based Atlas Logistics for an undisclosed amount."The acquisition of Atlas Logistics...will expand our footprint, add depth and efficiency to ournetwork and offer convenience for our customers who are expanding globally," SBS Group DirectorAkihiko Okamoto San said in a statement.The director said that buying 80 per cent stake in the Banglore-based firm is part of the long-termstrategy of SBS Holdings to make an inroad in to Asian market."In the near future we hope to develop a strong hold in logistics business in India by providing know-how on land transportation business, warehouse business and third-party logistic services," he said.Atlas Logistics Chairman and Managing Director H R Venkatesh Rao said with this acquisitionsubstantial synergy would be created for both the firms resulting in faster growth of the combinedentity. "We will strengthen our shipping services globally," he said.