In an interview with The Worldfolio, Mr. Suguru Miyake, President of Nihon M&A, explains that by virtue of the structural challenges Japan faces–such as the rapidly aging population–the time has come for Japanese SMEs to look for opportunities on the global market. Based on the principle of creating win-win situations, Nihon M&A serves as a platform offering "everything as a package, the evaluation, the connection and the intermediary in negotiations,” says Mr. Miyake.
What is your personal perspective about the impact of Abenomics on the financial sector?
Abenomics is a good thing in the short run but it really doesn’t touch the core problems such as the aging population with families not having children. To be more specific, the actual employable age from 20 to 64 is shrinking dramatically. The working force population was about 80 million and it dropped to 70 million in 2015 and by 2060 it is projected to be at 40 million, basically half. Also, this population is not only the one that works but also the one that consumes so we can expect the effect on GDP could be a decrease by half.
In the Economist, there was an article about Japan in 2050. The current GDP is 6% of the world but by 2050 it is predicted to drop to 1.9%. The two main reasons for the GDP to drop so dramatically are related to the actual decrease in production and consumption in Japan; and also, the dynamism of other high growth regions like South America that are experiencing higher levels of GDP.
The three arrows of Abenomics will be fine in the short term. However, if other measures won’t be introduced in the medium and long term, those three arrows won’t be enough to drive the economic growth. When Abenomics was first introduced and led to the depreciation of the Yen, the market and stock prices increased but this was a short-term effect that has faded by now.
The structural challenges of the shrinking domestic market and the aging population deeply affect the private sector. In a previous interview, you mentioned that “now it is the right time for Japanese companies to go overseas.” Do you think that Japan Inc. is ready to go global and what are the key strengths for them to go abroad?
The largest companies have already positioned themselves on medium and long-term growth retro-planning abroad. However, the small and medium-sized companies haven’t been able to do any preparation and we are currently considering joining these small and medium companies in their expansion around Asia. Population is growing in the Asian economies; birth rates are high and that will result in economic growth, in terms of consumption. On the other hand, they don’t have what I would refer to as “growth energy” namely the actual know-how they are technically lacking in order to grow.
With regards to R&D for instance, these countries do not have the trained personal, the facilities, and the funds which constitute major limitations. Conversely, Japanese SMEs do have this R&D culture; so, Japanese companies should have other Asian companies using this advantage and resources. Due to the shrinking population, the domestic market size is also shrinking dramatically while the population is increasing in other Asian countries.
We are aiming for a win-win situation in which Japan would be able to access their growth markets, and in the meantime let other Asian countries acquire the necessary resources in terms of research and basic facilities, development and manufacturing technology to support their growth.
How could M&A activities help Japan to regain global competitiveness? And how does Nihon M&A support SMEs in their international business expansion?
Let me give you an example. In the past, Japan had a lot of illnesses related to contamination and nowadays Japan has one of the cleanest environments. As you know China has very poor environmental conditions and we expect other Asian countries to struggle with the same difficulties in their growth process that bring about negative externalities. Japanese technology in both filtering and environmentally cleanliness is the best in the world. However, exports are extremely expensive. Our previous technologies are much cheaper to export and when we think about developing countries like China, that have no real controls in place regarding filtering or environmental maintenance, they would significantly improve the quality of their environments. This is a very concrete example of what could be a win-win situation.
On the other hand, in the longer term, other industries in furniture, glass, food or clothing, the ‘Made in Japan’ tag complies with global standards and is associated with an image of excellence that complies with the highest global standards. Nonetheless, many SMEs in these industries need a distribution network. In this area, M&A are crucial tool. Therefore, one of our strategies is to look into other Asian countries and companies that have a distribution network and explore the opportunities that can be created.
This strategy has worked with physical products but it also applies for companies providing services. For instance, in many developing Asian countries, many more people are getting cars which cause traffic jams and require coins parking which has become a sellable service. Another example of services exports would be haircuts, from high end luxury shops to Sen Yen (1000 JPY) shops both trends are expanding all over Asia.
In April 2016, you celebrated your 25th anniversary. In order to provide our readers with a broader perspective about Nihon M&A, could you give us some details about the genesis and the evolution of the company throughout its history?
Our founding history was primarily motivated by a succession problem. Many family-run companies did not want to cede the control of their company, though sometimes there would be no successor. So, it emerged the issue of what should be done with the company name. Especially during the high growth bubble era, a lot of these companies really expanded and hired lots of people so it became a very serious problem at the time.
If we look at the market for M&A, deals have decreased dramatically. However, your company has been able to register a record growth of 170%. What would you identify as the key drivers for this exceptional growth and how would you describe your innovative model?
There are three reasons for that; first of all, the succession issue persisted over these 25 years but it has changed in its character. The major victims are small and medium-sized companies that had for a long time no one to serve them. If you look at the bulge bracket banks, they focus on very large mergers and acquisitions, typically over a million dollar in retrocession. So, there is no one to help these small and medium-sized companies.
Also, it is very hard to find companies that are willing to sell in Japan. This is the difference between here and the United States. In Japan, selling a company is perceived as an embarrassment. One of our strategic strengths is that we have actually developed a methodology in order to find these companies that are willing to consider selling. This methodology focuses on a system allowing us to acquire information regularly from regional banks who hold the accounts, also with the equivalent of CPA offices in Japan that do tax accounting who, legally, are the only one who can file taxes for companies in Japan and therefore possess very accurate information.
We have become a platform between the financial institutions and these tax offices that collect the taxes and process them. If you look at the large investment banks, they have their own methodology for finding companies. The issue they run into is, for instance, that they would find a company willing to sell in Hokkaido–in the north of Japan–and a buyer in Hiroshima–the west of Japan. Regional banks and tax offices have no reason to communicate about that and have no way of evaluating the offers. So, that is where we come in as the “platform”. We offer everything as a package, the evaluation, the connection and the intermediary in negotiations.
Although it is still the third largest domestic market in the world, Japan can no longer afford to over rely on it considering the shrinking population and increasing global competitiveness. You have mentioned many activities in Asian countries that have high growth potential but do you see opportunities for M&A activities between Japanese and American companies?
There are two major areas of opportunities, notably in sharing technologies and penetrating markets through fair play and collaborations; but also in terms of our company’s ambition. The American M&A industry is about 15 years ahead of Japan which suggests an excellent learning opportunity. Therefore, I personally visit M&A companies in the US every year and I would like to formalize our relationships through agreements and more collaboration in the future for us to extend our skills by learning from them.
If an American company is looking to penetrate the Japanese market there are cultural affinities in terms of business opportunities, but also cultural challenges as the Japanese market is considered as a hard one to penetrate. In this context, why should US companies pick Nihon M&A as their key partner in Japan and Asia?
In a former era, like the one that I grew up in, you could speak English when you needed to go abroad to do business. Nowadays people with high education learn to speak English at university and can get around more easily. What used to be a barrier in acquisitions in Japan is no longer regarded as such, therefore we believe that the business practices will change more rapidly thanks to that.
The United States is at a historical turning point with the election of President Trump, who has used the word Japan with a negative connotation throughout his whole campaign. What would you like the American audience to know better about the strengths that Japan can offer and the opportunities to create deeper synergies between the two countries?
The thing about Trump is that he is not a career politician in terms of global security and other issues in which he does not have a lot of experience. In these areas, we will have to wait and see. On the other hand, he is a successful businessman and entrepreneur, so we shall look forward to his policies and judge them for their merit rather than looking back at his negative comments.
If we look at the European Union, they have had their problems but the truth is that they have become an economic block with their shared currency. If we look at the US and their surrounding trade partners such as Canada and Mexico, we can foresee a type of economic block under development or deepening. The same goes with China and the former Soviet Union countries, which are becoming a larger trade block too.
In that context, Japan is a bit isolated and one way to deal with that isolation is to deepen ties with the US but also with surrounding Asian countries, which is where the future growth is going to be fueled. As an M&A firm we are positioned to facilitate this trend and we intend to cooperate in that process.