This post is also available in: Japanese
A record number of British companies have been sold to overseas buyers in the past two months, according to a report from Refinitiv, a subsidiary of the London Stock Exchange. The targets have mostly been undervalued services companies in sectors such as insurance, gambling and security. These acquisitions have been described more as a corporate raid than a positive investment, as many were carried out by private equity firms and also what are known as Special Purchase Acquisition Companies, or Spacs.
Special Purchase Acquisition Companies originated in the USA. A group of investors set up a company, raise money on a stock market, and then look for something to acquire, with the intention of then selling it off at a profit. The City of London is currently discussing whether or not to make itself even more attractive to such companies.
This could end up as just another form of asset stripping, similar to what in Japan would be called Vulture Funds.
Japanese companies have also started acquiring British and European companies again, after a year when it was difficult to do the required due diligence because of the pandemic. Renesas is looking to acquire the UK-German chip design company Dialog, Nishimoto has just announced the acquisition of Sco-Fro, a Scottish importer of frozen fish and noodles and Ricoh has unveiled its 5 year plan, including funds to acquire companies in Europe.
These acquisitions are very different to those carried out by private equity or Spacs of course. According to my research, British companies that have been acquired by Japanese companies over the past five years have, on average, expanded their employee numbers by somewhere between 10 to 25%. Japanese companies try to pick companies that will support their profitable growth overseas. They are also willing to invest in new equipment and other forms of expansion, such as further acquisitions.
The recently announced UK budget provides further incentive for capital investment – a two-year tax break allowing companies to deduct 130% of their investment from their taxable income. This is to cushion the blow of corporation tax rising from 19% to 25% in 2023. Cynics suspect that the timing of this is to coincide with a possible election in 2023, and if the economy has sufficiently recovered, tax cuts will be announced for the future.
In any case, for Japanese companies, low corporate tax rates are not the primary attraction, particularly given Japan’s revised tax haven laws. They should be welcome investors in the UK and the rest of Europe – so long as they remember to communicate that they are looking to grow and invest for the long term, rather than seeking short term profits from restructuring.
This article originally appeared in Japanese in the Teikoku Databank News in April 2021.
Rudlin Consulting and Japan Intercultural Consulting have worked with many Japanese and European companies on post merger integration and corporate culture – please contact Pernille Rudlin for further details.
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