Long-Term Value: Capitalizing on Japanese Strategics’ Appetite for Acquisitions in the U.S. and Europe

On a recent trip to Japan, Harris Williams Managing Directors Thierry Monjauze, Sam Hendler and Daniel Wang met with a number of large Japanese technology companies. Their key takeaway: There is substantial appetite among Japanese companies to acquire U.S. and European technology firms offering differentiated software solutions. However, successfully working with Japanese strategic acquirers can be challenging, and requires some different approaches.

    Key Takeaways

    • Large Japanese corporations are looking to the U.S. and Europe for leading-edge business-to-business software acquisitions.

    • Acquisition appetite is particularly strong in HCIT and payment technology.

    • Western companies seeking to work with these corporations should start building relationships early, including relationships with venture capital arms of Japanese companies.

    The specific opportunity is to team up with a Japanese company possessing a strong market footprint in Japan and throughout Asia, but there is a lack of B2B technologies, says Hendler: “Such companies have historically been highly focused on consumer technologies. The biggest players have become household names through decades of innovation, spawning countless products that consumers around the world use every day.”

    However, Hendler explains that this focus means these organizations do not necessarily have the same depth of experience in developing sector- and/or function-specific enterprise technology solutions—and therein lies the opportunity for Western companies.  

    “There’s tremendous unmet demand for technology products that solve enterprise business problems—for example, by making a business process more efficient or streamlining transactions between enterprise partners—not only in Japan but throughout Asia,” adds Monjauze.

    Wang concurs: “By acquiring successful Western companies that don’t have Asian footprints, Japanese companies can leverage their sizable Asian customer base to help bring these solutions to the Asian market—and, in the process, strengthen their own presence within that market.”

    Two arenas provide especially promising opportunities for U.S. and European technology companies: Health Care IT and Payments.

    Health Care IT

    For Japanese companies with historical strength in medical imaging, software can enable deeper, “stickier” relationships with heath care providers. In particular, applications that link medical equipment to a hospital’s workflow and clinical processes can boost the value of that equipment to its owners while providing a new, recurring revenue stream for the manufacturer.

    “Imaging plays an incredibly important role in diagnosis and treatment,” says Hendler. “To the extent that you can better integrate imaging results into the clinical workflow, you are helping to drive higher quality care at lower costs. Japanese manufacturers have the health care relationships needed to bring these applications into the market.”

    There are also health care-related software opportunities outside of hospitals for Western companies. For instance, the country’s rapidly aging population is creating a need for novel technologies that can help health care providers engage with patients receiving care at home. Software tailored for use by home-care agencies could enable health care providers treating in-home clients to track interactions and medications, record vital signs to maintain an ongoing picture of clients’ health, and predict potential health issues.

    Payments

    While many Western consumers have embraced fast, convenient electronic payment technologies, Japanese consumers tend to have a different mindset.

    “Japan is still a very cash-oriented culture,” says Wang. “While adoption of electronic payment technologies is increasing, it’s dependent upon a good fit with local culture and customs.” Indeed, cash accounts for 62% of Japanese consumer transactions, compared to 22% in Britain, 34% in America, 10% in South Korea and 50% in China.1

    Yet Japanese retailers and other consumer-facing businesses such as travel and hospitality are eager to take advantage of the efficiencies and cost savings that electronic payments can enable. At the same time, they appreciate the challenges of changing consumer mindsets.

    “Their view is that payments need to be localized,” says Monjauze. “Software providers need to understand the specific nuances of the geography to determine the right solution, and fully leverage the potential of payment technologies. Companies using these systems need to build trust and adoption over time, local market by local market, even if they have the best technologies, because it's still so driven by consumer preferences and comfort levels.”

    As such, Japanese buyers and investors are looking for payment technologies that appear familiar, safe, and easy-to-use to consumers. This favors companies that have proven records of combining reliable, leading-edge technology with highly customizable user interfaces that can easily be tailored to local preferences and established brand identities.

    The Relationship Factor

    In each of the areas described above, there is significant potential for U.S. and European technology companies to sell to, or partner with, Japanese companies. What steps can companies take to capitalize on it?

    To begin with, Western software companies should bear in mind that selling to a Japanese owner typically takes longer and requires earlier engagement than working with U.S. or European strategic buyers or private equity groups.

    “Many Japanese companies employ a heavily consensus-based decision-making process,” says Hendler. “The progress of a transaction is reliant upon pre-existing partnerships and the strength of personal relationships. It’s really important to work with an advisor who understands the individual idiosyncrasies of each buyer, and their internal approval processes and decision-making mechanics."

    Along the same lines, in some instances Western technology companies can consider building relationships with the venture capital divisions of large Japanese corporations well in advance of a potential transaction.

    “Some Japanese strategics, including Mitsui and Rakuten, use their venture capital arms to establish a foothold with a Western acquisition target,” says Monjauze. “This gives them an incentive to help that company grow, and provides ideal conditions for the relationship-building a successful transaction ultimately requires.”

    Conclusion

    Aware of the business benefits of leading-edge U.S. and European software, large Japanese companies are actively seeking acquisition targets in several areas, including health care IT and payments. To capitalize on this opportunity, however, Western companies must be aware of the importance of relationships, and consider ways of building them well in advance of a transaction.

    Published October 2018

    Sources: 

    1.  https://www.economist.com/finance-and-economics/2017/11/02/in-japan-the-...