Question

Merger and Acquisition ch 17

1 why is M&A activity in Europe in recent years growing at a more rapid rate than in the United States?

2. Why is M&A activity increasing in Japan in recent years?

Answer 1

1. The reliance in the political and corporate landscape is the major reason for increased M&A activity in Europe over the recent years as compared to US. Lower corporate [tax] rates, immediate deduction of US capital expenditures and the potential for companies with cash abroad to repatriate funds without overly onerous tax consequences likely would be additive to growth, corporate profits and overall deal activity. An abundance of capital available at historically low borrowing rates coupled with investor pressure on corporates to find growth will mean more dealmaking. Europe’s leading multinationals looked to the US to escape slower regional growth and gain a foothold in an often more reliable US market.Many companies face poor organic growth prospects, forcing them to consider buying rivals or expanding in new territories. The government have enacted measures to complicate consolidation or foreign takeovers. US regulators blocked several of the largest deals from a year ago — in some instances on competition grounds and in others with aggressive changes to tax policy to stem the flow of so-called inversions, which allow companies to move overseas to reduce their tax burdens.

2. Japanese firms have been acquiring overseas assets more aggressively in recent years and will continue to do so as they seek to increase market share in the global economy, Total merger and acquisition transactions in Japan inched up 1.5 percent year-on-year to $198 billion in 2016 The number of outbound M&A transactions, or the acquisition of foreign companies by Japanese companies, increased significantly. It has been noted that the reasons for this trend include seeking growth opportunities amid a shrinking Japanese market along with the continued rise in the value of the yen. Japanese corporations have increasingly embraced outbound M&A to fund growth and advance their strategic objectives which has become necessary to enhance competitiveness and growth.

Japan's declining population and a slowing economy have created a greater sense of urgency among its corporations to pursue outbound acquisitions, enter new markets and gain new products and capabilities. The low borrowing costs and supportive government policies have also aided the growth prospects.