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Orix’s Big European Acquisition Could Signal a Wave of Japanese Takeovers
In February 2013, Tokyo- and Osaka-based financial services firm Orix Corp. agreed to buy Dutch asset manager Robeco Group for €1.94 billion ($2.6 billion). The biggest-ever Japanese takeover of a foreign asset manager, the Robeco deal may be followed by other large Japan Inc. acquisitions.
On the hunt for foreign acquisitions since the 2008 financial crisis struck, Orix Corp. is finally taking on the world. In February the Japanese financial services conglomerate made the largest takeover in its history, agreeing to buy 90 percent of Dutch-based asset manager Robeco Group from the Netherlands’ Rabobank for €1.94 billion ($2.6 billion).
The biggest-ever Japanese purchase of a foreign asset manager, the pending deal gives Tokyo- and Osaka-based Orix access to the pension and asset management markets in Northern Europe, a relatively safe part of the euro zone. Unlisted Robeco came at a bargain, well below its €3 billion price tag when Rabobank put it up for sale a year earlier, before the European Union’s debt crisis took hold. “Maybe the euro zone will disappear, but Robeco is very strong,” says Orix president and COO Makoto Inoue, the deal’s chief negotiator, in an interview at his Tokyo office. “Even during the height of the EU crisis, this company was in good shape.”
In 2010, Orix had picked up Columbus, Ohio–based debt and equity capital provider Red Capital Group and Harrison, New York–based hedge fund Mariner Investment Group for less than $50 million apiece. As Japanese Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda pursue their quantitative easing policy, under which the BoJ will buy as much as ¥7.5 trillion ($76.7 billion) worth of government bonds each month, Japan Inc. will probably seek more large acquisitions at home and abroad, says Hironari Nozaki, a Tokyo-based financial sector analyst with Citigroup. QE will flush liquidity into the corporate sector and boost an economy wracked by deflation for nearly 20 years, Nozaki contends.
Founded in 1964, Orix listed on the New York Stock Exchange in 1998 and operates in 28 countries and regions; more than half of its shareholder base is outside Japan. One of Japan’s top 20 financial institutions, it’s projecting ¥1 trillion in revenue and ¥110 billion in net profits for the fiscal year ended March 31. Orix’s business ranges from banking and insurance to corporate financial services and real estate development. The Robeco deal diversifies its revenue and yields new synergies, Nozaki says. Besides expanding its customer base to the EU, Orix can sell Robeco products in Asia and build its presence in the U.S., where both firms have operations. “A big move like this is indicative of how important overseas growth opportunities are for Japanese companies,” notes Neil Katkov, Tokyo-based head of Asia for financial research firm Celent.
Orix beat out half a dozen rivals for Rotterdam-based Robeco, which has 14 offices worldwide and manages €189 billion in assets, mostly from corporate clients in Europe’s wealthy Benelux region. Utrecht-based Rabobank still owns 9.99 percent of Robeco and will invest €150 million in Orix. “Rabobank decided to sell Robeco to Orix on the basis that becoming part of Orix will enhance Robeco’s future growth prospects,” says Robeco CEO Roderick Munsters. His firm has had a sales office in Japan for more than a decade, and being part of Orix will help it do more business there, he adds.
Before the Robeco takeover, Orix’s asset management division was tiny, but now it will account for 15 percent of net profits. In addition to a big offshore platform to distribute Japanese investment products in Europe, Orix gains a conduit to sell European products to middle-class Japan. “Japanese investors have more than $15 trillion in savings, more than half of which are sitting in bank deposits,” president Inoue says. “Even if 10 percent of the deposits were to come into asset management, the opportunity for Robeco Japan would be huge.”
With more than $10 billion in cash on hand, Orix won’t hesitate to buy other quality companies at the right price, Inoue asserts. “We may want to invest in the U.S. as the U.S. is recovering,” he says. “Compared to Asia, the U.S. is still cheaper.”