Planning for growth: Corporate portfolio management in Japan 2017
Deloitte Tohmatsu Financial Advisory LLC in collaboration with Acuris Studios, conducted a survey related to Business Portfolio Management in Japan. The survey respondents’ individual and collective sentiments have helped to take the pulse of the market with regard to the rationales, activity, and trends in corporate portfolio management.
Overview of survey
From April to May 2017, Acuris Studios, the publishing division of Acuris, canvassed the opinions of 100 business leaders from Japan. 80% categorized their company as a Japanese corporation, 15% as a Japanese private equity firm, and 5% as an international private equity firm operating in Japan.
Room for improvement in portfolio management
Only 55% of respondents said their portfolio management programs were effective, with another 44% citing neutral results. The situation was more severe when identifying Businesses to divest or exit, with only 30% finding their portfolio management programs at least moderately effective.
Almost all (99%) respondents conducted their most recent portfolio review to identify existing businesses to grow or re-invest in, though 80% expected a shift to restructuring underperforming businesses in future reviews. Reflective of the trend in cross-border M&A, 60% anticipated that acquisitions in foreign markets would be a priority in future reviews, compared to just 41% who addressed such deals in recent reviews.
Dedicating more resources
Restructuring existing businesses, conducting a domestic divestment or exit, and conducting cross-border divestments and exits required more time, resources, or budget based on past experiences among respondents. In this vein, objectives deemed to have met original goals and expectations by the fewest respondents were: conducting a cross-border divestment or exit (20% of respondents), expanding or acquiring a business (31%) and conducting a domestic divestment or exit (42%).
Review regularly, review flexibly
Of timeframes, 85% of respondents said they performed portfolio reviews at least annually, with 44% stating that reviews should be conducted on at least a semi-annual basis. Some highlighted the importance of retaining the option of adjusting the frequency of reviews in response to market changes.
Valuation fails to meet seller expectations
Of respondents that conducted divestments as part of their most recent portfolio assessments, only 40% said the decision to divest was made as part of a proactive plan. 59% said this decision was crisis driven, with 12% indicating their response had a negative impact on the asset valuation. This is in spite of 37% of respondents asserting that price and valuation was their top priority when divesting.
Recycling and reallocating resources
When divesting, negotiating the closing price was where the fewest respondents (37%) were satisfied with the outcome, in spite of there being 72% who believed they had dedicated sufficient time and resources to price negotiations. Post-deal, 79% intended to re-invest in existing businesses using the capital raised, while 56% planned on taking to an accelerated growth route by making an acquisition.
Domestic deals still a priority
Japanese corporations are still hungry for domestic M&A with 84% of respondents identifying investments in Japan as a priority in the coming year, followed by cross-border deals (56%). Those interested in acquiring domestically were driven mainly by achieving cost synergies (76%), achieving growth in market share (67%), and gaining access to new technology or innovation (66%).
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