Sumitomo Mitsui Financial Group has agreed to pay $386m for a stake of up to 4.9 per cent in Jefferies as the conservative Japanese megabank turns its sights towards the rich pickings on Wall Street.
The deal, which marks a return to US-focused M&A by Japanese banks after a hiatus of more than a decade, comes as deal bankers and lawyers are hoping for an explosive, post-pandemic return to international dealmaking by corporate Japan.
Japanese banks have long been attuned to the diminishing prospects of their domestic market, as the population begins to shrink and age and cash-rich Japanese corporate clients are decreasingly dependent on their lenders for capital.
That has driven a wave of expansion through acquisition by the Japanese megabanks that was focused on the US until about 2008 when attention shifted more to Asia. SMFG’s last major foray outside Asia was in 2015 when it paid $2.2bn to buy General Electric’s European private equity financing unit.
SMFG and Jefferies said on Wednesday that their tie-up will extend into leveraged finance business, cross-border acquisitions involving Japanese companies and deals in the US healthcare sector.
The alliance follows several years of intensifying interest by global private equity giants such as KKR, Blackstone and Carlyle in buyout opportunities in Japan.
Under the tight travel restrictions imposed by the global pandemic, Japan’s ongoing boom in foreign acquisitions slowed abruptly, limiting the flow of deals to those that were already well advanced before lockdowns were implemented. But there have been signals in recent months that pent-up demand for outbound M&A is finally being unleashed.
Hitachi said in March it would pay $9.6bn for US software developer GlobalLogic. The following month Panasonic announced its biggest acquisition for a decade when it bought US supply chain management group Blue Yonder for $7.1bn.
The overseas dealmaking record of Japanese banks has a mixed history. Nomura’s 2008 acquisition of the European and Asian operations of Lehman Brothers was widely regarded as a disaster from which it has only recently managed to fully recover.
During the global financial crisis, large US and European banks turned to emergency funding from Japanese counterparts with Mitsubishi UFJ Financial Group buying a 20 per cent stake in Morgan Stanley for about $9bn and SMFG making a £500m investment in Barclays.
In 2012, Japan’s second-largest lender bought the aviation finance business of RBS for $7.3bn. More recently, it has focused on opportunities in Asia with SMFG agreeing on a $1.4bn deal to acquire a stake in Vietnam’s biggest non-bank lender FE Credit in April.