Peak US Asset Prices? Japanese Acquisitions Hit Record
Their buying binge in the US goes into the “Contrarian Indicators” category.
After eight phenomenal years of surging stock prices in the US, buyers are getting cold feet: Acquisitions targeting US companies dropped 15% so far this year, to $789 billion, according to Dealogic. In Japan, it’s worse: Acquisitions targeting Japanese companies have plunged 41% to $33.6 billion.
But despite the M&A downturn in both countries, there is one peculiar element that is booming: Japanese companies are acquiring US firms at record pace. This year’s 141 deals exceed the prior record for this time of the year by 18%.
In a deal announced on August 24, SoftBank, a Japanese multinational telecommunications and Internet conglomerate that already owns some US jewels such as Sprint and has $135 billion in interest-bearing debt, invested $4.4 billion in US startup WeWork. The deal is rumored to value WeWork at $20 billion.
The deal, done via SoftBank’s Vision Fund, has two parts: $1.4 billion in funding to help WeWork expand in Asia (which includes the previously announced $500 million investment in WeWork China), and $3 billion in funding for WeWork’s parent company.
US commercial real estate – the sector WeWork is in – boomed for seven years straight and prices reached such highs that even the Fed is now consistently mentioning it as one of the big reasons for removing “accommodation” and unwinding QE. It’s worried about $4 trillion in debt that is collateralized by this inflated commercial real estate.
So just in the nick of time. According to Dealogic, SoftBank’s $4.4 billion deal is Japan’s largest outbound real estate deal on record.
SoftBank is all over the place. In June, it announced that it would take two robotics firms – Boston Dynamics and Schaft – off Alphabet’s hands, after Alphabet tried to unload them for a year. Terms of the deal were not disclosed.
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