06/10/2017 - 13:56

Deals lift Japanese presence

06/10/2017 - 13:56

Bookmark

Upgrade your subscription to use this feature.

Acquisition deals involving Perth companies Programmed Maintenance Services, ASG Group and DVG Automotive Group show a growing Japanese presence in the market.

Deals lift Japanese presence
Geoff Lewis says the ASG and SMS deals reinforce Nomura’s Australian strategy. Photo: Attila Csaszar

Acquisition deals involving Perth companies Programmed Maintenance Services, ASG Group and DVG Automotive Group show a growing Japanese presence in the market.

The Programmed and ASG deals add to a series of transactions via which Japanese businesses have broadened their interest beyond mining and energy projects in Western Australia.

The most recent move was Japanese recruitment company PERSOL Holdings bidding $780 million for Programmed Maintenance Services, with shareholders voting overwhelmingly today to approve the deal.

That followed Nomura Research Institute’s purchase of another Perth company, IT services firm ASG Group, for $349 million last year.

The wide gaze being cast by Japanese investors was illustrated by IDOM Inc (formerly Gulliver International).

It purchased a 67 per cent stake in Perth-based car dealer DVG Automotive Group in 2015 and, as discussed below, the results have not been positive.

ASG Group chief executive Geoff Lewis says one of the motivators for the Japanese companies is the persistent slow growth in their domestic market.

“That market is pretty tough, it’s not a growing market,” he said.

“They have to look at how they grow strategically and that’s through acquisition.”

With backing from Nomura, ASG has recently completed another acquisition – paying $123 million for Melbourne-based SMS Management & Technology.

Mr Lewis said the ASG and SMS deals were Nomura’s biggest acquisitions.

“That’s a reinforcement of ASG and the management, but more importantly it’s a reinforcement of the Australian market and the opportunities they see here,” he said.

Mr Lewis said Nomura was very deliberate in its approach; he spent 11 months dealing with the Japanese company before the ASG acquisition was concluded.

Nomura has subsequently appointed three directors to ASG’s five-member board, but otherwise has given local management a large degree of autonomy.

“They have just left us to run it,” Mr Lewis said.

He said the plan was to take advantage of the challenges facing some of the major tier 1 players in the ICT market.

“The big traditional players are in all kinds of strife,” Mr Lewis said.

He believes the legacy infrastructure held by the big players makes it harder for them to compete against cloud-based providers such as Amazon Web Services.

ASG expects to benefit in future from Nomura’s strong balance sheet; it is listed on the Tokyo Stock Exchange with a market capitalisation of $A12 billion.

Combined with SMS’s specialist services, Mr Lewis is confident ASG will be able to win bigger contracts against the tier 1 incumbents.

“One thing that precluded ASG from winning the big deals that could take us to the next level was our balance sheet,” he said.

“There is no doubt the SMS transaction also helps, we now have $500 million revenue, 2,000 people, our capability is much greater.”

Mr Lewis said the combined business had the capacity to deliver a complete digital transformation service, from infrastructure and managed services, through to business and IT advice and solutions implementation.

ASG would target contracts worth up to $300 million.

Nomura’s foray into Australia extends beyond the ASG and SMS acquisitions.

Online stockbroker OpenMarkets recently become the first broking firm in Australia to implement Nomura’s back-office solution for processing equity trades.

Nomura’s growing presence in the Australian market followed a lead set by other large ICT companies from Japan.

NEC bought CSG’s technology solutions business in 2012, and it was preceded by NTT’s acquisition of South African company Dimension Data, which has large Australian operations.

PERSOL’s move into the Australian recruitment market also has a precedent.

Japanese company Recruit Holdings bought Chandler Macleod and Peoplebank for $358 million in 2015.

IDOM’s acquisition of DVG has illustrated the risks associated with growth by acquisition in a foreign market.

The $120 million price paid by IDOM was a surprisingly high 19 times DVG’s pre-tax profit – the sort of earnings multiple normally associated with larger listed companies.

Since the acquisition, auto sales in WA have trended sharply down and DVG has incurred substantial losses.

IDOM’s stock exchange filings in Japan show DVG lost $5.2 million in the year to February 2017 on sales of $460 million, and lost a further $2.6 million in the three months to May 2017.

It would be little consolation for IDOM, but Japan Post has fared even worse in this country.

It paid $6.5 billion for trucking and logistics group Toll in 2015 and has subsequently made a $4.7 billion write-down.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options