Mizuho Seeks to Back More Strategic Deals By Japan’s Mid-Caps

(Bloomberg) -- A growing number of Japan’s mid-cap companies are considering buyouts and other strategic options, according to Mizuho Financial Group Inc., which is seeking to increase lending and advisory services to the sector.

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“There are quite a few companies that are experiencing stagnant growth and have price-to-book ratios below one,” said Masahiko Kato, chief executive officer at Mizuho Bank Ltd., in an interview. “We want to help them make growth strategies and provide necessary services” if they choose to buy or sell businesses and assets as part of corporate overhaul, he said.

Although blue-chip Japanese companies such as automakers and tech firms grab the attention of global investors, smaller firms dominate in terms of the number of companies in the country, and some of the listed corporations are starting to outperform their bigger peers in the share market. The smaller listed firms are also facing pressure from policymakers to bolster their stock valuations including through mergers and acquisitions.

Mizuho’s bankers in branches across the nation work with small- and medium-sized enterprises, but even so the lender set up a team dedicated to smaller firms in April last year, said Kato, who leads the core commercial banking unit of Japan’s third-largest lender. The number of staff on the team has increased to about 70 from seven when it started, he said.

Smaller Japanese companies are sharply increasing M&A: the volume of deals announced by Japan’s small- and mid-cap companies rose 55% in the first half to $19.7 billion, according to data compiled by Bloomberg. Their shares are also outperforming the blue-chip Nikkei 225 Stock Average, which has fallen 0.7% since the start of Japan’s fiscal year on April 1 while the Topix index for small-caps has gained 0.5% and the mid-cap gauge has advanced 0.7%.

In addition to pressure from Tokyo’s stock exchange and the Japanese government to improve corporate governance, the country is becoming a fertile ground for activist investors encouraged by the increase in company managers who listen to requests from shareholders.

So far this year, activists have made about 100 investments in Japanese companies with a market value totaling around $321 billion, according to data compiled by Bloomberg.

Shareholder proposals are at a record high for the third consecutive year, and as a result of greater scrutiny from investors, the number of companies going private is on the rise. The volume of management buyouts in Japan increased to the highest on record last year.

Kato said in addition to buyout financing, the bank sees various business opportunities for the bank and Mizuho’s other units, such as advising carve-out sales—selling off parts of units—-and other strategic actions.

Saudi Arabia

Outside of Japan, Kato said the bank is seeing solid business growth in places like Saudi Arabia along with India. Bloomberg reported last week that Mizuho recently received a license to set up its Middle Eastern regional headquarters in Riyadh.

In addition to providing finance and other banking services there, Mizuho is trying to tap the region’s growing interest in Japan as investment destination, as well as increase ties with the Saudi government and its state-run businesses, Kato said.

--With assistance from Ben Scent and Hideyuki Sano.

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