WATCH: Japanese firms pursuing overseas expansion via M&A – the case of Rohto and Eu Yan Sang

On April 4, Rohto Pharmaceutical and Mitsui & Co announced their intention to acquire 86 per cent shares of Singapore-headquartered Chinese herbal medicine firm Eu Yan Sang, making it one of the most high-profile M&A in the health and nutrition sector in recent months.

Around the same time last year, brewery giant Kirin also announced its plans in acquiring Australia’s health supplement company Blackmores,​ which was completed in August.

Across different sectors, Japanese companies are bucking the global trend where M&A deals have been on the decline.

Reuters ​reported in March that M&A activities in the rest of Asia-Pacific had dropped 26 per cent last year and 16 per cent so far this year. In contrast, nearly US$17bn worth of overseas acquisitions by Japanese companies have been announced for this year. This was said to have been the strongest start to the year since 2019.

Speaking to NutraIngredients-Asia, ​industry veteran Hisaaki Kato, president and founder of consultancy firm Smooth Link (Japan), pointed out that M&A by Japanese companies have been increasing consecutively since 2012 in a bid to grow their overseas presence, although the momentum was disrupted by COVID-19 in 2020.

“In general, Japanese companies are quite active in M&A, especially by listed companies. The number of M&A by Japanese companies had increased consecutively for eight years from 2012. ​

“The number of M&A activities had dropped a little in 2020 due to COVID-19, but from 2021, nearly 1,000 cases of M&A have happened each year,”​ said Kato, who had spent eight years building DSM’s Japanese business and managing its M&A activities in the region prior to joining Smooth Link.  

He noticed that companies with strong distribution presence and recognition in Asia are some of the main attributes that make them attractive M&A targets to Japanese companies.

“Japanese companies are eager to expand overseas, especially into [other parts of] Asia. Location wise, it is closer and culturally wise, there are some resemblances.” ​

According to Rohto Pharmaceutical, with the acquisition of Eu Yan Sang, it would like to prioritise and focus on Asia, including Indonesia and Vietnam where Rohto is already present in, while also acknowledging that there is potential outside of Asia.

Mitsui & Co., on the other hand, is a global trading house, that had previously invested in Eu Yan Sang through a fund managed by Tower Capital Asia in November 2022 and has “reconfirmed”​ its strong business potential.

In its project outline, Rohto highlighted that the 145-year-old Eu Yan Sang was the “largest manufacturer and distributor of Chinese medicines in South East Asia”.​

As of June 2023, Eu Yan Sang has opened retail 176 stores, with the bulk of it located in Malaysia at 71 stores, followed by Hong Kong at 59 stores, and Singapore at 42 stores.

Singapore was also its largest sales market, contributing 37 per cent to its total sales of SGD$297.3 million (US$218m), with Malaysia and Hong Kong each contributing 31 per cent.

In fact, Eu Yan Sang is also pursuing growth in North America​, where its products are available online via Amazon, Weee!, Yami. Offline, the products are also sold in herbal stores and Chinese medical halls in New York and San Francisco.

Distribution and recognition ​

Having a strong distribution presence makes a potential M&A target more appealing, said Kato, as companies would not need to start establishing themselves from scratch.

“I think the main focus are sales channels in the countries where they (the companies initiating M&A) want to go to. ​

“Because this means they don’t need to spend so much to establish sales channels. They can use existing sales channels of the company acquired or have a partnership.”​

“Good employees, good sales channels, and good recognition by consumers, are the three very attractive attributes,”​ he summed up.

In its announcement, Rohto Pharmaceutical said that Asia accounted for 30 per cent of its total sales and this was expected to grow further.

With the alliance, it is expected that its overseas sales ratio will increase to around 50 per cent.

“By combining EYS' strong product portfolio and brand reputation in Asia with Rohto Pharmaceutical's research, technology development and sales capabilities, Rohto Pharmaceutical aims to be a leading innovative health business,” ​it said in the announcement.

The M&A process will see the setting up of a special purpose company in Singapore jointly owned by Mitsui and Rohto, which will acquire approximately 86 per cent of Eu Yan Sang shares from Righteous Crane Holding Pte. Ltd. The shares in total (100 per cent) would amount to about SGD$800m (US$587m). 

The deal is expected to close by June. 

Areas for collaboration ​

Aside from herbal medicines, Rohto Pharmaceutical is seeing opportunities for further growth in other areas such as food, supplements, and materials.

“TCM (Traditional Chinese Medicine) is extremely popular, and Chinese herbal medicine is also attractive. I also feel that there is an opportunity for further growth in food, supplements, and materials. Importantly, I continue to place great importance on high quality, because we have been handling medicine for a long time,”​ the company said during the Q&A session regarding the acquisition of Eu Yan Sang.

Rohto Pharmaceutical is perhaps best known for its eyedrops, face wash Hada Labo, and lip balm brand Mentholatum.

Supplements wise, its products span across vision care, beauty-from-within brand HelioWhite, fertility supplement brand Cell Alive, and protein powder etc.

On top of that, they also operate businesses in OTC drugs and regenerative medicines. 

The potential areas of collaboration between Rohto and EYS could include food products and is less likely to be in the areas of eye drops or skin care.

“It's hard to imagine selling eye drops or skin care, but I think there may be opportunities for collaboration in the areas related to EYS brand or food which is suitable for the stores. In addition, EYS runs clinics, and Rohto also operates clinics in Asia. We believe that we can create synergies not only in products but also in services,” ​said Rohto. 

Mitsui also said it believed it could generate synergies based on Chinese medicine as health in Asia became globalised, with different solutions emerging. 

While Japan also has its herbal medicine system known as Kampo, it is unlikely that Eu Yan Sang’s products would be introduced into Japan due to regulatory hurdles.

There are about 1,000 kinds of TCM for medical use, and 4,500 for general use in China. However, in Japan, only 148 kinds of Kampo medicines have been approved for medical use, and nearly 300 for general use, Kato pointed out.  

“The numbers are so different, that means if we want to bring pure TCM businesses into Japan, I don’t think it will be easy, because of the regulatory hurdles.​

“But if you do things (business) in places where TCM is acceptable, in other Asian countries, it is wiser to do it outside of Japan.​

“Like I have mentioned, their intention is more about expansion into other Asian countries outside of Japan,” ​he said.

Rohto also pointed out the same, saying that it would be difficult to bring Eu Yan Sang’s traditional Chinese medicine to Japan, as each country has its own approval regulations.