Japan building group Lixil to ease off  acquisitions

By Tanya Powley. This article originally appeared on the Financial Times website, FT.com on January 1st, 2014

Lixil, the Japanese buildings material group, will not make any big acquisitions for the next few years while it digests recent overseas takeovers, says Yoshiaki Fujimori, chief executive.

This year Lixil paid more than Y400bn ($3.8bn) to acquire American Standard and Grohe in Germany, both plumbing and bathroom fixtures companies. To round off its spending spree, the Japanese manufacturer bought a stake in struggling electronics maker Sharp and took a 70 per cent stake in Star Alubuild, an Indian curtain wall company.

“Our company had been very much domestic focused. We could see that Japan has a declining population, its not really growing in terms of business and we knew we needed to look overseas for growth,” says Mr Fujimori, a former GE executive who took the helm of the company in 2011.

Lixil set itself an ambitious target to boost overseas sales to Y1tn through acquisitions. “The vision we set was to have a footprint in major continents such as Europe, America and Asia. We wanted to become the number one global sanitary company,” Mr Fujimori says.

He is confident the company will be able to reach its target by 2020, when Tokyo will host the Olympics. Today, the company has overseas sales of Y300bn. In three years, Lixil’s overseas sales have grown from just 2.7 per cent to 14.3 per cent. By March 2015, it expects to increase this to 20 per cent following the consolidation of American Standard.

The election of the new Japanese government and its “Abenomics” programme has helped Mr Fujimori push forward with the company’s growth plan. Shinzo Abe, the prime minister, whose motto since winning office in December 2012 has been “Japan is back”, has embarked on an ambitious effort to “reflate” the economy, using a combination of government spending, aggressive monetary stimulus and the promise of structural reform.

“If the Japanese environment had not been so good we would not have been as aggressive with our acquisitions,” says Mr Fujimori. The successful purchases has helped win Lixil’s chief executive a reputation for dealmaking, experience he says he developed during his time at GE.

However, Mr Fujimori says he is largely finished with big acquisitions for the next few years, although he will consider smaller deals in local markets. Lixil wants to grow further in emerging markets, which now represent just 35 per cent of its overseas sales.

In contrast to 2013, the next two years will see Lixil focus its attention on integrating its recent acquisitions. Mr Fujimori says his time at GE highlighted the importance of having a strong back room structure, an area he sees as lacking in Lixil. “We are not as good as GE on infrastructure but we are investing in the Japanese business to strengthen it,” he explains.

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