The One Big Buyer.(International Edition; JAPAN)

Byline: George Wehrfritz And Akiko Kashiwagi

Japanese firms flush with cash are acquiring rivals all over the world.

On Nov. 11, Japan's Mitsubishi Rayon Co. announced that it would pay $1.6 billion for the unlisted British chemicals manufacturer Lucite International Group, in a deal that says quite a lot about where financial power is held in the world today. Set against the current financial downturn--with its emergency bailouts and stimulus packages tallying in the hundreds of billions--the transaction looks tiny to the point of insignificance, yet in fact it reflects an important trend: Japanese companies are now spending more than $1 billion a week in outbound mergers and acquisitions, making them a critical source of new investment in a global M&A industry battered by this year's financial crisis.

Japan's foreign purchases have surged some 365 percent in value so far in 2008, pushing the country past China to become the top source of outbound M&A investment in Asia and among the top seven in the world. Japanese firms have spent $61 billion overseas since Jan. 1, according to Thompson Reuters, or roughly half the total of outbound M&As from the market leader, the United States. And its spending spree runs counter to a sharp retrenchment globally; cross-border M&As have slumped some 60 percent compared with 2007, to about $1 trillion total worldwide, as leveraged buyouts (the industry's growth engine from 2003-07) become all but impossible to finance. "The slowdown of the credit markets has completely shut down debt financing for a lot of the large private-equity funds," says Anjali Naik, head of private-equity coverage in Asia for the M&A intelligence service Mergermarket. In contrast, "Japanese companies are extremely cash-rich, and now they're increasingly looking abroad for what they can't get domestically."

Export titans like Toyota and Sony built their overseas operations organically through decades of careful spadework. In contrast, companies that rely primarily on Japan's domestic market are leading today's outward expansion. These include prominent banks, telecoms, trading houses, chemical companies and food processors, all of them heavily beholden to Japan's aging population and sluggish national economy, but cognizant that overseas acquisitions now offer a shortcut to future growth. Their biggest advantage: they're flush with money at a time when many Western companies are dangerously overextended, and as asset prices continue to fall globally, Japanese ...