Tomy on acquisition hunt?

Reports from Japan suggest that Tomy is on the acquisition trail, looking to make up for a declining domestic market.
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According to a story from the FT's Tokyo correspondent, demand for traditional toys in Japan has been falling by four per cent annually as a result of the popularity of video games. Japan's toy manufacturers are also still highly fragmented, making the sector seem ripe for consolidation.

Tomy is understood to be in talks to acquire a US-based educational board-game manufacturer and is also examining two Japanese rivals, although people familiar with the situation declined to identify any of the possible targets.

The Texas Pacific Group last month said it would buy a 14 per cent stake in the company, marking the first investment led by the private equity group in Japan following several high-profile deals elsewhere in Asia.

Jun Tsusaka, the head of TPG in Japan, has been quoted as saying that TPG wanted to increase Tomy's overseas sales ratio to 50 per cent from 15 per cent, in order to compete with toy giants such as Mattel and Hasbro.

"Tomy is making wonderful products that are quite innovative, but it does not have a global organisation," said Tsusaka. "The biggest opportunity will be China, which is growing at a pace of about 20 per cent a year. In Japan, we could find definite synergies [in acquiring another company] through distribution and lowering costs."

Tsusaka and Akio Ishida, a former vice-chairman of Merrill Lynch's investment banking unit who is now vice-chairman at TPG, have joined Tomy's board as outside directors.

The two men are spearheading a project committee that is examining all aspects of Tomy's business lines, including purchasing, brand value and supply-chain management.

Tomy's business has seen its domestic market share steadily eroded by the popularity of video games. In the year to March 2006, Tomy posted a group net loss of Y9.71bn ($82.4m) and for this year has cut its annual net profit forecast to Y1.7bn from Y5bn, blaming weak demand for traditional toys.

In order to trim costs and boost operating margins, TPG said, Tomy could bring down procurement costs by about 15 per cent. "Until now, in many cases, [Tomy has] relied on only one to two vendors for purchasing agreements," said Tsusaka.

Ishida said there was room for growth in educational toys and video-game related products, such as T-shirts and lunchboxes. Tomy is also considering launching internet sales. "We think that Tomy has the potential to become number-one in Japan,” he said.



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