Interview with Recomm Co., Ltd.
Trading company | Japan

Go global! A cross-border M&A case of a specialized trading company to develop overseas customers

Recomm Co., Ltd.

M&A Case Interview

Company Name: Recomm Co., Ltd. (Japan)
Business: international solutions business, domestic solutions business, BPR business
Net sales: approx. 6.6 billion yen (IFRS)
Number of employees: group consolidated 482
Company Name: Sin Lian Wah Lighting Sdn. Bhd. (Malaysia)
Business: wholesale and retail of lighting fixtures
Net sales: approx. 1.6 billion yen
Number of employees: 25

* Information at the time of execution of M&A

*This article was originally released on April 25, 2022.
Every business is still affected by the protracted the pandemic of Covid-19 in the world. In the case of M&A transactions with overseas companies, traditional face-to-face communication continues to be impossible due to measures taken in each country to prevent the spread of the infection.
Under these circumstances, Tokyo-based RECOMM Co., Ltd. (hereinafter, this is called "RECOMM ") in Tokyo attended a signing ceremony with Sin Lian Wah Lighting Sdn. Bhd.(hereinafter, this is called "SLW") of Malaysia on August 31, 2021. The emphasis of Hidehiro Ito, CEO of RECOMM, which has been expanding its bases mainly in China and ASEAN, has been to visit the sites by himself. We interviewed Mr. Ito about his determination, which did not waver even in the face of the pandemic, and his vision for RECOMM.

Decided to acquire a local company in Malaysia to realize 'Global Specialized Trading Company Concept'

Mr. Hidehiro Ito, CEO of RECOMM Group
Mr. Hidehiro Ito, CEO of RECOMM Group

RECOMM is not only a trading company specializing in information and communication equipment and eco-friendly products, but also a solution provider engaged in producing comprehensive office environments in Japan, China, and ASEAN. Founded in 1994, the company celebrated its 25th anniversary in 2019. During this period, the company has expanded its business as the RECOMM Group while building its overseas offices.
There are three main business pillars: the first is the Domestic Solutions Business, which sells IT equipment and energy-saving products to corporate clients in Japan; the second is the BPO Business, which outsources some office operations; and the third is the Overseas Solutions Business, which sells IT equipment, LED products and other energy-saving products to corporate clients overseas.
The BPO business originally started when RECOMM 's core business of selling IT equipment was expanding nationwide in Japan, and the company planned to establish a call center to divide the work of sales team. The initial plan was to build one in Japan, but just after China joined the WTO (World Trade Organization), it was decided to build one in Dalian, China, in anticipation of future growth in China. In 2009, when the know-how was ready, the company was commercialized it as a new business unit.
The Overseas Solutions business was launched in 2015. It operates in seven countries, mainly in ASEAN, where many Japanese companies operate, plus India. Mr. Ito has positioned this overseas solutions business as a 'future growth driver': in 2018, the company entered Malaysia, and the following year he took over companies in the same industry in Thailand, Indonesia, and the Philippines, creating bases in all major ASEAN countries.

Mr. Ito: The RECOMM Group is currently developing based on our "Global Specialized Trading Company" concept. We want to accelerate the growth of our global business by providing solutions to customers all over the world with cutting-edge commercial products and services that are in tune with the times, using our strengths in direct marketing. The reason why we looked for a company in Malaysia this time is because we want to further establish our business in the local market. In the past, our company grew by accessing local companies in the country and creating customers. However, we felt that there was a limit to simply bringing in Japanese sales techniques. Hence, we decided to foster sales method locally by having a good local company join our group, with sales techniques provided from Japan. At that point, they heard that Nihon M&A Center established the office and wasis promoting its M&A business in Malaysia.

The signing ceremony took place on 31 August 2021 at SLW.
The signing ceremony took place on 31 August 2021 at SLW.

Three key factors in deciding a company to pursue cross-border M&A

RECOMM signed a stock purchase agreement with SLW, a wholesaler of electrical appliances and lighting fixtures in Malaysia, with a signing ceremony held in Kuala Lumpur on 31 August 2021.

What made you choose SLW as your partner this time?

Mr. Ito: The most decisive factor was that the company's main products were LEDs. Their business model is slightly different to ours, but we thought we could expect synergies in various aspects as we deal with the same products. The other factor was that Maggie-san, the executive director of SLW, has willing to continue running the company after the transfer. We have experienced many cross-border M&A transactions, and we think there are three key points in deciding on a partner company.
The first is that the products they deal with are the same as ours. We don't do M&As in different industries. The second is also the acquisition price. High goodwill can lead to risks later. The third is the continuation of the managing director of the transferring company, which was also a key point in this case. In the past, in cases where PMI* did not go well and we had to withdraw, the reason was that the managing director retired immediately after the M&A. He said no problem while the second in command would continue, but the second man had no experience of making decisions as an executive. It's hard to be a decisive person in a company when you suddenly become the managing director. Then, there was alienation among employees.
Since then, we have made it a requirement that the managing director and one director stay on for at least two years.

Were there any difficulties in negotiating the transaction, given the severe restrictions on overseas travel due to the pandemic situation?

Mr. Ito: Naturally, we were not able to travel freely to and from the site as we had before Covid, but we proceeded with an emphasis on face-to-face communication while carrying out medical checking and taking all possible infection control measures. I, as CEO, insisted on visiting the site myself. This is beneficial to building a relationship of trust with the target company, but it is also important for us. M&A with a company with a different cultural background, language, location tend to focus somewhat on uncertainties. This can lead to the board members voicing concerns such as "We cannot predict what kind of issues will come up in the future" or "Do you research about country risk enough?", which can prevent the discussion from proceeding. That is why it is important that I visit the site and know the country and the company better than anyone else. In this acquisition, I was quarantined for a week every time I went to Malaysia for the infection control reasons, but I never stopped visiting the country.

(From left) Ms. Maggie Tan Mei Chee (Executive Director of SLW), Mr. Hidehiro Ito (CEO of RECOMM), Mr. Kaoru Ono (Managing Director of RBM, a Malaysian subsidiary of RECOMM), Mr. Chia Khin Shing (Director of SLW)
(From left) Ms. Maggie Tan Mei Chee (Executive Director of SLW), Mr. Hidehiro
Ito (CEO of RECOMM), Mr. Kaoru Ono (Managing Director of RBM, a Malaysian subsidiary of RECOMM), Mr. Chia Khin Shing (Director of SLW)

The essentials of PMI are the embedding of management principles and the drawing of a border of authority that are customized for the company

What do you consider to be the most important aspects of implementing PMI?

Mr. Ito: There are also two here. The first is the embedding of management principles. We think this is very important. However, it should be proceeded in the right balance, and if we do it hastily, it may provoke backlash. Therefore, we take enough time to work on it. Specifically, we have created a culture book of our company, which we distribute in the local language, and I hold briefings where I talk directly about the RECOMM Group's management philosophy. Then, we introduce from an easier company rule, such as having a morning meeting and the philosophy being chanted by all employees at the meeting. If there is something difficult to incorporate, we think together about what we do. The second is to clearly indicate the scope of authority. This is another lesson learned from previous cross-border M&A experience. At the outset, we clearly indicate where RECOMM has authority and where the local company has authority. From there, we take time to decide where a border will specifically be drawn. In the past, we were too sensitive to the opposition of the target company and started the project in an ambiguous state, and then later decided on the rules, which caused stronger opposition. It is also important to execute in accordance with the related law of the country. The company rules that do not conflict with the law are discussed with the local members and customized to fit to the country's custom.

How is the current situation after the M&A?

Mr. Ito: Thanks to all of employees, we are doing well. It has led to a significant increase in revenue for the group, and the acquisition of shares has made Malaysia the third largest country for us in terms of sales, profits, and number of employees, after Japan and China. It remains one of crucial bases for us.

Lastly, what is your vision for the future?

Mr. Ito: Based on our "Global Specialized Trading Company" concept, we will strengthen the development of local customers. The RECOMM Group's vision is to become a company that is indispensable for the development of the countries in which we have bases, expanding to eight countries. To achieve this, we are increasing employment and profits at each of our overseas bases.

Nihon M&A Center Representative’s Comment

Yusuke Ojima
Nihon M&A Center Malaysia Sdn. Bhd.

Despite the situation under the Covid-19, I was very impressed by the CEO's insistence on visiting the site himself, and the fact that he himself attended almost all meetings.
We wish the group further success in promoting its overseas business through M&A and in its aim to become the global specialized trading company.

Yuki Fukushima
Nihon M&A Center Inc.

Just before this transaction was concluded, the company signed another cross-border M&A deal, and the company is a very energetic overseas investor. I was inspired that they proceeded the negotiation with clarifying things that they should pay attention. I'm glad to hear that they keep operation in good shape after acquisition.
We would be happy if I could continue to contribute to the group's development through M&A.

Umezu Takao
Nihon M&A Center Inc.

The company has extensive M&A experience and has set its own policy for dealing with M&A, and the company's chain of instructions is simple. Being speedy is important in cross-border M&A, as competitors may emerge from other countries, and this applies both domestically and internationally.
We look forward to continuing to support the realization of the global specialist trading company concept.

※Title at the time of interview
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