Japan M&A Market Update

[サマリー] 　2021年に日本企業が当事者となったM&A件数は新型コロナウイルス感染症の影響を受けた2020年を上回り増加しました。クロスボーダーM&Aについては、日立製作所による米グローバルロジックの買収等、数千億円から1兆円超の大型のM&Aが続きました。また、ベインキャピタルによる日立金属の買収等、PEファンドによる日本国内におけるM&Aも活発に行われています。 　日本国内においては、モノ言う株主の活動が活発化し、存在感を増しています。例えば、東芝はコングロマリットディスカウントによる株価の低下の批判を回避するため、会社の分割案を提案しましたが、筆頭株主のエフィッシモ・キャピタル・マネジメント等の株主の反対により実現しませんでした。 　 　また、政府が示した2050年を目標としたカーボンニュートラルの方針を踏まえて、日本企業による既存事業の売却、脱炭素分野の技術の買収を含めたグリーン投資等の増加が今後一層見込まれます。新型コロナウイルス感染症の影響は受けながらも、引き続き日本におけるM&A市場は活発であることが予想されます。

Over the years, Japan has successfully implemented a unique way of doing business. Japan Inc. has always valued physical presence, the power of personal relationships, and consensus-building in doing business. These traditional business models, which have stood the test of time, are now being challenged by global and domestic developments. This newsletter attempts to present an overview of the developments driving change, and how Japan is adapting.

1. Covid-19

In the immediate aftermath of Covid-19, Japanese M&A activity, especially cross-border, was affected. Two years into the pandemic, overall, markets are on the path to recovery. While not back at pre-pandemic levels yet, noteworthy deals have been concluded. Some examples are

• USD 9.5 billion acquisition by Hitachi of GlobalLogic
• USD 8 billion acquisition of Hitachi Metals by Bain Capital
• USD 7.1 billion acquisition of Blue Yonder by Panasonic

The above deals are indicative of certain trends. Firstly, that Japanese companies are becoming increasingly comfortable with remote deal-making, marking a big shift in approach. It also demonstrates the growing emphasis being placed by even traditional Japanese companies in the software and technology sector, consistent with global trends.

2. Regulatory Landscape

While on the one hand, markets are bouncing back and adapting to the challenges brought by the pandemic, Japan has also become increasingly protectionist, again reflecting global sentiment. This is not however a recent development, as Japan has been gradually amending its foreign exchange regulations over the past 2-3 years. The definition of FDI (foreign direct investment) has been amended to include a plethora of activities, in addition to share acquisition or subscription. Controlling (or acquiring control over) a Japanese company, through shareholder actions, is also now included under the expanded definition of FDI. The list of restricted/protected sectors has also grown to include the technology and medicine/medical equipment sectors. The Japanese government also now has the power to suspend, modify and rescind FDI.

The long-term effect of such regulatory developments remains to be seen. For now, foreign investors looking at Japan should be mindful of these developments, and structure their investments accordingly.

3. Foreign Investment in Japan

Foreign investors continue to have a healthy appetite for Japan, despite such developments. Private equity funds have been snapping up companies when acquisition opportunities present themselves. In recent years, factors like low valuations and divestments by conglomerates of non-core businesses have facilitated such acquisitions. The acquisition of Hitachi Metals by Bain Capital (mentioned above) is illustrative, as are the acquisitions by Blackstone (of Takeda’s OTC business for USD 2.3bn) and Bain Capital (of Nichii Gakkan for USD 1.4bn).

Apart from economic and business reasons driving restructuring, delistings and divestments by Japanese companies, shareholder activism is on the rise.

4. Shareholder Activism in Japan

Historically, Japan Inc. has not seen many instances of shareholder activism. The group approach and consensus-building has been fundamental to business. That has been changing gradually.

The 2014-15 reforms (to the Corporate Governance and Stewardship Codes) led to a gradual reduction in cross-holdings among companies. Consequently, the number of public and activist shareholders in such companies has increased. The change in shareholding has brought with it a change in attitudes, and in how shareholders engage with the companies. Not only are they aware of their rights, they are also increasingly ready to exercise those rights. This has necessitated a change in the attitude of the management as well, in engaging with shareholders more proactively and constructively than they may have in the past.

Shareholders of public companies are demanding a more active role in ensuring transparency, capital reorganisation and dividend payments, and the appointment and removal of directors.

The most famous example of recent shareholder activism in Japan is the Toshiba case. Actions set in motion by a foreign fund holding 10% of Toshiba resulted in a shake-up at the top management levels of Toshiba. Toshiba then announced its decision to split into three companies. However, this restructuring plan was also questioned by the shareholders. Current indications are that after considering the shareholder feedback, Toshiba has stopped its original restructuring plan. Some news sources have indicated that Bain Capital is considering a takeover of Toshiba, but the position is far from clear.

Although a significant development, Toshiba is by no means the only case of recent shareholder activism in Japan. In 2021, the Murakami Fund completed the first successful hostile bid by a financial buyer in Japan, when it increased its stake in the Japan Asia Group to 75%. Cases like these could be indicators of increased shareholder activism in Japanese companies in the days to come.

5. Climate change

Japan made a major shift in its climate change policy when the then Prime Minister Yoshihide Suga, in 2020, announced Japan’s goal to be carbon neutral by 2050. Japanese companies must find ways to quickly adapt to these changes, and the traditional ways of doing business may not be adequate to meet this commitment. ‘Carbon-heavy’ companies must find ways to be ‘greener’. This is likely to result in considerable deal activity, either by companies divesting carbon-intensive businesses, making green investments, carbon trading, acquisition of green technologies, or other ways to achieve the 2050 target.

Where are we headed

The M&A market in Japan is evolving and adapting to change. Whether it is the challenges of remote deal-making or shareholder activism, Japanese companies have demonstrated resilience and the ability to adapt to global and domestic forces of change. Japanese companies holding large cash reserves will continue to look for opportunities overseas. Outbound investments in in traditional sectors will continue. Japanese companies will also invest in software, new technologies and infrastructure and green sectors. We thus anticipate that outbound acquisitions will continue, perhaps even surpassing pre-Covid-19 levels. Equally, the domestic opportunities will continue to be plenty, due to low valuations, divestments by conglomerates of non-core assets and shareholder activism. This will keep foreign investors interested in Japan and domestic M&A activity high. The future, at least for the M&A market in Japan, looks promising.

（執筆担当者：岡田／アイヤル／グリアー）

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