02 juin 2020

Local Spotlight: Deal Drivers in Japan - Expert Insights

By Robert Torio, Content Marketing Manager, APAC

Part 2 of a two-part blog series featuring insights from the Deal Drivers: Japan webinar hosted by Datasite and Mergermarket

 

Despite COVID-19, M&A in Japan was not hit as hard as expected. In fact, it saw a year-on-year increase in deal value, according to the Deal Drivers: Japan Q1 2020 report. Deal volume in the first quarter of this year likewise exceeded 2019’s average quarterly totals.

At our recent webinar, Mai Mizuta, Mergermarket’s Asia-Pacific Editor & Acuris Japan Bureau Chief hosted 500+ dealmakers across Asia Pacific and Japan together with panelists, Yoshinobu Agu, Managing Director, Head of M&A Division, Citigroup Global Markets, and Yoichiro Shimizu, Datasite’s Head of Japan. 

Japan dealmaking holds steady in Q1 despite COVID-19

There were US$ 13bn worth of announced deals recorded in the first quarter, which was a 55% increase compared with the same period last year, according to the joint report from Mergermarket and Datasite.

“This followed a record US$ 41bn worth of deals in Q4 2019, which had led many to forecast prior to the coronavirus outbreak that Japan would see another uplifting period for M&A this year,” said Mizuta.

When asked about the possible reasons for Q1’s positive performance, Agu noted that M&A usually takes time, so many of the deals that were announced in the first quarter were already in process in 2019 or even 2018. “In early 2020, the coronavirus was not much of an M&A issue outside of China. However, when compared to the global announced volume for the first 4 months between 2019 and 2020, it was down 40% year-on-year,” he explained.

“We can see the same trend here in Japan as well, especially in cross-border transactions. So we would expect an overall slowdown in [deal] announcements to some extent for the next couple of quarters.”

Shimizu noted a similar trend, “We have seen deals softened globally, dropping 2% in March, compared to an 8% and 13% year-on-year increase in January and February, respectively.”

 

Opportunities in second half of 2020

The Deal Drivers: Japan Q1 2020 report also suggests that Japanese companies may be better placed to weather the COVID-19 crisis compared with their global counterparts due to the large amounts of dry powder, which could place them at an advantage in pursuing M&A opportunities in the coming months.

Agu stated, “From a buyer perspective, Japanese companies are better placed in general. They have much cash on hand and there’s less pressure to return capital to shareholders in the current environment. In addition, Japanese banks have been supportive in terms of providing liquidity.

“However, while many healthy corporates still have aspirations to pursue M&A opportunities, some would be conservative. On the other hand, the management of target companies will rather be defensive in this environment given their concern on stock price valuations.”

Shimizu said, “We do not see major movement in Japan at the moment, especially with cross-border deals. But it seems some companies with good financial standing have restarted conducting transactions or fundraising activities in healthcare, IT and electronics manufacturing. We are also seeing more distressed M&A transactions and expect restructuring activities in the next 12 to 24 months.”

Strategies and technologies in the new normal

Agu said that in Japan it is perceived that negotiations or meaningful discussions would be difficult without face-to-face or in-person meetings. However, he observed that many of the negotiations now are being done through video or audio calls.

“While many of the cross-border discussions have been done through audio in the past, now it appears that domestic discussions are also being done through either audio or video as well. Given the long duration of the work-from-home situation, I think people – including senior management – are preparing to execute transactions purely virtually,” he added.

“We have also seen discussions around conducting virtual site visits, however there is concern about recording such visits due to security concerns, as well as other limitations.”

Shimizu noted that Datasite clients are currently making use of the slowdown as extra time to prepare information and documents for deals, especially when they reach out to potential investors, partners or buyers.

“Dealmakers also want to automate and streamline processes as much as possible so Q&A functionality that is integrated with the VDR [Virtual Data Room] is preferred over sending questions back and forth via email in an Excel file, especially when using home computers,” Shimizu explained.

“And with integrated redaction, they avoid the risk of having to download or print documents for marking while working from home.”

 

Read Part 1 – Pulse of the Market

Dealmakers across APAC and Japan share their views about the market, the types of deals that will be prevalent in coming months, and the technologies that would help them the most to navigate this storm.

 

Deal Drivers: Japan Webinar On-demand

Watch on-demand the live briefing Deal Drivers: Japan -- A spotlight on mergers and acquisitions in Japan Q1 2020 and beyond and learn more about how dealmakers in and around Japan are responding to the COVID-19 crisis. Our panellists also discussed what types of M&A activity could occur in the next 12 months across various sectors, especially in the short and midterm such as generation of capital or liquidity, as well as corporate restructuring or divesting non-core businesses.

Watch Webinar

Deal Drivers: Japan Q1 2020 Report

Despite COVID-19 in Q1 2020, Japanese M&A was not hit as hard as expected, and, in fact, saw a year-on-year increase in deal value.

Download report

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