Local Spotlight: M&A Deal Drivers in Japan – Expert Insights

June 16, 2021 | Blog

By Mai Mizuta, Asia Pacific Editor, Mergermarket and Japan Bureau Chief, Acuris

Dealmaker insights from the M&A Deal Drivers: Japan 2021 - M&A growth opportunities in Q4 2020 and beyond webinar hosted by Datasite and Mergermarket


Key Highlights
  • Deal activity has been rising since Q3 2020
  • Private equity buyouts will remain active
  • More corporate non-core divestitures on the horizon


Japan M&A is expected to recover in 2021 as deals and discussions that were put on hold earlier this year due to COVID-19 have largely resumed alongside new opportunities, industry experts told Mergermarket. A steady uptick in deal activity has been seen since the third quarter, they noted.

“Deal activity next year will be up considerably. We should see continued restructuring of parent-child listings, activist campaigns, and corporate carve-outs, among others,” Daiwa Securities’ Senior Executive Managing Director & Co-Head of Global Investment Banking Division, Yuichi Akai, said.

“Generally, the strong companies will acquire, the weak will sell, and those operating around the middle will decide what is core/non-core in order to optimize strengths,” Akai added.

Hideyuki Ishii, KPMG FAS Partner, Deal Advisory M&A, noted that there was a lull in dealmaking during the peak of COVID-19, around March to May, when companies were generally focused on how to manage business operations amid a drop in sales. During this time many corporates did not have the time or the resources to think about M&A, he continued.

“Broadly speaking, in the first and second quarters, companies were focused on operations, which meant deals were pending. Activity started normalizing around the end of June, resulting in a delay of more than one quarter in terms of dealmaking,” Ishii explained.

Renesas Electronics’ Head of Corporate M&A and Alliances, Corporate Strategy and Finance Division, Yoshikazu Hayashi, said, “If we look back at 2020, we saw a dip in deal activity between the first and second quarters. Apart from this short period, momentum has stayed the same, so we believe that going forward activity will remain the same or even increase.”

While deal count is likely to be higher next year, it remains to be seen whether 2021 will surpass 2020 in deal value terms as well, as NTT’s [TYO:9432] take-private of NTT DoCoMo comprised a good chunk of the deal value this year, Ishii added.

NTT announced in September that it would launch a tender offer to acquire the remaining shares in NTT DoCoMo it did not already own in a deal valued at more than JPY 4trn (US$38bn), making it the largest ever tender offer for a Japanese company to date.

Japan M&A Q3 2020

Japan M&A (domestic and inbound) recorded transactions worth US$57.42bn across 107 deals, up from US$9.63bn across 86 deals in Q2 2020. Meanwhile, as of 14 December 2020, Japan has seen domestic and inbound deals totaling US$99.11bn over 392 transactions this year, compared with US$67.80bn across 474 deals in 2019, according to Mergermarket data.

Domestic activity

Nishimura & Asahi Partner Naoko Shimura said she too expects deal activity to come back next year and that going forward one prominent theme will be the continued restructuring of parent-child listings. “That said, the matter is often not so straightforward – there may be a gap in thinking between the parent and child, and in some cases the child may not agree to be acquired. There have also been instances where the subsidiary’s market cap is larger than that of its parent,” she noted, adding that “there are lots of issues that need to be considered.”

Further, the number of activist campaigns and the emergence of white knights are on the rise and we can expect this to continue, Shimura said. In the past, companies would immediately refuse to entertain activist proposals and instead the focus was on getting the activists to exit the company. However, companies now tend to listen more and take note as these proposals could also sometimes benefit other shareholders in the company, she noted.



Earlier this month, in what can be deemed a successful activist campaign, Oasis Management agreed to tender its significant minority shareholding in Tokyo Dome [TYO:9681] to white knight bidder Mitsui Fudosan [TYO:8801]. In November, Mitsui Fudosan launched a tender offer at JPY 1,300 per share to fully acquire Tokyo Dome at a value of JPY 120.52bn (US$1.16bn).

Meanwhile, private equity deal activity has also been on the rise since August, according to Datasite’s Head of Japan, Yoichiro Shimizu. Not all the cases involve active due diligence, but some funds are seeking to make exit preparations ahead of time, he said. Datasite Prepare, an AI-powered app, has seen positive usage and has been helpful in accelerating deal preparation, he added.

KPMG’s Ishii noted that private equity firms have a lot of dry powder and are quite acquisitive. However, he pointed out that there may not be enough deals to go around considering the vast amount of collective dry powder held by these funds.

Going forward, there may be more instances of struggling companies raising external capital, Ishii noted. However, when it comes to potentially raising such funds from private equity, there may be a gap in perception between the funds and corporates, he said. Private equity is looking to invest in financially stable companies with visible cashflows, while companies heavily affected by COVID-19 find it difficult to present clear prospects of future business or paths to recovery. In a nutshell, private equity firms have the financial muscle to invest, but there aren’t enough attractive deals for them to invest in, Ishii said.

That said, private equity can likely play an active role in carve-outs, which are also expected to increase next year, Ishii noted.

Japan PE Activity

So far in 2020, there have been 53 private equity investments/buyouts in Japan totaling US$8.35bn, compared with 54 deals totaling US$12.02bn in 2019, according to Mergermarket data. This year, there have been 10 private equity buyouts in the consumer space totaling US$1.1bn; nine buyouts in business services totaling US$1.33bn; and 12 totaling US$957m in industrials and chemicals.


“Many companies started thinking about deals again from the third quarter, particularly potential asset disposals as they consider what their core and non-core businesses are,” Ishii said. “Of course, companies had already been thinking about non-core businesses prior to COVID-19, but there are also new non-core businesses that have emerged due to the pandemic, he added.

Daiwa Securities’ Akai noted that there was increasing interest in Japanese companies’ non-core assets from Asian players, such as those in China. They appear to be quite keen on pursing Japanese businesses across various industries, including auto manufacturing and materials makers, among others, he said.

Datasite’s Shimizu meanwhile said that it has increasingly witnessed smaller and mid-cap deals coming through. These have been across the board in terms of sector, but include nursing care, IT, and e-commerce, he added. Further, deals that stalled earlier in the year have returned and this is not just limited to domestic deals, he continued.


Many companies started thinking about deals again from the third quarter, particularly potential asset disposals as they consider what their core and non-core businesses are.

Hideyuki Ishii
Outbound M&A

“It may be too early to comment about overseas M&A due to travel restrictions and many companies are thinking about other agenda items, such as domestic operations. KPMG conducted a CFO survey this year about top destinations for M&A in the near term, and Japan was the unanimous answer. That said, there are certain cross-border deals going on,” KPMG’s Ishii said.

Daiwa Securities' Akai noted that his bank has been seeing cross-border deals into Europe and the US. Daiwa’s group company, DC Advisory, has strong networks in these regions that Daiwa also draws on, he said.


Japan Outbound M&A (to date)

So far this year, outbound M&A totaled US$34.11bn over 179 deals, down in both value and volume from US$95.97bn and 348 deals in 2019, according to Mergermarket data.


Separately, Renesas’ Hayashi noted that COVID-19 had accelerated technology implementation, and that there has been increasing interest in data centers, communication infrastructure, and contactless technologies, for instance.

“There are companies looking for good assets. And technology, along with healthcare and communication targets, is among the hot themes for 2021,” Hayashi said. He noted that within tech, governments globally are increasingly being sensitive about leading-edge tech information leakage to third parties. “We have seen instances of this in the US, for example,” he said, referring to the ongoing US-China tensions. The relationship between these two countries may soften to a certain extent under US President-elect Joe Biden, but the US government will continue to protect IP, and so will not largely change M&A activities in this sector, he noted.

In terms of cross-border deal hurdles, there are many things companies can do remotely, Hayashi said. For instance, they can prepare a longlist of potential targets and do desktop due diligence, putting in place certain measures and criteria, then funneling that to create a shortlist, he added.

With regard to overseas acquisitions, Nishimura & Asahi’s Shimura noted that travel restrictions will continue to make dealmaking difficult and that it is hard to predict whether Japan outbound will return to pre-pandemic levels in 2021. “We may, however, see more outbound deals into Asian regions such as Southeast Asia, China, and Taiwan,” she noted.



This article “Japan M&A set to rebound in 2021; unwinding parent-child listings, corporate divests among prominent themes – industry experts” was originally published by Mergermarket on December 15, 2020; it has been republished with permission.


M&A Deal Drivers: Japan 2021 Webinar On-demand

The industry experts featured in this article also appeared as panelists at a webinar cohosted by Datasite and Mergermarket in November, M&A Deal Drivers: Japan 2021 - M&A growth opportunities in Q4 2020 and beyond.

Watch On-demand

Deal Drivers APAC Q3 2020 Report

The APAC market recorded some recovery in Q3 2020 and there are reasons to believe the Q3 pick-up will accelerate, including the return of megadeals. Learn more from the latest Deal Drivers report.

Learn More

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