Market Spotlight: DX and ESG to take M&A center stage in Japan

By Robert Torio, Content Marketing Manager, APAC

From digitization to digital transformation (DX). From conglomerates, family businesses to carve-outs and divestitures. From regular due diligence in dealmaking to advanced due diligence for ESG acquisitions. These are some of the conversations which are abuzz in the M&A circles in Japan.

At the recent Japan Deal Momentum: M&A, private equity, and tech trends webinar hosted by Mergermarket and Datasite, our panel of experts examined Japan’s M&A performance in 2021 and shared their outlook for 2022.

Chiaki Tani, Partner, M&A Advisory, KPMG FAS Co., Ltd. led the discussion together with panelists:

• Masahiko Ishida, Partner/Head of Corporate-Japan, DLA Piper Tokyo Partnership
• Akihiro Kido, Global Head of M&A, Mizuho
• Rei Kyogoku, Executive Officer, Head of Investment Banking, SMBC Nikko Securities
• Ken Matsumoto, Director on International Acquisitions, Strategic Growth & Investment, Fujitsu Ltd.
• Yoichiro Shimizu, Head of Japan, Datasite

Corporate carve-outs, divestitures, and restructuring to dominate M&A

More than 60% of participants at the webinar poll indicated that corporate carve-outs, divestitures, and restructuring will most drive M&A activity in 2022. Whereas, 30% of them felt that the presence of high levels of dry powder and private equity activity would power dealmaking in Japan this year.

Kyogoku noted that the sale of non-core businesses by conglomerates and the dissolution of parent-subsidiary listings will continue and global PE funds will maintain a high presence.

Due diligence to benefit the most from digital transformation

Concerning the area of M&A that will be most enhanced through technology and digitization, 66% of the webinar participants voted for due diligence. Asset marketing and post-merger integration polled 12% each.

Tani inferred that perhaps we cannot completely rely on technology in terms of negotiation and closing because it requires face-to-face interaction.

According to Shimizu, the pandemic has fast-tracked the digitalization of the M&A process enabling dealmakers in Japan to conduct the due diligence process remotely for both domestic and cross-border deals. He added that more dealmakers are using the data room as a secure communication tool as well instead of relying on email to share confidential information.

ESG now a factor when identifying target companies

In terms of the most important success factor in M&A in 2022, around 60% of the dealmakers at the webinar believe that strategy, identifying, and screening targets are crucial for a successful deal.   Meanwhile, 15% were of the view that negotiating and closing deals quickly and virtually are more important for M&A success.

ESG may well become a new criterion in M&A strategy, particularly in the selection of targets. Matsumoto said that Fujitsu discusses ESG with target companies at the beginning of negotiations to help management teams in identifying targets that are aligned with Fujitsu’s vision.

Learn more about the insights and trends discussed during this webinar by watching the recording on-demand here.