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Japan M&A

Latest update: 4 January 2021

Japan M&A activity reached USD 109.1bn on 441 transactions in 2020, a 1.6x uptick compared to 2019, while deal count dropped 7% year-on-year. Japan deals were driven by large-sized domestic transactions this year. There were 18 deals above USD 1bn, totaling USD 86.7bn, accounting for 79.5% of total deal value, of which 15 were domestic.

Key Data Points

  • Domestic deals generated USD 100.2bn on 391 deals, accounting for 91.8% of total value, representing the highest full-year value for domestic deals since 2005, and a 1.7x bump in value YoY. In contrast, domestic deal count was the lowest since 2015.
  • Listed parents’ consolidation of listed subsidiaries took centerstage in 2020. NTT’s [TYO:9432] USD 40.4bn acquisition of the remaining shares in subsidiary NTT DoCoMo, was the largest Japan-targeted M&A for the year and the largest ever tender offer for a Japanese company to date. Hitachi’s [TYO:6501] USD 4.9bn acquisition of the remaining shares in subsidiary Hitachi High-Tech was also the third largest Japan-targeted deal. Prominent terminations of “parent-child” dual listings were seen across sectors: Sony’s [TYO:6758] consolidation of Sony Financial Holdings; Itochu’s [TYO:8001] take-private of FamilyMart; and Resona Holdings’ [TYO:8308] proposal to take full control of Kansai Mirai Financial Group [TYO:7321].
  • Telecoms generated USD 43.1bn on four deals (a 6520x surge in value YoY) and Industrials & Chemicals generated USD 14.4bn on 72 deals (down 27.9% in value YoY) as the dominant sectors, respectively accounting for 39.5% and 13.2% of total value, followed by Technology (USD 12.8bn, 65 deals) with 11.8%. While Technology saw a 37% drop in value YoY, Financial Services (USD 8.4bn, 26 deals) saw a 4.8x surge.
  • Inbound deals reached USD 8.9bn across 50 deals, not quite reaching 2019 in value. US buyers spent USD 7.1bn over 18 deals, representing 79.8% of total inbound value and a 1.6x jump YoY, making 2020 the third consecutive year that Japan-bound deals by US companies grew in value and count. Deals by Asia-Pacific (ex. Japan) companies recorded USD 1.6bn on 20 deals, around one-quarter of 2019 value on the same deal count.
  • Outbound deals have been sluggish, reporting a total USD 36.3bn across 196 deals, around a 62% and 44% drop in value and count, respectively, YoY. Many deals are believed to have been put on hold or shelved amidst a global pandemic. That said, the top outbound sectors Industrials & Chemicals (USD 15bn, 49 deals) and Technology (USD 10.9bn, 34 deals) each dropped by less than 13% in value YoY, despite volume being about half of 2019’s figures.
  • Private equity buyouts remained steady historically speaking, generating USD 8.8bn across 59 deals, down 27% in value from a particularly strong 2019. Led by Blackstone’s acquisition of Takeda Consumer Healthcare and Bain Capital’s acquisition of Nichiigakkan, the year’s two largest buyouts, the PMB sector generated USD 4.6bn across six deals, accounting for 52% of total buyout value. These and KKR’s acquisition of Seiyu all exceeded USD 1bn in value. Total PE exit value did not reach USD 1bn in disclosed value, pegged at USD 972m across 25 deals – the lowest value since 2003 – of which the Consumer sector generated USD 746m (76.7%) with five deals.

Key Themes

  • Parent-child dual listings – still common in Japan – have increasingly come under scrutiny by international and institutional investors. The government introduced new guidelines in 2019 to improve corporate governance of listed subsidiaries with controlling parent shareholders. Such pressures coupled with their short-term need to achieve operational efficiency to counter COVID-19’s impact will keep pushing companies to review parent-child listings.
  • Outbound transactions decelerated overall, but with several such deals involving Japanese electronics/industrials majors, like NEC’s [TYO:6701] USD 2.2bn acquisition of Avaloq Group, Japan Inc is continuing its global hunt for new technology to secure competitive edge with or without COVID-19.
  • COVID-19’s financial impact is one more reason for Japanese conglomerates to continue non-core divestitures, and while leveraged financing seems relatively harder to come by under the current environment, PEs seem as ready as ever, according to Mergermarket intelligence on ongoing processes and deal prospects including Hitachi Metals [TYO:5486], MODEC [TYO:6269], and Fujitsu General [TYO:6755]. While global PEs will likely dominate larger deals, Japanese PEs - even midsized ones - are increasingly eyeing corporate divestiture opportunities as many contemplate new fundraises after their portfolio companies proved rather resilient to the pandemic.
  • Recent initiatives by the new administration under Prime Minister Yoshihide Suga aimed at realigning Japan’s regional banking industry are expected to further accelerate consolidation in the space. With the government’s carbon-neutrality target for 2050 and consideration for new tax breaks to facilitate M&A of small to mid-sized companies, deals in relevant industries may also gain momentum.

Top Deals

Announced Date
Target Company
Target Dominant     Sector
Bidder Company
Seller Company
Deal Value     USD(m)
29-Sep-20
NTT DoCoMo, Inc. (33.79% Stake)
Telecommunications: Carriers
Nippon Telegraph and Telephone Corporation

40,418
23-Dec-20
Z Holdings Corporation (44.62% Stake)
Internet / ecommerce
LINE Corporation
SoftBank Corp.
9,404
31-Jan-20
Hitachi High-Tech Corporation (48.27% Stake)
Industrial: Electronics
Hitachi, Ltd.

4,886
16-Oct-20
Showa Corporation; Nissin Kogyo Co., Ltd.; Keihin Corporation
Automotive
Hitachi Automotive Systems, Ltd.

3,799
19-May-20
Sony Financial Holdings Inc. (28.41% Stake)
Financial Services
Sony Corporation

2,990


by Raiha Mahmoud

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