Japan weekly review, 5th-11th July, 2021

Here is a brief and selective review of the past week’s news relating to Japanese business, finance, investment, the economy and other areas relevant to Crimson Phoenix’s activities.

Japanese overseas acquisitions

It has been reported that the pace of overseas acquisitions by Japanese companies has accelerated rapidly from a low point of 2020, as vaccine roll-out advances in many markets and large economies show signs of higher growth.

In the first six months of 2021, there were over 320 acquisitions by Japanese companies of overseas targets. The total value of these deals reached ￥4.1 trillion (US$38 billion), almost equalling the total value for the whole of 2020 of ￥4.4 trillion (US$40 billion).

Cross-border acquisition activity by Japanese acquirors had been increasing steadily over the last few years against a backdrop of companies’ concerns about an ageing and contracting domestic population, desire to acquire new technologies and need to diversify away from its home market.

As this trend for more acquisitions continues, there are a few aspects of corporate M&A behaviour to look out for. One is whether this would lead to increased numbers of disposals Japanese companies make in Japan and abroad. The idea of restructuring business portfolios had become widely understood and accepted in Japanese business circles but relatively few companies have engaged in outright disposals of subsidiaries and businesses. There are a number of factors to explain why this should be the case, such as those relating to concerns about creating redundancies and “loss of face”. It remains to be seen whether Japanese corporate governance reform extends to how companies see realising value from non-core businesses as a way of achieving optimal resources allocation.

Will foreign acquisitions of Japanese companies also increase as a corollary of this trend? As the market for corporate control develops and matures, managers and shareholders in Japan become more accustomed to seeing foreign investors providing solutions to capital and/or succession problems. This should encourage more deal-making between non-Japanese acquirors and Japanese sellers.

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