In this two-part series, we discuss the recent pandemic-related disruptions to, and then seeming rebound of, the M&A market here in Japan. Demystifying the coronavirus - impacted Japanese M&A Market *The first part focuses on the pre-coronavirus M&A market in Japan. Namely, despite the general downward trend of global M&As, the number of Japanese domestic M&A deals increased in June and July 2020, compared with the same time in 2019. In this part, we examine why the pandemic has not slowed domestic M&A deals in Japan. The second part discusses the record-breaking M&A figures in June and July 2020, and what lies ahead. We believe that the M&A market in Japan will continue to see an upward trend for the remainder of the year. Part 1: The Pre-Coronavirus Booming Japanese M&A Market COVID-19’s impact on businesses worldwide is a well-known narrative. We are painfully familiar with soaring unemployment rates, dramatic damage to GDP, and figures that indicate a global economy in ill health. The M&A market is no exception. While some countries and industries have been harder hit than others, deals have decreased significantly during the first half of 2020 compared with the same period last year. Many deals have faced completion uncertainty, delays, and some have even been cancelled. Indeed, in March 2020, Xerox abandoned its takeover bid of HP, citing the coronavirus. Kobe Steel also announced that it would delay plans from March until June to transfer parts of its copper tube business to an investment fund, citing COVID-19 concerns. The Japanese M&A market seems to be performing better than the U.S. and European markets. Multiple economic and social factors have softened the blow. Japan’s corporate cash-hoarding culture no doubt provided Japanese companies with more cash than those in other countries to continue deal activity or to buy out smaller, struggling market players. The market’s resilience may also be an after effect of a record-breaking 2019. This boom was partially caused when retiring bubble-era entrepreneurs faced with succession issues sold their businesses to bigger corporations. Another factor was a spike in conglomerates divesting their non-core businesses in response to increasing shareholder scrutiny. These trends do not seem to be slowing during the pandemic. In this article, we explore some of those factors contributing to Japan’s growing M&A market. Factors Contributing to Japan’s Growing M&A Market The Japanese M&A market has been on a record-breaking streak. In 2019, Japanese companies completed roughly 4,000 deals of which 2,840 were domestic. The previous record was 2,814 domestic deals in 2018. This was a near doubling from the beginning of Abenomics in 2012. As discussed below, some of the factors fueling this boom include restructuring, management succession-related issues, and shareholder activism. Before COVID-19, these historic highs suggested that this trend likely would continue in 2020. However, COVID-19 brought this upward climb to a sudden halt. As will be discussed in Part 2, the first half of 2020 saw a 13% dip in the number of domestic and cross-border M&A deals involving Japanese companies, and 60% dip in the combined value of deals, compared with the same period from last year. We are now seeing a slow recovery from the initial shock to the market.
(Written by: Dai Iwasaki, Tomo Greer) For more information and questions regarding this newsletter, reach out to us at newsletter@tkilaw.com. |
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