Local banks and law firms are leading the wave of mergers and acquisitions in Japan, making it difficult for major foreign banks to get involved.

Notice that this year's record-breaking merger and acquisition activity in Japan has not brought much business to foreign companies. Currently, the field is still mainly dominated by large local banks and law firms with close ties to the corporate sector. Compiled data shows that the transaction volume in Japan, including mergers and acquisitions, has increased by 48% this year, reaching around $200 billion. In comparison, sales in the entire Asia-Pacific region have increased by 17%, while China has declined by 19%. China remains the largest market in the region, with transaction volume at $271 billion. The large number of these transactions is reshaping the battlefield for investment bankers, who hope to earn hefty commissions from these deals. Just as the year is coming to an end, there is a deal that has bankers scrambling to participate in: the merger negotiations between Honda and Nissan. This merger could potentially create the world's third-largest automaker. However, data shows that despite large international investment banks winning advisory positions in some transactions, Japanese companies have traditionally had a greater advantage due to their local presence. Within law firms, the willingness of Japanese law firms to participate is more evident, with local law firms occupying the top five positions. "While some foreign banks have had relative success in Japan, constantly pitching and participating in many deals, the reality is that, due to the loan and underwriting relationships of large Japanese banks, they have much more channels to reach companies," said Akio Katsuragi, co-founder and CEO of investment banking firm Crosspoint Advisors. This to some extent reflects that in industries of strategic importance such as technology, some recent transactions have performed exceptionally well, making it harder for foreign buyers, in these areas, global investment banks may have an advantage over local competitors. One example is Japan Industrial Partners' acquisition of Toshiba for $15 billion, with Katsuragi's company being the main advisor for the transaction. Other banks involved in the deal include Sumitomo Mitsui Financial Group, Mizuho Financial Group, Nomura Holdings, as well as overseas banks such as JPMorgan Chase and UBS. Japanese companies' preferences Katsuragi, who formerly served as head of Lehman Brothers' Japan office, said that the planned merger between Honda and Nissan has been one of the discussed transactions for many years. He added that now is the right time to make the deal, otherwise they may struggle to survive in the fiercely competitive global market. Earlier this week, the two companies reached a temporary agreement to establish a joint holding company with the aim of going public in August 2026. Though the executives of both companies have carefully portrayed the deal as a merger of equals, the final outcome will see Honda taking the lead in building the new entity and nominating the majority of the directors. Takeshi Nakao, Managing Partner at Freshfields Bruckhaus Deringer LLP in Tokyo, said, "In large transactions, people still tend to find Japanese solutions, especially if it involves merging two national champion companies, or finding local investors to retain some national symbols." Other transactions that have attracted foreign investment but faced resistance in Japan include Quebec-based Alimentation Couche-Tard Inc.'s acquisition of the owners of 7-Eleven convenience stores. Banks involved in this potential cross-border transaction include Goldman Sachs, Morgan Stanley, and Nomura Securities. After the operator of Circle K stores expressed their intention, Seven & i Holdings Co. considered a management buyout, with funding from banks, Itochu Corporation, and the Ito family, privatizing themselves at a transaction value of around $58 billion. Banks potentially providing financing for one of the largest such transactions in Japan's history include Sumitomo, Mitsubishi UFJ Financial Group, and Mizuho. Nakao from Freshfields said, "If Seven & i becomes possible, then anything can be done, except for some strategic and sensitive assets." Busy times Japan's largest insurance company, Nippon Life Insurance Company, has completed transactions worth over $12 billion this month alone, and the company is not yet done with deals. Additionally, Bain Capital continues to plan to acquire shares of Fujisoft, without the support of Fujisoft's board, laying the groundwork for a rare hostile takeover amid competition between Bain Capital and KKR & Co. "This is the busiest deal-making we've seen in Japan," Nakao said. "The scale of transactions in Japan will only get larger, both domestically and internationally." The strong stock market is also driving this wave of transactions, with the benchmark Nikkei 225 index reaching a record high in July. The index has risen by over 20% since the beginning of the year. Aside from Japan, India is another hotspot for transactions this year, with IPO funding reaching a record $20 billion, and other transaction financing, including mergers and acquisitions, totaling $97 billion. Activist investors pouring in As global investors continue to pour into the Japanese stock market, investment bankers in Japan are also busy with equity capital market transactions. Data shows that the IPO funding in Japan has been around $6.3 billion since January. In October, Tokyo Metro Co., one of the world's largest subway systems operators, raised over $2 billion, making it the largest Japanese IPO since SoftBank listed in 2018. Nomura, Mizuho, and Goldman Sachs were the joint global coordinators for Tokyo Metro's issuance. The Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange have been another key factor driving M&A transactions, urging companies to improve governance and enhance shareholder value. This has encouraged activist investors, who have also played a role in restructuring Japanese companies to support the bull market, keeping CEOs and bankers busy looking for the next deal. Katsuragi said, "Activist shareholders are now even more aggressive, putting tremendous pressure on management to create shareholder value." "As companies seek asset disposals and expansion..."Cross-shareholding and consideration of privatization have spurred many mergers and acquisitions. The number of transaction activities is expected to increase further next year."El perro est durmiendo en la cama.