Merger and acquisition era begins! Japan's merger and acquisition scale exceeded 230 billion US dollars last year, and the hot market is expected to heat up.

Japanese trading intermediaries expect that, influenced by a change in attitude towards business expansion by companies, Japan's mergers and acquisitions transaction value exceeded $230 billion last year, and will be even busier by 2025. After decades of economic stagnation, Japanese companies are becoming more proactive in order to fend off global competitors and aggressive investors. Some companies are choosing to rapidly expand through high-profile global acquisitions - Nippon Steel even sued U.S. officials to complete a deal. Other companies, including Honda, are considering previously unimaginable options such as merging with competitors or collaborating with private equity funds for acquisitions. Satoshi Shimada, head of Morgan Stanley's M&A business in Japan, said, "We are in a very different era. In the past 12 to 24 months, the consideration of tender offers and being prepared for them has become very real." The change in mindset of companies is evident. Traders say that in the past, Japanese companies insisted on meeting with private equity funds in hotels rather than offices to avoid the embarrassment of being seen meeting with such investors. For bankers, presenting "selling the company" as an option at a pitch event in Japan was unthinkable. Now, companies are beginning to accept all options. Resurgence of interest from aggressive investors Pressure from aggressive hedge funds is one source of urgency. Aggressive investors are showing renewed interest in Japanese companies, with investors such as Elliott Investment Management and ValueAct Capital Partners being more aggressive in Japan, hoping to profit from undervalued, high-quality companies. These funds have traditionally been viewed with caution, but now they have the support of Japan's Ministry of Economy, Trade and Industry, while institutions like the Tokyo Stock Exchange are also pushing Japanese companies to focus more on shareholder returns. According to Bloomberg data, Japan was the second busiest market for activist investing last year, with approximately 150 activist campaigns, an increase of nearly 50% from 2023. At the same time, Japan's stock market is expected to reach historic highs in 2025. Rise of activist investors in Japan Kenichi Sekiguchi, partner at law firm Mori Hamada & Matsumoto's M&A practice, said, "We are advising companies facing pressure from activist shareholders who are seriously considering privatization or business integration with other Japanese companies." Sekiguchi said his team has a large number of transactions this year, and expects to announce several deals worth hundreds of millions to tens of billions of dollars in the first half of the year. According to Bloomberg data, in 2024, the value of M&A transactions involving Japanese companies increased by 44%, reaching over $230 billion. This was the fastest pace of growth since 2018, while overall M&A activity in the Asia-Pacific region increased by 38%. At the beginning of the new year, a series of major deals reflected the increased dynamism of Japanese companies. Seven & i Holdings Co., operator of 7-Eleven, may be taken private for around 9 trillion yen (about $70 billion) by the management, as the founding family is trying to defeat a takeover offer from Alimentation Couche-Tard Inc. At the end of last year, Honda and Nissan officially announced their intention to cooperate, which could create the world's third largest automaker. KKR & Co. and Bain Capital are competing for a rare hostile takeover of Fuji Soft Inc. valued at over $4 billion in Japan. The acquirers are becoming more diverse. In 2024, private equity firms with Chinese backgrounds became more active in Japan. Hillhouse Investment Management announced a takeover offer for real estate company Samty Holdings. FountainVest Partners and Japanese fund Unison Capital collaborated to acquire Japanese jeweler Tasaki & Co. from MBK Partners for about 100 billion yen. Jeff Acton, partner at Tokyo boutique investment bank BDA Partners Inc., said, "We are seeing a significant increase in the number of investors and buyers." Acton said that recently he has to have meetings two to three times a week with new investors and funds wanting to enter this market. "Five years ago, there were hardly any meetings." Rise of acquisitions and privatizations Tetsuro Onitsuka, partner at Sweden's EQT AB in Tokyo, said that some companies view privatization as an easier option than becoming a subsidiary of a competitor. Onitsuka said, "Our sales channel performance this year is good, partly due to this industry-driven pressure. Japan cannot change overnight to be like the U.S., but there has been a change in mindset that has brought us opportunities." Takaomi Tomioka, co-head of Carlyle Group's Japan office, said the Carlyle Group deployed its fourth Japan fund in about 3.5 years, faster than the usual five years. The fifth Japan fund completed fundraising in May last year with a record 430 billion yen, the largest-ever Japan-focused acquisition fund. Tomioka said, "The number of acquisition opportunities has increased significantly." He expects to allocate around 100 billion yen from its newly established Japan fund this year, mainly for privatization and spin-off transactions. Despite the vibrant domestic acquisition activity in Japan, companies are continuing the trend of actively pursuing overseas acquisitions as they have done for many years. Trading intermediaries say that factors such as the weakening yen and obstacles faced by Nippon Steel in acquiring a U.S. steel company may initially cause some companies to hesitate, but are unlikely to significantly affect the overall process of Japanese companies engaging in more overseas transactions. The total cash reserves of Japanese companies are still close to historical highs, thanks to some large companies unwinding cross-shareholdings. In July last year, Toyota announced plans to buy back shares worth 806.8 billion yen held by companies such as Mitsubishi UFJ Financial Group and Tokio Marine Holdings. Bankers say that these actions have led to a positive environ.Cash is now needed for overseas acquisitions.Cash reserves of Japanese companies are at historic highs. Considering the declining population in Japan, industries such as consumer goods and insurance may be the most active in overseas transactions. Ken LeBrun, partner at David Law Firm in Tokyo, said: "In the next year, we will see a large number of overseas transactions worth billions of dollars. Cash is plentiful and Japanese banks are also engaged in lending. For many Japanese companies, in order to have the necessary impact on their business, they need to make large transactions."