2024-02-21 22:00:00
This year’s Japanese M&A (corporate mergers and acquisitions) market is expected to increase both in value and number of deals. In addition to going private, including MBO (management buyout), and large-scale acquisitions by foreign companies, it is expected that there will be an increase in acquisitions of Japanese companies by foreign companies. We asked investment bank executives regarding changes in the external environment and corporate behavior that are beginning to occur in the M&A market.
According to Bloomberg data, the number of Japan-related M&A transactions in 2023 decreased by 1.2% to 4,272, while the total transaction amount increased by 25% from the previous year to 28.59 trillion yen. Large-scale deals worth 2 trillion yen, such as the taking of Toshiba private and the acquisition of a major US steel company by Nippon Steel, offset the decline in the number of deals and pushed up the overall figure. By February 21, 2024, the amount had increased by 60% from the same period last year to approximately 4.3 trillion yen.
Japan-related M&A trends
Source: Bloomberg
Ryo Kiyota, Head of Global M&A for Investment Banking Products at Nomura Securities, said of this year, “Both the number and value of deals are expected to grow significantly with a variety of themes.This year might be called “the first year of Japan’s new M&A.” ” he predicted. There is a strong view that the trend of large-scale delistings, sales of non-core businesses and listed subsidiaries, MBOs, and overseas acquisitions by Japanese companies will continue.
Akihiro Kido, Global Advisory Head of Mizuho Securities’ Global Investment Banking Department, gave an example of Hitachi, which sold its logistics, metals, and leasing companies, and said, “We thought this was a test to see if other companies would follow suit. “There is a growing recognition among other companies that they too cannot continue as they are.”
However, in the case of Japanese companies, there are many cases in which executives who have retired from the parent company are appointed to subsidiaries, and “From the parent company’s manager’s perspective, it becomes a difficult task to persuade seniors.The test is whether or not the manager can handle it.” .
Last year, there were a number of large-scale MBOs, including Taisho Pharmaceutical Holdings (total acquisition amount of approximately 710 billion yen) and Benesse Holdings (total acquisition amount of approximately 200 billion yen). Atsushi Tatsuguchi, Head of M&A Advisory Group, Mitsubishi UFJ Morgan Stanley Securities Investment Banking Headquarters, said, “With increasing market pressure to improve capital efficiency, it is difficult to make bold changes while remaining listed. Given this background, more companies will choose MBO as an option.”
Governance reform being pushed from multiple directions
Pressure on listed companies facing governance reform is increasing from a variety of sources, including institutional investors, the government, and stock exchanges. Yoshihiko Yano, head of M&A at Goldman Sachs Securities, points out that the transformation of traditional domestic institutional investors such as life insurance companies and asset management companies is playing a major role, as well as activists (active shareholders). do.
At recent general meetings of shareholders, approval rates in the 60% to 70% range continued to be passed on proposals to elect directors, which used to be commonplace. This puts concrete pressure on companies. In response to the spread of the Stewardship Code, which is a behavioral guideline for institutional investors, there is also a tendency to place more emphasis on the opinions of voting advisory firms.
Mr. Yano said that institutional investors, who were traditionally thought of as shareholders of the ruling party, were also voting once morest the vote, adding, “In Japan, there are still managers who do not feel responsible even when stock prices fall, but “If the approval rate drops to the 70% level, it will no longer be individual.” He said that in order to increase approval ratings, he “must take measures that the market will accept.”
We will also seriously consider counter-proposals.
In addition to the Tokyo Stock Exchange requesting companies to improve their price-to-book ratio (PBR) below 1, last year the Ministry of Economy, Trade and Industry announced action guidelines for corporate acquisitions. If a company receives a “takeover proposal without consent” and the proposal is sincere, the board of directors is required to seriously consider it. There is a possibility that these guidelines will encourage aggressive corporate acquisitions and restructuring.
Last year, Dai-ichi Life Holdings announced an “unconsented takeover proposal” at a higher TOB price in response to M3, which had first made a takeover offer (TOB), leading to a bidding war over the acquisition of Benefit One. developed. Pasona Group, Benefite’s parent company, expressed the view that Dai-ichi Life H’s proposal would “contribute to increasing corporate value.” Benefits also switched to supporting Dai-ichi Life Plan H.
In the past, there were many companies where managers rejected acquisition proposals for vague and qualitative reasons in order to protect themselves. However, Mitsubishi Morgan’s Mr. Tatsuguchi says that from now on, we will compare the intrinsic value of acquisition proposals and stand-alone business plans, and “analyze from an objective and quantitative perspective which one contributes to maximizing shareholder value.” ”, emphasizing the significance of the guidelines. Based on this, we believe that more companies will eventually accept acquisition proposals.
Overseas companies are also keeping an eye on the situation.
The movement of overseas companies exploring the possibility of acquiring Japanese companies is also likely to increase. Mr. Kiyota of Nomura Securities revealed that following the guidelines were published, “We have received an increasing number of inquiries from global players who have begun to consider more realistic acquisition proposals.” However, it is expected that the acquisition proposal will be based on a relationship of trust.
On the other hand, it is possible that companies may take advantage of loopholes in the guidelines. Mr. Kido of Mizuho Securities Co., Ltd. is concerned that because companies do not necessarily have to announce to the market even if they receive a takeover proposal, “there remains the possibility that operations that deviate from the purpose of the guidelines may still occur.”
Japanese companies are under pressure from both the public and private markets, and Mr. Tatsuguchi said, “By identifying business areas where management resources should be concentrated and separating other business areas, capital reallocation will become more active. I will,” he said.
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