(Jan 9): Japan’s dealmakers are expecting a busier 2025 after more than US$230 billion (RM1.04 trillion) in mergers and acquisitions (M&A) last year, underpinned by companies’ changing attitudes around business expansion. 

Sitting on ample cash and trading at low valuations, firms in Japan are becoming more proactive to fend off global rivals and activist investors that are showing renewed interest in the country after decades of stagnant growth.

Some businesses are opting to expand quickly through high-profile global acquisitions — with Nippon Steel Corp going so far as to sue US officials to pursue a deal. Others including Honda Motor Co are considering options once unthinkable: merging with rivals, or, in the case of Fuji Soft Inc, working with private equity funds on a buyout.

“We are in a very different time,” said Satoshi Shimada, the head of Japan M&A at JPMorgan Chase & Co. “The need to consider offers and the need to be prepared to consider offers have become significantly real in the last 12 to 24 months.”

The shift in corporate thinking has been noticeable. Dealmakers recall Japanese firms used to request meeting private equity funds at hotels instead of their offices to avoid the embarrassment of being seen with such investors. For bankers, it would have been inconceivable to have “sell the company” as an option on a pitch deck in Japan. Now, businesses are becoming receptive to all options.

Pressure from activist hedge funds is one source of the urgency. Investors like Elliott Investment Management and ValueAct Capital Partners have been more aggressive in Japan, seeking to profit from undervalued companies sitting on high-quality operations. 

Such funds, which have historically been viewed with wariness, now have the backing of the Economic Ministry, while institutions like the Tokyo Stock Exchange also pushing Japanese companies to pay more attention to shareholder returns.

Japan was the second-busiest market for activist investing last year, with about 150 campaigns — a near 50% jump from 2023, according to data compiled by Bloomberg. Meanwhile, Japanese stocks are poised to reach new record highs in 2025.

“We are advising companies under pressure from activist shareholders, and they are seriously considering going private or integrating with the operation of other Japanese companies,” said Kenichi Sekiguchi, a partner in the M&A practice at law firm Mori Hamada. 

Sekiguchi said his team had a robust pipeline going into this year, and expects several transactions valued from hundreds of millions to billions of dollars to be announced in the first half. 

In 2024, the value of M&A deals that involved a Japanese company rose 44% to more than US$230 billion, according to data compiled by Bloomberg. That’s the fastest growth since 2018 and compares with 38% rise in M&A activity across the Asia-Pacific region. 

The new year is starting with a slew of prominent deals that reflect a more dynamic corporate Japan. There’s the potential ¥9 trillion (US$57 billion or RM256.53 billion) management buyout of Seven & i Holdings Co, as the 7-Eleven operator’s founding family tries to outmanoeuvre a takeover bid from Alimentation Couche-Tard Inc. 

Honda and Nissan Motor Co formalised their intentions to work towards a tie-up at the end of last year, which could create the world’s third-largest carmaker. And there’s the ongoing tussle between KKR & Co and Bain Capital to take over Fuji Soft in a US$4 billion-plus deal, marking a rare hostile bid by Bain in Japan. 

The acquirers are increasingly diversified. In 2024, private equity firms with Chinese roots became more active in Japan. Hillhouse Investment Management announced a tender offer for real estate company Samty Holdings. FountainVest Partners Co partnered with Unison Capital to buy Japanese jeweller Tasaki & Co for about ¥100 billion from MBK Partners. 

“We are seeing a significantly increased universe of investors and buyers,” said Jeff Acton, a partner at the boutique investment banking firm BDA Partners Inc in Tokyo. Acton said lately he’s having two to three meetings a week with new investors and funds looking to enter the market. “Five years ago, it would have been zero meetings.” 

Some companies see going private as a more palatable option than becoming a subsidiary of a rival company, said Tetsuro Onitsuka, a partner at Swedish buyout firm EQT AB in Tokyo. 

“We have a good pipeline this year, and some of that comes from this type of industry-driven pressure,” Onitsuka said. “It’s not going to become like the US overnight, but there is a change in mindset and that’s driving the opportunities for us.”

Carlyle Group Inc finished deploying its fourth Japan fund in about 3.5 years, ahead of the typical five-year timeline, said Japan co-head Takaomi Tomioka. The fifth Japan fund closed in May last year with ¥430 billion from investors, the largest Japan-focused buyout fund ever raised.

“The number of buyout opportunities has increased considerably,” Tomioka said. The firm expects to deploy about ¥100 billion this year from its new Japan fund, mostly in take-privates and carve-out deals, he added.

Despite the flurry of activity on Japanese soil, companies are also continuing a years-long trend of being aggressive overseas buyers. Headwinds like the weak yen, and the blocking of Nippon Steel’s bid to buy US Steel Corp may have given some firms pause initially, but is unlikely to affect the overall course of more outbound deals from Japan, dealmakers said. 

Japanese corporations’ combined cash holdings are also still near all-time highs — boosted by unwinding strategic shareholdings across some of the biggest companies. In July last year, Toyota Motor Corp announced it would buy back ¥806.8 billion worth of stock held by companies including Mitsubishi UFJ Financial Group Inc and Tokio Marine Holdings Inc. That cash will now need to be used — likely for M&A overseas, bankers said. 

Industries like consumer products and insurance will likely be the most active overseas, considering the demographic decline trend in Japan. 

“Over the next year, we will see lots of multibillion-dollar outbound deals,” said Ken LeBrun, a partner at law firm Davis Polk & Wardwell in Tokyo. “Cash is available, lending by Japanese banks is open. And for a lot of Japanese companies — to make the necessary impact on their businesses, they need to do big deals.” 

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