Boom time: Japanese M&A thrives in 2022

Data Insight Dealspeak 20 January

Boom time: Japanese M&A thrives in 2022

Despite the global economic turmoil that befell many countries around the world in 2022, Japan celebrated a highly active M&A market, with the number of deals hitting 3,380, its highest level since 2008, according to Dealogic data.

Data also shows private-equity (PE) deals in the country increasing in terms of both number and value from 2021, with 96 deals agreed last year for USD 25.9bn.

In 2022, the pace of rising interest rates and inflation proved more moderate in Japan than in other countries, helping favor domestic-based deal makers.

The Bank of Japan (BoJ) maintained its ultra-loose monetary policy by suppressing yields on benchmark 10-year-government bonds to lower than the target upper limit of 0.25% between January and mid-December 2022, according to data provided by Japan Bond Trading Co. While yields were hovering around 0.5% in early January 2023, they remain much lower than those of other developed countries such as the US.

Key takeaways

  • Japan M&A in 2022 saw its highest number of deals since 2008 at 3,380, though deal value fell 15% to USD 95.9bn compared with 2021, marking its lowest point since 2018.
  • Japan buyouts saw increases from 2021 of 45% and 13% in deal value and count, respectively.
  • Real estate and technology retained the top two spots in 2022, followed by transport and auto, which were not in the top-five list of 2021.
  • Japan’s domestic deal count increased from the previous year, reaching its highest figure since 2008, although deal value dipped.
  • 2022 saw an increase in Japan PE deals both by value and count compared with 2021, totaling 96 worth USD 25.9bn.

Hitachi powers on

The largest M&A deal involving a Japan-based target in 2022 was a tender offer by KKR to acquire Hitachi Transport System (HTS) [TYO:9086] for USD 5.98bn, according to Dealogic data. The sale was intended to privatize a listed subsidiary of parent, Hitachi [TYO:6501].

Hitachi, which held the largest shareholding in HTS of 39.91% as of September 2022, has been divesting a number of non-core business units in order to transform itself into an information technology (IT)-centric entity. HTS was widely regarded as the last of Hitachi’s major non-core business units.

Best of divest

Similar to Hitachi, many other major Japanese manufacturers and electronics makers continued accelerating their ‘selection and concentration’ strategies in 2022, divesting non-core business units and focusing corporate resources on key growing sectors.

Olympus announced in August the sale of a 100% stake in its microscope business unit, Evident, to Bain Capital for USD 3bn. Toshiba [TYO:6502] divested a 55% holding in air-conditioner manufacturer Toshiba Carrier to Carrier Global [NYSE:CARR] for USD 868.5m.

Fujitsu [TYO:6702] span off an 80% stake in image-scanner maker PFU to Ricoh [TYO:7752] in a USD 644.3m deal, another move designed to streamline towards growing its IT-related solutions business.

Fujitsu executives are on record as saying the company is now weighing up divesting stakes in group subsidiaries such as air-conditioner maker Fujitsu General [TYO:6755], semiconductor packaging firm Shinko Electric Industries [TYO:6967], and battery maker FDK [TYO:6955].

Real deals

Real estate-related sectors saw particularly frenzied M&A activity in 2022, according to Dealogic data.

KKR snapped up all of the outstanding stock of Mitsubishi Corp-UBS Realty in a USD 1.9bn deal. The joint venture between Mitsubishi Corp and UBS Realty, launched in 2000, was one of the largest listed real estate investment trusts (REITs) in Japan, according to media reports.

Meanwhile, in December, Daiwa House Industry [TYO:1925] divested Daiwa Resort, a 100% subsidiary operating 24 resort hotels across the country, to Ebisu Resort, for USD 406.7m.

According to a press release, Daiwa Resort was hit hard by the fallout from the pandemic, while it also faced updating aging facilities.

Taking the reins

In November, ORIX [TYO:8591] revealed it is to acquire privately-held cosmetics company DHC in a deal estimated to be around USD 2.14bn. When completed, the takeover would be one of the largest in Japan that has featured succession issues, according to media reports.

As things stand, many Japanese companies are owned by increasingly aging individuals, and this can complicate processes when searching for successors. The issue has been a key driver of recent M&A activity in the country, although such deals have been limited mainly to small and medium-sized companies thus far.

DHC founder and chief executive Yoshiaki Yoshida finally agreed to divest all of his shares to ORIX and retire from his position, according to an ORIX press release.

More to come

Tetsuro Onitsuka, partner at PE firm BPEA EQT, told Mergermarket that 2022 was “a good year” for PE players in Japan compared with other countries. He anticipates some slowdown in 2023, but says BPEA EQT will maintain its long-term strategy of focusing on Japan’s tech and healthcare sectors.

M&A experts say they expect more carve-out opportunities in the Japanese industrials sector, while several chemical and oil-related companies are now reviewing their business portfolios to meet their ESG goals. Mitsubishi Chemical Group is looking to move towards exiting its petrochemical, coal chemical and other non-core businesses in FY23, according to a corporate presentation.

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