Domestic bliss: Japanese M&A bucks trend across Asia-Pacific spurred by local interest

Data Insight Dealspeak 21 August

Domestic bliss: Japanese M&A bucks trend across Asia-Pacific spurred by local interest

By Anjali Piramal and Manu Rajput

Japan is the only nation among the top 10 in the APAC region to enjoy a rise in M&A deal volume this year, while the other major nations of China, Australia, India and South Korea have all seen volumes decline. M&A in the country has climbed 9% in the year to date (YTD; to 16 August) to USD 65bn, while activity in Asia-Pacific excluding Japan is down 38% to USD 3.7bn.

Japan has maintained and even grown deal volumes, benefitting from the political and economic headwinds facing China and Europe driving hungry suitors to the land of the rising sun; its government’s push for leaner corporates; and its focus on advanced technologies.

In 2021 YTD and 2022 YTD, US acquirors spent an average USD 4.5bn on Japanese targets. This year, that number has fallen to USD 1.5bn. By contrast, Japanese buyers have marked a five-year high by shelling out USD 60bn, accounting for more than 90% of total deal values, as domestic players pounce on attractive assets and floundering firms.

Among the headlines this year are Itochu’s [TYO:8001] recent USD 2.7bn swoop for the remaining shares in its software services subsidiary Itochu Techno-Solutions [TYO:4739]; Mitsubishi Chemical Group’s [TYO:4188] transfer of all its shares in capsule manufacturer subsidiary Qualicaps to French food company Roquette Frères; and Toyota Motor’s [TYO:7203] sale of its minority stake in domestic telecoms firm KDDI for JPY 250bn (USD 1.76bn).

Technology on top

Out of total deal volume of USD 65bn, USD 28bn involves the technology sector, up from USD 13.5bn in 2022 YTD. After accounting for the USD 16bn sale of Toshiba [TYO:6502] in memory devices (see below), the second-largest target sub-sector by volume has been the computer and electronics software, which has seen 590 deals for USD 5.5bn. Note that computer services, with 70 deals, represents 10% of the technology pie.

Singapore’s sovereign wealth fund, GIC, has led the buying spree in Japan by computer software firms followed by local companies such as Recruit Holdings [TYO:6098], which repurchased its own shares; Mikitani Kosan, Spirit, CyberAgent [TYO:4751], and Tokyu [TYO:9005], which together invested USD 321m in B2B2C e-commerce platform Rakuten; and IT services provider TIS [TYO:3626], which added accounting and taxation systems developer Nihon ICS for USD 165m.

Financial sponsors’ feeding frenzy

Never have domestic and financials sponsors put so much money to work in Japan. In 2023 YTD, sponsors poured almost USD 30bn into the country, up 70% from last year, and an all-time high. The top four deals have involved financial sponsor buyers, while financial sponsor-led activity made up 46% of all Japan-targeted deals, up from 29% last year and 14% in 2021.

Out of 45 sponsor-led deals this year, 34 have featured domestic suitors. These include Japan Industrial Partners (JIP), which is heading a consortium to takeover beleaguered Toshiba [TYO:6502] for USD 16bn in Asia-Pacific’s largest buyout. State-backed JIC Capital, a subsidiary of Japan Investment Corp, announced it is to acquire chipmaker and resin manufacturer JSR Corp [TYO:4185] for USD 6.9bn, as global interest grows in chip makers.

Veteran US private-equity (PE) firms such as KKR [NYSE:KKR], Carlyle [NASDAQ:CG] and Bain Capital continue to extend their presence in the country, swallowing up dining and hotel company Odakyu Electric Railway [TYO:9007], lamp manufacturer Iswasaki Electric, and marketing provider Impact, respectively. Middle Eastern powerhouse Abu Dhabi Investment Authority, alongside Goldman Sachs Asset Management, landed several resort hotels from Daiwa House Industry [TYO:1925] for USD 900m.

Exit activity is also booming – volumes soared to an all-time high of USD 2.64bn in 2023 YTD compared with a nine-year average of USD 453.6m. Bain is gearing up to sell a 50% stake in Works Human Intelligence to Singapore’s GIC for USD 2.64bn. Other potential exits this year, according to Mergermarket’s proprietary Likely to Exit (LTE)* score, could be Affinity Equity Partners’ fast-food chain operator Burger King Japan, which is reported to be exploring a secondary transaction; Polaris Capital’s house cleaning and nursing care services provider Hitowa Holdings; and Bain Capital’s e-mail delivery platform and marketing support services provider, EmberPoint.