(Bloomberg) — Japan’s record dealmaking activity this year isn’t giving foreign firms much holiday cheer: For now, the field remains mostly dominated by the local megabanks and law firms with deep ties to the corporate world.
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At roughly $200 billion, the volume of transactions including mergers and acquisitions in the country is up 48% this year, data compiled by Bloomberg show. That compares with a 17% increase across Asia Pacific and a 19% slump for China, which remains the biggest market in the region with $271 billion in volume.
The sheer amount of activity is reshaping the battleground for investment bankers seeking to earn the often lucrative fees that come with these transactions. Just as the year winds down, one deal has left bankers scrambling to take part in: Honda Motor Co.’s acquisition talks with Nissan Motor Co.
The tie up could form the world’s third-largest carmaker. But even though big international investment banks win advisory roles on some deals, Japanese firms historically have a big hometown advantage, according to data compiled by Bloomberg.
“While some foreign banks have been relatively successful in Japan and they continuously pitch and work on many deals, the reality is the Japanese megabanks have much more access to companies due to their lending and underwriting relationship,” said Akio Katsuragi, co-founder and chief executive officer of investment banking boutique Crosspoint Advisors.
In the Honda-Nissan deal, Nomura Holdings Inc. is advising Honda, while Nissan has retained Mizuho Financial Group Inc. and Bank of America Corp.
Nomura is the top adviser for deals in Japan, followed by Morgan Stanley, which gets a boost from its strategic alliance with Mitsubishi UFJ Financial Group Inc. Goldman Sachs Group Inc., Daiwa Securities Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho round out the rest, according to the data.
Among law firms, the top five are all Japanese, led by Nagashima Ohno & Tsunematsu, Mori Hamada & Matsumoto and Nishimura & Asahi.
Partly, this reflects the industries prominent in some recent deals in strategically important sectors such as technology, which makes it even harder for foreign buyers, where global investment banks may have an edge over their local rivals. One such example is Japan Industrial Partners’ $15 billion takeover of conglomerate Toshiba Corp., in which Katsuragi’s firm was a lead adviser. Other banks that worked on the deal included Sumitomo Mitsui, Mizuho, Nomura, as well as overseas banks such as JPMorgan Chase & Co. and UBS Group AG.
Japanese Preference
The planned union of Honda and Nissan is one of those evergreen deals that has been talked about for years, according to Katsuragi, who was previously CEO of Lehman Brothers Holdings Inc.’s Japan office. The time is right for the deal to happen, he added, otherwise they might struggle to survive in a very competitive global market.
The two companies earlier this week reached a tentative agreement to set up a joint holding company that will aim to list shares in August 2026. While their executives have been careful to paint the transaction as a merger of equals, Honda will take the lead in forming the new entity and nominate a majority of its directors.
“There is still a preference to find a Japanese solution when it comes to big deals, especially if there is a possibility of combining two national champions or finding local investors as a way to preserve some of the national-trophy assets,” said Takeshi Nakao, managing partner at law firm Freshfields Bruckhaus Deringer LLP in Tokyo.
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Other deals receiving foreign interest but facing local resistance in Japan include Quebec-based Alimentation Couche-Tard Inc.’s pursuit of the owner of 7-Eleven convenience stores. Banks working on the potential cross-border deal include Goldman Sachs, Morgan Stanley and Nomura.
After the operator of Circle K stores made its intentions known, Seven & i Holdings Co. considered a management buyout to take itself private with funding from banks, Itochu Corp. and the founding Ito family in a transaction that could be worth around $58 billion, Bloomberg News reported. Banks that may provide financing for what could be the largest-ever such deal in Japan include Sumitomo Mitsui, MUFG and Mizuho.
“If Seven & i is possible, then anything could get done, other than certain assets in strategic and sensitive industries,” said Nakao of Freshfields.
Busy Times
Nippon Life Insurance Co. has done more than $12 billion in deals this month alone, and Japan’s biggest insurer isn’t finished yet. There’s also Bain Capital’s ongoing plans to buy shares of software developer Fuji Soft Inc. without the support of the Japanese company’s board, setting the stage for a rare hostile bid in its battle with KKR & Co. for the Yokohama-based firm.
“This is the busiest ever we have seen in Japan dealmaking,” Nakao said. “Deals in Japan are going to get even bigger, both inbound and outbound.”
The deal bonanza has also been buoyed by a strong stock market, with the benchmark Nikkei 225 index reaching an all-time high in July. It has gained more than 20% this year.
Outside of Japan, India was the other hot spot for deals this year, with a record $20 billion raised in initial public offerings and $97 billion in other transactions including M&A.
Activist Investors
Investment bankers in Japan have also been busy on equity capital markets transactions as global investors continue to pile into Japanese stocks. About $6.3 billion was raised via IPOs in Japan since January, according to data compiled by Bloomberg. Tokyo Metro Co., the operator of one of the world’s biggest subway systems, raised more than $2 billion in October, making it the biggest Japanese listing since mobile carrier SoftBank Corp. went public in 2018. Nomura, Mizuho and Goldman Sachs were the joint global coordinators for the Tokyo Metro offering.
The Ministry of Economy, Trade and Industry, known as METI, and the Tokyo Stock Exchange have been another key driver of deals, urging companies to improve their governance and shareholder value.
That’s encouraged activist investors who have also played a part in supporting the bull market by shaking up Japan Inc., keeping both CEOs and bankers busy figuring out the next transaction.
“Activist shareholders are much more aggressive now, putting management under huge pressure to create shareholder value,” Katsuragi said. “That is driving a lot of the M&A as companies pursue asset disposals, unfold their crossholdings and consider going private. The sheer amount of deal activity will continue next year.”
–With assistance from Aaron Kirchfeld.
(Adds banks involved in some recent deals starting in sixth paragraph.)
