Conditions are ripe for Japan to build on its status as a hotbed for mergers and acquisitions in 2024 as new government takeover guidelines, among other supportive policies, provide a boost for willing buyers.
M&A deals from January to November 2023 rose to 1,425 in Japan from 1,413 for the same period in 2022, S&P Global Market Intelligence data shows. The number of deals has risen since 2019 as ultralow interest rates persist in the country, in contrast with tepid dealmaking globally in a higher interest rate environment.
This growth could well continue should potential buyers take advantage of M&A guidelines, announced in August, that allow unsolicited takeover bids and seek to prevent credible offers from being turned down without serious consideration.
"M&A will be in a state of increase [in 2024]," said Satoshi Usui, general manager at Nihon M&A Center, an advisory firm. "There is no question about it."
The new policy is seemingly already being taken advantage of, as Nidec Corp., one of the world's largest makers of electric motors, launched an unsolicited takeover bid for Takisawa Machine Tool Co. Ltd.
"We consulted the [takeover] guidelines during our discussions with legal and financial advisers," a spokesperson for Takisawa told Market Intelligence. Nidec "viewed the guidelines as a godsend," a company spokesperson said, adding the new rules helped expedite the deal.
Ultimately, Takisawa accepted the bid without putting up a defense. Subsequent to completing the deal, worth around ￥16.6 billion, Nidec is busy converting Takisawa into a wholly owned unit, which is expected to be completed in the 2024 first quarter.
The government rule "will definitely become a tailwind for M&As," said Usui, who also pointed out that the Nidec offer was one of few unsolicited takeover bids in Japan.
Beneficial policies
This is not the only government policy that stands to benefit M&A transactions.
While most global central banks are seemingly near the end of their rate hike cycles, the Bank of Japan has kept its ultraloose monetary policy settings intact in an effort to support economic growth. Many analysts believe the Japanese central bank may drop its negative interest rates policy in 2024 in the wake of it announcing a series of de-facto tightening moves by progressively increasing its tolerance of higher yields on Japanese government bonds since December 2022.
This would not necessarily harm M&A and would instead be "neutral," said Masahide Endo, a senior consultant at Daiwa Institute of Research's management consulting department. "[It] could make it hard for funds to raise cash for an acquisition but could prompt a sell-off of underperforming assets. M&A can't be executed without a sale [of assets]."
"Bringing in NISA would intensify competition in Japan's asset management business, and asset managers would hunt for M&A deals for faster growth," Endo said. "The government guideline will also be a plus for M&A as it would make it hard to defend a target against a takeover."
The revised NISA program would allow individuals to invest up to ￥2.4 million in stocks annually for up to a total of ￥18 million per person, double the ￥1.2 million annual limit currently. Also proposed are permanent tax exemptions and an unlimited period of opening accounts to individual investors. Despite being relatively less attractive for investors, the number of NISA accounts in the current avatar increased 7.8% from the end of December 2022 to about 19.41 million at the end of June of 2023, according to data from Japan's Financial Services Agency.
Several corporations are also looking to divest noncore assets or even put themselves on the block amid increasing material costs, a weakening yen and labor shortages. Additionally, the nation's aging and shrinking population is driving companies to explore divestments.
This changing demographic could trigger M&A in industries including nursing services and logistics, Usui said.
Nippon Life Insurance Co. announced Nov. 29 that it will acquire Nichii Holdings, which owns Nichigakkan, the country's largest nursing care services provider, for about ￥210 billion. The acquisition will allow Japan's biggest life insurer to diversify its income sources.
Succession has become a more acute issue for smaller businesses. M&A deals prompted by the need to find a successor or new management more than doubled from five years ago to 1,681 in the fiscal year that ended in March 2023, according to the Small and Medium Enterprise Agency.
About 2.45 million of top management at those companies will be aged at 70 years and over by 2025, and more than half of them have not yet found their successors, the data show.
"There should be more needs for M&A to solve the succession issue in some years to come," said a spokesperson for the Organization for Small & Medium Enterprises and Regional Innovation of Japan.
