Japanese businesses "hunt" for cross-border M&A targets

With more abundant capital and a more open management model, but the domestic market is gradually running out of room, Japanese businesses are accelerating their search for cross-border mergers and acquisitions (M&A) deals.

With more abundant capital and a more open management model, but the domestic market is gradually running out of room, Japanese businesses are accelerating their search for cross-border mergers and acquisitions (M&A) deals.

Finding ways to divide the "pie" of more than 4,200 billion USD

News that Japanese companies are looking to M&A larger companies overseas as a surplus of more than $4.2 trillion in cash recently released has sent the market into a tailspin.

This also shows that the domestic market is narrow, forcing Japanese businesses to find growth targets abroad through M&A deals.

According to Yoshinobu Agu, Head of M&A at Citi in Tokyo, in the past few years, the scale of M&A transactions by Japanese companies abroad has been getting larger and larger. The desire of Japanese companies to develop and invest has become much stronger.

In 2023, according to statistics from Recof Data, Japanese enterprises conducted about 660 M&A transactions abroad, up 6% compared to 2022. About 1/3 of the deals took place in the US, followed by the UK (44 deals), Singapore (42 deals) and India (34 deals).

16th VIETNAM M&A FORUM 2024

The prestigious annual event on mergers and acquisitions and investment connections organized by Investment Newspaper under the direction and sponsorship of the Ministry of Planning and Investment , will be held at JW Marriott Saigon Hotel (HCMC) on Wednesday, November 27, 2024.

  With the theme “A Blossoming Market”, the Vietnam M&A Forum 2024 will discuss in-depth emerging M&A opportunities in potential sectors such as real estate, retail, technology, renewable energy, financial services and logistics.

  The M&A Forum 2024 will have the following main activities:
- Main workshop with leading Vietnamese and international speakers.
- Honoring outstanding M&A Deals and Consultants in the period 2023 - 2024.
- Release of the M&A Market Panorama 2024 Special Edition (bilingual Vietnamese - English).

Data from S&P Capital IQ Pro shows that overseas M&A deals reached a transaction value of about $50.5 billion, up about 7% compared to the previous year. Notably, Nippon Steel spent about $14 billion to buy US Steel. However, the completion of this deal is being affected by the US presidential election.

In addition, there are deals such as: Panasonic Connect spent 7.1 billion USD to acquire supply chain management company Blue Yonder Group Inc. - an independent subsidiary of Panasonic in the US; chip company Renesas Electronics spent 5.9 billion USD (9.1 billion Australian dollars) to acquire Australian software company Altium; Renesas spent 5.7 billion USD to buy joint venture chip company Dialog Semiconductor between the UK and Germany; housing construction company Sekisui House spent 4.9 billion USD to acquire US housing construction company MDC Holdings.

As the domestic M&A market in Japan remains small compared to other developed markets, in order to create a new boom in cross-border M&A transactions, the Japanese Government has implemented corporate governance reforms.

Japanese companies are looking for targets in places with growing economies and young populations, such as Southeast Asia and India, cross-border M&A brokers in Japan say.

While in the US, Japanese companies pursue 100% acquisitions because of market transparency, in Southeast Asia and India they only want minority stakes. The reason is that Japanese companies want to exploit the business networks and government relationships of local executives.

Mr. Yusuke Ojima, Head of ASEAN region of Nihon M&A Center Holdings, assessed that the Japanese domestic market is entering a saturated phase, and growth potential is limited compared to dynamic and rapidly developing economies. The ASEAN region, including countries such as Malaysia,

Singapore, Indonesia, Thailand and Vietnam, offer great opportunities for Japanese companies looking to diversify and grow.

“By expanding investment in these high-growth markets, Japanese companies not only minimize risks from domestic economic fluctuations, but also take advantage of new opportunities for long-term development and market expansion,” said Mr. Yusuke Ojima.

Want to penetrate deeper into Vietnam

Brokers say capital is not the main problem for Japanese companies. Japanese companies currently enjoy great support from investors. It is important for large companies not to lose the trust of investors.

In the Vietnamese market, Japanese investors are also making strong moves in searching for target companies for M&A.

According to data from the London Stock Exchange Group (LSEG), in the first nine months of 2024, the total value of announced transactions in Asia reached $622 billion, down 0.2% compared to the same period in 2023.

However, the Asia-Pacific region alone increased by 25% year-on-year to $286 billion, of which about 80% of the value of transactions were transacted with one
cross-border partners

Recently, Nihon M&A Center Holdings (Nihon M&A Center) has just established ASEAN to Global Capital (AtoG Capital), a subsidiary specializing in fund management to support Japanese businesses expanding to the ASEAN region, including Vietnam.

Through this fund, AtoG Capital focuses on promoting cross-border M&A opportunities between Japanese companies and SMEs in the ASEAN region.

According to Mr. Yusuke Ojima, AtoG Capital helps Japanese investors create cross-border investment opportunities. “We provide our clients with the resources and expertise needed to overcome the challenges of international M&A transactions, thereby fostering successful partnerships and sustainable growth,” said Mr. Yusuke Ojima.

AtoG Capital and Nihon M&A Center both hope to promote ASEAN businesses, especially mid-sized businesses, to help them realize their full potential in the global market.

Specifically, AtoG Capital will support businesses in a two-stage divestment process, supporting internal restructuring and then supporting the sale of shares through the consulting services of Nihon M&A Center. The fund will ensure compliance with Japanese business standards and provide a clearly structured post-merger integration process, aiming to optimize time and costs for successful divestment transactions.

With expertise in restructuring corporate governance to align with Japanese business standards and providing a clearly structured post-merger integration process, Nihon M&A Center ensures a smooth transition into Japanese business culture.

This investment model helps optimize time and costs for successful divestment transactions, while reducing direct management intervention in strategic decisions, allowing businesses to operate more efficiently.

Since 2020, Nihon M&A Center Vietnam has completed more than 8 deals per year, with average value ranging from 10 million USD to 50 million USD. These deals span the fields of manufacturing, construction, logistics, information technology and distribution.

The above moves have somewhat relieved the heavy psychological burden on investors, as recently, cross-border M&A deals by foreign investors have been somewhat "slowed down" by strict management measures.

According to Dr. Le Minh Phieu, founding and managing lawyer of LMP Lawyers, the measures proposed are aimed at "tighter" management, but lack consistency and clarity, causing two difficulties.

First, it is difficult for the buyer to conduct legal due diligence. The unclear and inconsistent regulations make it difficult for the seller to implement and comply, while the buyer is also not sure what constitutes proper compliance. This leads to different views on a legal issue in the target company's operations, making it difficult to reach a consensus.

“Negotiating relevant terms in the contract such as conditions precedent, warranties and guarantees or indemnities also leads to prolongation,” Mr. Phieu shared.

The second difficulty pointed out by Mr. Phieu is the implementation of legal procedures to close the deal. According to Mr. Phieu, the lack of synchronization and clarity makes the parties quite tense when negotiating the prerequisites related to legal procedures. Even when the negotiations are finished, the parties still have to perform in suspense.

However, in the current difficult economic context, M&A is a reasonable strategy to restructure and restore business strength. In fact, after Covid-19 and due to many factors, most businesses will face difficulties in cash flow as well as plans for future business development.

Cooperating with investors and foreign investment funds can help businesses partly overcome immediate financial difficulties, while also providing strategic cooperation for the long-term development of the business.

“Enterprises must also constantly seek opportunities to improve their financial capacity, enhance their brands, expand their markets, invest in key personnel, and take advantage of resources and experience in technology, management, operations, and marketing from domestic and foreign partners,” said Mr. Phieu.

Source: https://baodautu.vn/doanh-nghiep-nhat-ban-san-muc-tieu-ma-xuyen-bien-gioi-d229050.html