JAPAN Trends and Developments Contributed by: Takeshi Iitani, Reid Monroe-Sheridan, Takahito Fujii and Akira Kawashiro, southgate
Overseas Buyers Foreign buyers, including both PE funds and strate - gic buyers, are increasingly active in the Japanese M&A landscape. In addition to KKR’s and Bain’s bids for Fuji Soft, as well as the Canadian Alimentation Couche-Tard’s hostile takeover bid for Seven & i Hold - ings, Bain’s acquisition of the historic, 300-year-old Japanese pharmaceutical company Tanabe Pharma is a case in point. The deal was evidence of rising activ - ity among overseas private equity funds in identifying and investing in undervalued companies in Japan. Furthermore, the government is taking action to pro - mote greater use of foreign capital among Japanese firms. In January 2025, METI held the first meeting of the newly established Study Group on Utilizing Over - seas Capital for Enhancing Corporate Value and made the meeting materials public. The materials highlight key obstacles to foreign capital use in Japan, includ - ing: • Japanese business leaders’ lack of familiarity with foreign investors; • the difficulty, for foreign investors, of identifying promising Japanese target companies; and • the lack of comprehensive networks within Japan to allow investment intermediaries to connect for - eign investors with Japanese firms. To alleviate these challenges and facilitate investment from overseas, the Study Group proposed strengthen - ing networks to “match” foreign investors with Japa - nese target companies, as well as providing greater clarity to Japanese companies on effective use of foreign capital. Additionally, as a key outcome of the Study Group’s work, METI published the Guidebook for Leveraging Foreign Capital to Enhance Corporate Value (the “Guidebook”) in June 2025, as a practi - cal resource for Japanese companies considering the strategic use of foreign capital to address manage - ment challenges and accelerate growth. The Guidebook consists of two main parts. The first provides “Basic Knowledge” on leveraging foreign capital, including: • an overview of relevant market trends and transac - tion structures;
M&A market. The initiative aims to comprehensively support each phase of SME M&A, including: • identifying succession and M&A needs; • facilitating matching; • ensuring smooth transaction execution; and • supporting post-merger growth. More start-ups looking to M&A exits Start-up founders in Japan have tended to seek growth through IPOs. Rising or steady interest rates in the US and Europe, however, have slowed growth in the IPO market since 2022, resulting in lower invest - ment returns from IPOs for start-ups and more selec - tive investment from venture capital (VC) firms outside the AI sector. Recognition is now growing in the VC community that M&A exits are preferable to small or premature IPOs. Start-ups are turning to partnerships with private equity funds that specialise in unlisted stocks. Moreover, whereas Japanese start-ups previ - ously tended to go public early due to a lack of fund - ing sources, the growth of opportunities to secure funding from overseas investors has allowed start- ups to remain private for longer. This shift is reflected in the 2025 exit statistics: there were 167 M&A exits by start-ups, compared with only 31 IPO exits, mean - ing M&A exits were approximately 5.4 times more fre - quent than IPOs. This ratio marked a historic high and represented a sharp increase from the 3.6-to-1 ratio observed in 2024. Deregulation of unlisted stock transactions has also produced more M&A exits among start-ups. In Febru - ary 2024, the industry group Investment Trusts Asso - ciation, Japan (JITA) amended their voluntary guide - lines to allow publicly traded mutual funds to invest up to 15% of total net assets in unlisted shares. Addi - tionally, as part of the Startup Development Five-Year Plan announced in November 2022, Japan’s Financial Services Agency amended the Financial Instruments and Exchange Act in May 2024 to allow the creation of alternative trading platforms for the brokerage of unlisted stocks. By removing barriers to investment in unlisted stocks, these shifts towards deregulation may render M&A exits more appealing and accessible for start-ups.
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