JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
In the small to mid-cap market, domestic M&A deals of family-owned businesses are likely to continue as founders have difficulty in handing over their business to family members or employees and instead decide to sell the business to third-party buyers, including private equity buyers. Another interesting and important development in recent years has been an increasing number of hos - tile transactions, including unsolicited tender offers by Japanese companies, which have historically been While Japan is politically stable, Japanese companies are affected by the global geopolitical tensions as well as tariffs and trade policies rolled out by the USA. Although Japan has successfully negotiated a 15% rate for most of the exports including automobiles, the heightened tariffs require Japanese companies to reconsider their business plans and supply chain strategies, which should affect their investment strat - egies. However, these uncertainties do not seem to have materially hindered private equity deal activities in Japan – see 1.1 Private Equity Transactions and M&A Deals in General . Factors such as the still very low interest rates and the continuously weak yen, as well as Japan’s geopolitical stability with international investors facing difficulty making new investments in elsewhere in Asia, may have contributed to this trend. However, it is worth noting that some portfolio com - panies of private equity sponsors have faced financial difficulties and undergone restructuring proceedings in the last few years. 2. Private Equity Developments 2.1 Impact of Legal Developments on Funds and Transactions New Guidelines Corporate Governance Code and Stewardship Code As part of the continued efforts to enhance the cor - porate governance of Japanese listed companies, the Tokyo Stock Exchange adopted the Corporate Gov - ernance Code in 2015, and revised it in June 2018 and June 2021. The Corporate Governance Code very cautious about making such offers. Impact of Geopolitical Developments
adopts the “comply or explain” approach and sets forth principles for effective corporate governance for Japanese listed companies, which, among other things, require listed companies to give weight to the cost of capital in determining their business portfolio and resource allocation. The emphasis on the cost of capital may encourage Japanese listed companies to dispose of their non-core businesses and focus on expanding their competitive edge through M&A. In addition, the Japanese Financial Services Agency (FSA) introduced a Japanese version of a Stewardship Code in February 2014 and subsequently revised it twice, in May 2017 and March 2020. The Stewardship Code describes the principles considered to be helpful for institutional investors in fulfilling their stewardship responsibilities towards their clients, beneficiaries and companies when they engage with corporates. The FSA announced that 340 institutional investors have adopted the Stewardship Code as of 31 March 2025. In the latest revised Code, it is stipulated, among other things, that institutional investors should disclose not only the voting records for each investee company but also the reason why they voted for or against each agenda item, and that proxy advisers should dedicate sufficient management resources to ensuring sound judgement in the evaluation of companies and furnish - ing their services appropriately. These developments are affecting the stewardship activities of institution - al investors, including the exercise of voting rights, which is also affecting M&A practices in Japan. More than ten years after it formulated guidelines for management buyouts in 2007, the Ministry of Econo - my, Trade and Industry of Japan (METI) released fully revised guidelines for M&A transactions involving con - flicts of interest in June 2019, titled ‘Fair M&A Guide - lines: Enhancing Corporate Value and Protecting Shareholders’ Interest’ (the “Fair M&A Guidelines”), which cover not only management buyouts but also the acquisition of a controlled company by a control - ling shareholder. Private equity M&A in which incumbent management participates (management buyouts) will be within the scope of the Fair M&A Guidelines; as a practical mat - ter, compliance with the Guidelines is likely to have an
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