JAPAN Trends and Developments Contributed by: Haseru Roku, Nagashima Ohno & Tsunematsu
Activist investors and PE funds driving M&A activities Most of the major M&A and privatisation deals in 2024 involved publicly listed companies. Across the Tokyo Stock Exchange (TSE), 94 companies delisted in 2024 – the highest number since 2013, when it merged with the Osaka Stock Exchange, and for the first time in its history, the total num- ber of listed firms actually decreased. While not every deal mentioned above is directly linked to this development, activist investors – who acquire minority stakes and actively intervene in management – and PE funds have played a significant part in Japan’s recent surge in tender offers and delistings. Traditionally, Japanese companies have relied on stable shareholders and cross-shareholdings with other listed firms to maintain their opera- tions. However, in an era of growing transpar- ency and rising foreign ownership, these activist investors are challenging the status quo. Their primary objective is to enhance shareholder value, often by urging companies to sell non- core businesses, improve capital structures, and increase dividends or share buybacks. When a listed company and an activist investor have a notable disagreement over issues such as boosting capital efficiency or executing busi- ness reforms, and the investor’s stake is large enough to wield influence, management some- times has no choice but to respond in one of two ways: • accept (at least partially) the investor’s recom- mendations, such as increasing dividends, a change of directors, restructuring businesses, or divesting assets, to fulfil demands for higher shareholder returns; or • opt for privatisation via a tender offer to delist the company, thereby sidestepping
IT Systems and Software: The “2025 Cliff”, Activists, PE Funds and Tender Offer In 2024, Japan’s IT systems and software indus- try experienced a series of large-scale M&A transactions. SCSK Corporation, an IT company under the Sumitomo Group, fully acquired Net One Systems, a listed communication systems construction company, through a tender offer valued at approximately JPY360 billion. Similar- ly, NEC Corporation, a multinational information technology and electronics corporation, made NEC Networks & System Integration Corpora- tion, a listed system construction and network communication company, its wholly owned sub- sidiary via a tender offer worth approximately JPY240billion. Additionally, in the latter half of 2024, US-based PE funds Kohlberg Kravis Rob- erts (KKR) and Bain Capital (“Bain”) engaged in a competitive bid process to acquire FUJISOFT INCORPORATED (“Fuji Soft”), a listed software developer and system integrator, a deal valued at approximately JPY640 billion. At the time of writing, how these competitive tender offers will end remains unresolved and has attracted sig- nificant attention from investors in Japan and worldwide. The engineer shortage and the “2025 cliff” One driving force behind this surge is the severe shortage of engineers in Japan. Alongside the high demand for AI and cloud migration, exist- ing systems used by Japanese companies have aged due to prolonged use. A significant over- haul is required by 2025 – a challenge the Japa- nese government refers to as the “2025 cliff”. Consequently, Japanese IT companies urgently need to secure engineers with high-level system development skills, prompting them to pursue M&A as a strategic solution.
214 CHAMBERS.COM
Powered by FlippingBook