JAPAN Trends and Developments Contributed by: Takeshi Iitani, Reid Monroe-Sheridan, Takahito Fujii, Akira Kawashiro and Daisuke Eguchi, southgate
cial performance began to decline in 2023. The MBO was designed to grant the company more operational flexibility and strengthen its overseas business in response to falling profits. MBOs have also gained traction as a means of countering hostile takeover bids, as in the case of Seven & i Holdings. In November, the com - pany announced that it was considering an MBO to fend off Alimentation Couche-Tard’s highly publicised takeover bid. As of January 2025, the company was reportedly considering outside sources of investment for the MBO, such as the Thai Charoen Pokphand Group. If the MBO is completed, it would be the largest in Japan’s his - tory. Moreover, the potential acquisition under - scores the appeal of MBOs for other Japanese businesses like Seven & i Holdings with influen - tial founding families, which may drive further MBO activity in the future. The proliferation of MBOs, however, has also evoked growing concern that certain deals allow management to acquire target companies at unfairly low prices at the expense of minor - ity shareholders. For instance, Taisho Pharma - ceutical Holdings attracted criticism for an MBO announced in November 2023 that allowed a company led by a member of the founding fam - ily to acquire Taisho for a share price below the company’s per-share book value. The buyout led certain minority shareholders to challenge the deal with the Tokyo District Court: Hong Kong- based activist fund Oasis Management argued that the tender offer price did not reflect the val - ue of their holdings, while US-based hedge fund Curie, RMB Capital argued that the tender offer price was inappropriately low and exercised its appraisal rights through court action. Prompted by these shareholder concerns, the Tokyo Stock Exchange reportedly plans to revise
the Corporate Code of Conduct in spring 2025 for stricter oversight of MBOs. The revisions would require companies to establish an inde - pendent special committee to assess the fair - ness of a proposal and may also require com - panies to secure approval for the deal from a majority of minority stakeholders. To improve transparency, the revisions would also intro - duce more stringent disclosure requirements regarding deal price calculations and post-deal business plans. By creating barriers to going pri - vate at low prices, these revisions may curb the onslaught of MBO transactions. Management succession and M&A The succession of management rights in pri - vately held companies, especially SMEs, has become progressively problematic for the Japa - nese economy as founders retire or depart their companies without leaving an internal succes - sor. Private equity funds and other investors are seeking out such companies as opportunities for acquisitions, which offer a solution for the transi - tion of business ownership. A recent example is Bain’s acquisition of a majority stake in Red Bar - on, a well-known privately held company spe - cialising in the sale of used motorcycles. When the founder passed away in 2023, Red Baron lacked an internal successor and the founding family turned to Bain for help. In October 2024, Bain acquired Red Baron for nearly JPY100 billion (USD694 million), while members of the founding family remained shareholders. The continuing phenomenon of succession issues may galvanise more privately held and family- owned companies to turn to M&A going forward. More start-ups looking to M&A exits Start-up founders in Japan have tended to seek growth through IPOs. Rising interest rates in the US and Europe, however, have slowed growth in the IPO market since 2022, resulting in lower
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