JAPAN Trends and Developments Contributed by: Takeshi Iitani, Reid Monroe-Sheridan, Takahito Fujii, Akira Kawashiro and Daisuke Eguchi, southgate
investment returns from IPOs for start-ups and more selective investment from venture capital (VC) firms. 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, where - as Japanese start-ups previously tended to go public early due to a lack of funding sources, the growth of opportunities to secure funding from overseas investors has allowed start-ups to remain private for longer. In 2023, there were 123 M&A exits by start-ups, twice as many as the number of IPO exits by start-ups and a 5% increase from 2022. Deregulation of unlisted stock transactions may also produce more M&A exits among start-ups. In February 2024, the industry group Investment Trusts Association, Japan (JITA) amended its vol - untary guidelines to allow publicly traded mutual funds to invest up to 15% of total net assets in unlisted shares. Additionally, as part of the Startup Development Five-year Plan announced in November 2022, the Financial Services Agen - cy of the Japanese government 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 acces - Foreign buyers, including both PE funds and strategic 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 Cana - dian Alimentation Couche-Tard’s hostile takeo - ver bid for Seven & i Holdings, Bain’s acquisition of the historic, 300-year-old Japanese pharma - sible for start-ups. Overseas Buyers
ceutical company Tanabe Pharma is a case in point. The deal was evidence of rising activity among overseas private equity funds in identify - ing and investing in undervalued companies in Japan. Furthermore, the government is taking action to promote greater use of foreign capital among Japanese firms. On 15 January 2025, METI held the first meeting of the newly established Study Group on Utilizing Overseas Capital for Enhancing Corporate Value and made the meet - ing 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 identify - ing promising Japanese target companies; and • the lack of comprehensive networks within Japan to allow investment intermediaries to connect foreign investors with Japanese firms. To alleviate these challenges and facilitate investment from overseas, the Study Group pro - posed strengthening networks to “match” for- eign investors with Japanese target companies, as well as providing greater clarity to Japanese companies on effective use of foreign capital. An upcoming Guidebook, expected in spring 2025, will provide an overview of how to use foreign capital strategically, its benefits and risks, and best practices for Japanese corporate leaders. On the other hand, amendments to the notifica - tion rules of the Foreign Exchange and Foreign Trade Act (FEFTA) have resulted in stricter filing requirements for foreign direct investments. To regulate transactions that pose a national secu -
1014 CHAMBERS.COM
Powered by FlippingBook