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International Corporate / M&A – Japan

posted 3 weeks ago

Anderson Mori & Tomotsune is a full-service law firm with more than 600 professionals, best known for serving overseas companies doing business in Japan since the early 1950s. We are proud of our long tradition of serving the international business and legal communities, as well as our reputation as one of the largest full-service law firms in Japan. Our combined expertise enables us to deliver comprehensive advice on all legal issues that may arise in the course of a corporate transaction, including those related to M&A, finance, capital markets and restructuring/insolvency as well as litigation/arbitration. Most of our lawyers are bilingual and experienced in communicating, drafting and negotiating across borders and around the globe.

Gen Takahashi handles a variety of corporate matters with a particular focus on cross-border M&A transactions involving Japanese entities. He provides thorough and practical legal advice based on his experience of working in Singapore and Australia, as well as at the M&A division of a major securities firm in Japan. With his deep knowledge on domestic M&A deals, including public deals, general corporate, antitrust, commercial contracts, labour and dispute resolution gained through his past experience, he is capable of providing international clients with multi-angular advice on their complicated M&A deals. He also serves as a co-representative of the firm’s Singapore office.

The Japanese legal system has its origins in the civil law tradition and is primarily based on written law. For companies operating in Japan, the main source of legislation is the Companies Act of Japan (“Companies Act”) and its branch laws and regulations. Although the Companies Act is a sophisticated law, it contains several unique concepts, such as a statutory auditor (kansayaku), an internal officer of a joint-stock company overseeing the business and accounting matters of the company, and a corporate split (kaisha bunkatsu), a corporate reorganisation scheme to achieve a separation of a business sector from a company. These are the concepts frequently discussed with the clients interested in newly joining the Japanese market.

In the past few years, we have observed a significant increase in the number of inbound transactions targeting Japanese companies, while the number of outbound transactions initiated by Japanese companies slightly declined during the COVID-19 pandemic. There seem to be several reasons for this trend, and one of the most recent reasons is the weaker Japanese yen compared to other currencies in the world, which is clearly contributing to the foreign investors’ motivations to invest in Japan. Particularly, we have recently seen very aggressive investments by foreign-based pri¬vate equity funds into Japanese businesses/assets, including their acquisition of noncore businesses/assets sold by high-profile companies and of businesses/assets in smaller startup companies. We also observe that international companies from a wider range of jurisdictions are interested in joining the Japanese market, including those in the South-east Asian region.

Another interesting trend observed in the recent Japanese market is the increasing number of hostile or competitive takeo¬vers. The Japanese market has historically been a very conservative one, wherein only a few attempted hostile takeovers of listed companies have been suc¬cessful in the past 10 years. The trend has changed recently, and we have been advising several clients in their challenging hostile or competitive takeover deals.

While Japanese companies are forced to take into account these factors when making their decisions on their overseas investments, they have not necessarily affected the Japanese domestic deals and inbound deals, as they have been largely offset by the impact of the historically weak Japanese yen during recent times. In fact, due to the relative uncertainties in other jurisdictions, such as in China and Europe, the Japanese domestic market seems much more stable and is easier for the international companies to enter.

While the Japanese M&A transactions continue to be diversified in terms of the relevant business sectors, there is a continued trend of an increase in the number of deals related to the technology sector, particularly in the field of digital transformation (DX), like in many other countries. Even in terms of the outbound deals initiated by Japanese companies, a huge amount has been invested for the purchase of technology-related business/assets outside of Japan. In many of the deals, Japanese companies have been aiming to divest their un-core business sectors and/or transform their business portfolio – especially after they were forced to focus on specific business sectors after the outbreak of COVID-19. The social move towards decarbonisation and increased interest in environmental, social and governance (ESG) are the other drivers for Japanese companies to urge their transformative M&A deals.

We have recently seen a large number of M&A deals involving SMEs, both in terms of the acquirer companies and the targeted companies, which we believe is contributing to the rise in volume of the Japanese M&A deals. This move has been driven by the continuous need from smaller private companies to find a new entrepreneur to take over their business from the founders. Even foreign-based private equities are interested in investing in smaller private companies, partly due to the relatively low stock price and the weak Japanese yen trend.

On the other hand, there have been a stable number of deals involving larger companies, such as public companies. In fact, many of the recent outbound deals were implemented by large Japanese companies, which had abundant excessive cash to use for M&A deals.

Being a full-service law firm, we are capable of advising our international clients who operate their business in Japan on various aspects of Japanese law, including corporate law, labour/employment law, competition law, foreign exchange regulations and the laws and regulations related to finance and restructuring. While Japanese law is sophisticated and usually without unexpected interruptions, we recommend a foreign entrepreneur considering entry into the Japanese market to seek advice from a Japanese legal expert from the initial stage of its consideration so that it can achieve its goal without major legal obstacles.

We are traditionally very active in coordinating with foreign-based law firms and are in contact with them on a daily basis. I also frequently attend networking events all over the globe, including conferences hosted by IBA (International Bar Association), IPBA (Inter-Pacific Bar Association) and other global organisations.

One of the recent changes in the Japanese legal framework is the reorganisation of the market categories of the Tokyo Stock Exchange (“TSE”) in 2022. Originally, the TSE comprised four market divisions: First Section, Second Section, Mothers and JASDAQ (consisting of two submarkets: Standard and Growth). However, since the ambiguous borders of each market division had reduced convenience for many investors, a reform was made to re-categorise these four market divisions into three new divisions: the “Prime Market”, “Standard Market” and “Growth Market”. This re-categorisation has contributed to more deal activities involving companies listed on the TSE.

From the perspective of foreign investment in Japan, there was a significant amendment to the FDI regulations in 2020 to strengthen the screening process of proposed FDI, mainly from a national security viewpoint, by requiring that broader FDI into Japanese companies follow stringent pre-transaction scrutiny procedures. The Japanese government continually reviews the scope of the business sectors that require pre-transaction scrutiny procedures, and several businesses in the supply chain of certain essential materials and products (e.g., semiconductor, industrial robotics) have been added in 2023. It is generally understood that these additions were designed to bring the FDI regulations into alignment with the newly introduced Economic Security Promotion Act (ESPA), which seeks to enhance the economic security of Japan.

Recently, there have been various attractive opportunities in the Japanese market because of the relatively low share prices of prominent public and private companies and the weaker Japanese yen, coupled with the continued stability of the Japanese legal system and economy. I have assisted a number of international clients, including private equity funds and public companies, in seeking for such opportunities – and I expect to have more opportunities in the rest of 2023 and in 2024, especially driven by foreign entrepreneurs of emerging countries.

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