Influx of inbound investment approaches Japan, while LBO loan market trends toward caution

We have seen a dramatic increase in the interest in inbound investment and leveraged finance in Japan, including an increasing number of global private equity funds opening an office in Japan and changes in the financing market atmosphere.

Overseas interest in investment in Japan predominately features global private equity funds, a mix of stable economics, an increased focus on corporate governance and ESG, founder succession issues and bank debt accessibility.

Institutional and activist shareholder pressure to divest non-core assets has created opportunities for private equity funds and strategic buyers. In the Japanese domestic M&A transaction market, there has been a robust increase in business succession deals where Japanese private companies owned by the original owners or their family members were transferred to private equity funds or competitors of those companies. ESG factors have also contributed to these trends. The increase of shareholder pressure on companies globally to focus on improving ESG metrics to reduce the cost of capital is the same in Japan as it is overseas. Those seeking to achieve carbon neutrality goals may be expected to not only divest legacy businesses, but also to acquire new technologies through M&A. Banks seem to be cautious of having large exposure to one borrower and are also taking a relatively more conservative approach to lending such as higher margins, shorter commitment and stricter covenants.

Will these trends continue? How will this affect M&A opportunities in Japan? Our panelists from various fields will examine the factors underlying these trends, the issues they raise and their possible implications.

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