Increasing Inward Mergers and Acquisitions of Japanese Companies and their Implications

Mr. Naoyuki Haraoka's picture

Traditionally, outward mergers and acquisitions (M&As) of non-Japanese firms by Japanese firms have represented the dominant percentage of total M&As involving Japanese companies. However, past patterns are shifting with overseas companies’ acquisition of Japanese companies constituting a greater percentage of total M&A. According to the Merger and Acquisition Research Report, in the second quarter of 2016, inward M&A transactions reached around 840 billion yen, which represented 38.1 percent of total M&A deals, a significant increase from the first quarter of 2014, when inward M&A totaled around 130 billion yen and constituted 5.4 percent of total M&A. The data indicate that there are many cases where small, medium, and mid-scale companies in Japan, having failed to penetrate overseas markets even with their technological capacities and also having failed to transfer management to the next generation, are being bought up by overseas companies. Today, Chinese companies are increasingly keen on joining this new trend, particularly where Japanese companies with a technological edge are concerned. New deals are a positive inbound foreign direct investment (FDI) story for Japan since they will raise the percentage of the country’s inward FDI to total GDP, which still remains very low relative to global norms. However, it should be noted Chinese technology acquisitions, since many are backed by the Chinese government, raise concerns because of the potential for these deals to pose a long-term threat to national security and distort market forces. Aggressive Chinese technology acquisitions are observed not only with respect to Japanese companies, but also with respect to European Union and American companies. In 2017, regulators in those countries will heavily scrutinize Chinese technology acquisitions, especially those in key strategic sectors such as semiconductors and automation. In turn, China might retaliate by impose anti-dumping duties, spurring rising trade frictions. These new developments bear close watching.