Pandemic Spurs Record Number of M&As in Japan in 2020

The Yomiuri Shimbun file photo
Shimachu Co. President Takaaki Okano, left, shakes hands with Nitori Holdings Co. Chairman Akio Nitori in November.

More Japanese companies are turning to mergers and acquisitions as a means of accelerating the selection and concentration of their businesses to survive or capitalize on possibilities created by the ongoing pandemic and the advance of digitization. However, it remains unclear whether such deals can always produce the expected effects as companies are exposed to risks as well.

■ Selling signature brands

Shiseido Co. announced on Wednesday that it will sell some of its daily necessities businesses, including the Tsubaki hair care brand, to European investment fund CVC Capital Partners for ¥160 billion.

The Tsubaki series is a signature Shiseido brand that became a big hit through TV advertising campaigns featuring commercials with famous actresses. But the Japanese cosmetics maker will now concentrate its management resources on the cosmetics business, a sector where the firm is competitive and is expected to be inherently profitable.

The company has been hit hard since last year as sales of lipsticks and other products fell due to the widespread habit of mask-wearing, and also because the extensive consumption by foreign visitors to Japan has vanished during the pandemic.

According to Refinitiv, a financial data gathering firm, M&A deals involving domestic companies in 2020 totaled 4,305, 9.7% higher than the previous year and exceeding the record number of 3,943 deals in 2018. The latest figure reflects corporate boardroom decisions to sell off resources to survive. Conversely, such choices presented good buying opportunities for investment funds engaged in corporate revitalization as well as for companies in a position to use reserve funds.

“M&A deals increased largely because the pandemic determined the fate of many companies, dividing them into winners and losers,” said Satoshi Harada of the NLI Research Institute.

■ The digitization effect

M&A deals have been occurring in the digital sector as well.

NEC Corp. acquired a major Swiss financial software company for a total of about ¥240 billion, the company’s largest-ever acquisition, in an effort to improve its position in the financial technology field, known as fintech.

The digital sector is changing rapidly, making it difficult for even large companies to accumulate know-how and develop human resources. Thus, the effective use of M&As can save time and money.

Moves to reorganize groups have also become conspicuous in order to raise ballooning funds needed for investment in digitization.

Nippon Telegraph and Telephone Corp. increased its stake in NTT Docomo, Inc. to make it a wholly owned subsidiary. The move was aimed mainly at expediting its response to envisaged 6G communications standards expected to replace the high-speed, high-capacity 5G.

Itochu Corp.’s decision to make FamilyMart Co. a substantially wholly owned subsidiary was also aimed at increasing the unity of management and speeding up decision-making.

■ Successful hostile M&As

The 2000s also saw a number of M&A deals.

Livedoor Co., formerly headed by Takafumi Horie, and the so-called Murakami Fund led by Yoshiaki Murakami drew attention by unilaterally purchasing shares in major companies. Such moves were associated with a negative image of takeovers.

Recently, however, there have been cases of successful M&As without the consent of the acquired company.

Major restaurant operator Colowide Co. made a hostile M&A move against teishoku set meal restaurant chain Ootoya Holdings Co. Ootoya’s management was against the attempt, but Colowide eventually was successful with its bid.

Counteroffers are also in the mix. Major hardware store operator DCM Holdings Co. made a proposal to acquire Shimachu Co., a midsize company in the same industry. Shimachu was initially willing to accept the proposal, but Nitori Holdings Co., a major furniture and household goods retailer, subsequently made a competing offer. Shimachu ended up changing its plan and accepting Nitori’s offer for a higher share acquisition price than DCM’s offer.

Nowadays, there is widespread recognition among executives that M&As are a common way to increase corporate value.

“The trend to utilize M&As is spreading regardless of the size of the business,” said Yuto Takega of major intermediary Nihon M&A Center Inc.