Upsurge in Acquisitions: Can corporate M&As Lead to Overall Economic Growth?

Japanese companies are becoming more active in mergers and acquisitions. It is hoped that corporate growth will be accelerated through such measures as increasing the scale of business, thereby stimulating the economy as a whole.

According to a company operating a British stock exchange, the total value of M&As involving Japanese firms that were announced in 2023 was ¥23.1 trillion, about 50% greater than the figure in the previous year.

There was a spate of large-scale M&A deals, including the planned acquisition of Toshiba Corp. by investment fund Japan Industrial Partners, Inc. and others.

Compared to 10 years ago, the number of M&A deals was up by about 70%, to 4,632.

Corporate performance is strong, companies have ample funds on hand, and interest rates remain low in Japan. It seems that companies are seeking growth opportunities via M&As.

The Tokyo Stock Exchange’s call in March last year for listed companies to undertake management reforms, including business restructuring, is also believed to be having an impact.

M&As are used to expand the scale of a company’s operations, launch new businesses and expand into overseas markets, among other purposes. They can also be utilized for companies that are struggling to find successors to smoothly carry on the business. M&As may be an important option for increasing corporate value.

However, there have been many cases of failure in the past. Toshiba fell into a business crisis due to huge losses by a U.S. nuclear power company it had acquired.

It is essential to carefully examine the management status and future prospects of the partner company. Based on this awareness, growth through M&As will hopefully lead to further investment and higher wages.

On the other hand, a management buyout (MBO) is becoming more conspicuous among M&A deals. In an MBO, management uses its own funds or loans to purchase the company’s own shares and delist the company.

In many cases, listed companies are influenced by the wishes of their shareholders, and are required to return profits in the short term by activist shareholders, such as foreign funds, that press for management reforms. By taking a firm private through an MBO, management can act with a greater degree of freedom.

Taisho Pharmaceutical Holdings Co. chose an MBO that enables the company to manage itself from a medium- to long-term perspective in anticipation of a temporary increase in costs due to an increase in online shopping and other factors.

Benesse Holdings, Inc., whose education business has been tapering off due to the low birth rate, also has announced an MBO, mainly in an effort to revamp its business through digital technology.

However, it is said that in an MBO, management may keep the acquisition price low and shareholders may be disadvantaged. In addition, going private could result in a lack of disclosure of financial results and other information.

Even if an MBO is chosen, management needs to strive for transparency through a certain level of information disclosure, among other efforts, and continue to manage the company with a sense of tension.

(From The Yomiuri Shimbun, Feb. 21, 2024)