Stock Investors in Japan Hunt for Takeover Targets With New Fund

In the dynamic Japanese stock market, foreign investors are actively seeking takeover targets, driven by the establishment of new funds and favorable market conditions. The year 2024 has seen a resurgence in takeover bids (TOBs) and management buyouts (MBOs), with a significant increase in TOBs observed in November 2024. This trend is part of companies' efforts to reassess their own value and enhance the metabolism of the Japanese stock market.

One notable trend is the growing interest in acquisitions without consent, which have been increasing due to a changing perception of corporate value. This is driven by factors such as the need for fast growth, triggered by external pressures like the COVID-19 pandemic, as well as reforms in corporate governance and the introduction of guidelines for corporate takeovers by the Ministry of Economy, Trade and Industry (METI).

Another trend is the increase in TOB price hikes, as seen in the TOB for FUJISOFT (9749) by the U.S. investment funds KKR and Bain Capital. In this case, the acquirers engaged in an open acquisition battle, inflating the acquisition price. This strategy has been somewhat taboo for Japanese companies in the past but is becoming more common.



The growing presence of share buybacks is also a significant factor in the Japanese stock market. In May 2024, companies resolved to repurchase over JPY 5 tn of their own shares, a record amount. This trend is a way of unwinding cross-shareholdings and tightening the supply and demand balance, which can enhance the valuation of Japanese stocks as a whole.

Japanese companies are becoming increasingly attractive to foreign investors due to strong returns, untapped potential, and overall value. However, there are still gaps between Japanese corporate practices and foreign investors' expectations, particularly in the area of ESG performance. Foreign investors' assessment of Japanese companies' average ESG performance is 45 out of 100, with national leaders scoring 68 out of 100. This highlights substantial room for improvement.

To bridge these gaps and build stronger, more sustainable partnerships, Japanese companies should focus on aligning ESG initiatives with core business objectives, tackling key material issues, and enhancing transparency and authenticity in ESG reporting and communications. By doing so, they can attract and retain foreign investment, ultimately boosting the overall performance of the Japanese stock market.

In conclusion, the Japanese stock market is experiencing a dynamic period, with foreign investors actively seeking takeover targets and new funds driving the trend. As Japanese companies continue to reassess their value and adapt to changing market conditions, the overall performance of the market is likely to be positively impacted in the long term.