Bankers Hope Domestic Deals Can Prolong an M&A Boom in Japan

(Bloomberg) -- Bankers in Japan are counting on domestic deals to make up for any slowdown in mergers and acquisitions stemming from the coronavirus.

The deadly virus that is spreading through Asia and beyond has prompted investment banks such as Nomura Holdings Inc. to restrict travel abroad, limiting their ability to see clients. Those logistical barriers currently don’t apply at home, where stricter corporate governance rules helped the number of Japan M&A transactions climb to a record last year.

“Due diligence and negotiations for deals involving countries with infections are taking time because we can’t visit such areas,” said Eiichi Yamazaki, head of global advisory at Mizuho Financial Group Inc.’s securities arm. However, transactions within Japan are likely to remain active as companies increasingly look to sell non-core businesses to boost shareholder returns, he said.

The number of mergers involving Japanese companies climbed to more than 4,600 last year, driven mainly by local transactions, according to data compiled by Bloomberg. By value, the total slipped 29% to $281 billion.

Read how the coronavirus has halted deals in China

In the biggest domestic deal of the year, Hitachi Ltd. agreed in December to sell its chemicals unit to Showa Denko K.K. for 992 billion yen ($8.9 billion), as it focuses more on manufacturing equipment and data services.

“Mindful of targets such as returns on equity, big firms are starting to seriously consider carving out part of their operations,” Yamazaki said.

Guidelines introduced by Prime Minister Shinzo Abe’s administration are adding pressure on companies by encouraging shareholders to avoid supporting management regardless of performance.

“Managers are becoming more aware of the need to strengthen governance and putting their capital to better use, which is adding to demand for domestic M&A,” said Kensaku Bessho, head of the advisory group at Mitsubishi UFJ Morgan Stanley Securities Co.

Morgan Stanley, which has two investment banking joint ventures in Japan with Mitsubishi UFJ Financial Group Inc., grabbed the top place in the country’s merger advisory rankings from Goldman Sachs Group Inc. last year, Bloomberg data show. Mizuho also moved up the table to third from sixth.

Top 2019 Japan M&A Advisers

* Note: Through joint ventures with MUFG

To contact the reporters on this story: Takashi Nakamichi in Tokyo at tnakamichi1@bloomberg.net;Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward

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