Japan’s record dealmaking activity this year isn’t giving foreign firms much holiday cheer: For now, the field remains mostly dominated by the local megabanks and law firms with deep ties to the corporate world.
At roughly $200 billion, the volume of transactions including mergers and acquisitions in the country is up 48% this year. That compares with a 17% increase across Asia Pacific and a 19% slump for China, which remains the biggest market in the region with $271 billion in volume.
The sheer amount of activity is reshaping the battleground for investment bankers seeking to earn the often lucrative fees that come with these transactions. Just as the year winds down, one deal has left bankers scrambling to take part in: Honda Motor Co.’s acquisition talks with Nissan Motor Co.
The tie up could potentially form the world’s third-largest carmaker. But while the big international investment banks win advisory roles on some deals, Japanese firms historically have a big hometown advantage. And among law firms, the preference for Japanese involvement is even more stark with local firms taking the top five spots.
“While some foreign banks have been relatively successful in Japan and they continuously pitch and work on many deals, the reality is the Japanese megabanks have much more access to companies due to their lending and underwriting relationship,” said Akio Katsuragi, co-founder and chief executive officer of investment banking boutique Crosspoint Advisors.
Partly, this reflects the industries prominent in some recent deals in strategically important sectors such as technology, which makes it even harder for foreign buyers, where global investment banks may have an edge over their local rivals. One such example is Japan Industrial Partners’ $15 billion takeover of conglomerate Toshiba Corp., in which Katsuragi’s firm was a lead adviser. Other banks that worked on the deal included Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc., Nomura Holdings Inc., as well as overseas banks such as JPMorgan Chase & Co. and UBS Group AG.
Japanese Preference
The planned union of Honda and Nissan is one of those evergreen deals that has been talked about for years, according to Katsuragi, who was previously CEO of Lehman Brothers Holdings Inc.’s Japan office. The time is right for the deal to happen, he added, otherwise they might struggle to survive in a very competitive global market.
