Japan experiences a surge in M&A activity.

In 2024, Japan recorded mergers and acquisitions (M&A) transactions totaling over $230 billion. This activity is predicted to remain vibrant in 2025.

Specifically, in 2024, M&A activity increased by 44% year-on-year, reaching over $230 billion, marking the highest growth rate since 2018. This vibrant M&A trend was driven by a fundamental shift in the strategies of Japanese businesses, thanks to abundant cash reserves, many companies with good business results but undervalued, pressure from investors fighting for shareholder rights, and from global competitors.

Notable deals include: the $57 billion privatization of Seven & i Holdings Co. (the parent company of the 7-Eleven convenience store chain) to counter a takeover bid from Alimentation Couche-Tard Inc. (owner of the Circle K chain), and discussions between Honda and Nissan Motor Co. to create the world's third-largest automaker.

Japanese companies are becoming more proactive in the face of interest from global competitors and investors - Source: Bloomberg

Hedge funds like Elliott Investment Management and ValueAct Capital Partners are playing a key role in this transformation. They are increasing their activity in Japan, targeting undervalued but well-performing companies. These funds are receiving support from Japan's Ministry of Economy , Trade and Industry, while institutions like the Tokyo Stock Exchange are also pushing for improved returns for shareholders.

According to Bloomberg, Japan recorded nearly 150 activist investor campaigns in 2024, a 50% increase from 2023. According to Kenichi Sekiguchi, a partner at the law firm Mori Hamada, this pressure is forcing companies to consider privatization or mergers with domestic competitors. He predicts several significant deals will take place in the first half of 2025, valued at hundreds of millions to billions of dollars.

According to Tetsuro Onitsuka, a partner at investment firm EQT AB, privatization is becoming an increasingly attractive option compared to becoming a subsidiary of a competitor. He believes that while Japan may not yet have a market as vibrant as the US, these shifts in perception are creating more opportunities and choices for businesses.

Meanwhile, despite challenges such as the weak yen, Japanese companies remain active in overseas acquisitions, primarily driven by high cash reserves – partly due to divestment from strategic equity investments.

Ken LeBrun, a partner at the law firm Davis Polk & Wardwell, predicts many multi-billion dollar deals will take place next year. For many Japanese companies, achieving significant business impact requires large-scale transactions.

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