Latest Trends in M&A in Europe by Japanese Companies

More Targeted Acquisition Objectives and the Growing Importance of Post-Acquisition Planning During Due Diligence

Bird & Bird have recently advised on several significant transactions, including East Japan Railway Company’s acquisition of shares in the UK vending machine operator Decorum Vending Limited, Oji Holdings’ acquisition of Walki Group, a leader in packaging and advanced material conversion technologies, and Marubeni Corporation’s investment in AquaGreen Holding ApS, a Danish company specialising in biomass technology. Based on our experiences and insights from these transactions, as well as our discussions with Japanese companies considering investments in Europe, we highlight the latest trends in European M&A by Japanese companies.

Increasing Selectivity of Japanese Companies

M&A has long been a strategic tool for Japanese companies, both domestically and internationally. Over time, their experience in this area has grown significantly. Reflecting on past successes and failures, Japanese companies are now more precise and detailed in clarifying their acquisition objectives, developing post-acquisition business plans, identifying and addressing risk factors that could hinder their objectives, and making more realistic revenue forecasts and price calculations based on these factors.

Due to varying business environments and legal systems across countries, Japanese companies often find it challenging to gather the necessary information for overseas M&A compared to domestic deals. They are increasingly focusing on strengthening their information networks. The key is not only to collect data from written sources but also to build personal relationships locally. 

Trends in the Objectives of Japanese Companies Considering M&A in Europe

Europe, with its geographical and time zone remoteness from Japan, comprises multiple countries with diverse languages and cultures. Despite some industries, such as German manufacturing, historically having strong ties with Japan, European businesses and assets remain relatively unfamiliar to many Japanese companies. Nevertheless, the following trends can be observed in the objectives of Japanese companies considering M&A in Europe:

i. Acquisition of Technology and Expertise Related to Advanced Business Models and Products in Europe 

In Europe, the adoption of environmentally friendly products, like eco-friendly films and packaging materials, is becoming increasingly common. Acquiring technology or expertise in these areas can be a strong motivation for M&A. Meanwhile, in the UK, recent reforms in the wholesale electricity market have simplified trading rules. This clarity allows new entrants to better predict their financial outcomes, spurring a surge in investments in battery energy storage systems (BESS). These developments offer Japanese companies investment opportunities to gain technology and know-how in a key market area.

ii. Entering the European Market to Leverage Japanese Strengths in Addressing Challenges Faced by European Business Models or Products 

In the UK, there are challenges such as the low level of industrialisation in housing construction and the underutilisation of key terminal stations, which could also be used for non-transport revenues. Japanese companies see opportunities to leverage their strengths to address such issues. Another great example is East Japan Railway Company (JR East) acquiring a UK vending machine operator. JR East, a key train operator in the Tokyo metropolitan area. If you’ve ever visited Tokyo, you’ve probably been impressed by the advanced vending machines at JR East stations. However, their expertise extends beyond vending machines. They excel in providing lifestyle services that enhance daily life, all rooted in their transportation network. With their experience in managing efficient operations in densely populated Tokyo, they have the potential to significantly improve the passenger experience in Europe’s transportation systems. Acquiring a UK vending machine business is a natural step to leverage JR East’s strengths. 

The Need for Legal Advisors to Adapt to Changes in Japanese Companies’ Approaches

As Japanese companies approach M&A with clearer objectives, legal advisors must go beyond simple “tick the box” due diligence. They need to understand the acquisition objectives and provide advice tailored to local legal systems and market practices.

In acquisitions aimed at obtaining technology and expertise, it is crucial to identify key personnel and develop retention strategies early on. Understanding the relationship between key personnel and the company is also necessary. Additionally, specific collaboration plans between Japan and the target to maximise synergy should be considered early in the process, including identifying challenges related to visa arrangements for Japanese expats. Although these concepts are not entirely new, the growing precision in post-acquisition planning and price calculation by clients demands that legal advisors offer more than just basic guidance. They need to provide a more nuanced assessment of the due diligence information with greater context focussed on local market practices which their clients might otherwise not understand.

Providing a more tailored legal review ensures that Japanese companies can successfully navigate the complexities of M&A in Europe and achieve their strategic objectives.