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Japan Inc hopes for outbound M&A take-off as border restrictions ease

The easing of pandemic-driven border restrictions appears set to encourage more Japanese companies to return to the departure gate to explore outbound M&A opportunities.

For the past two years, undertaking outbound M&A has been the exclusive preserve of a select few blue chips, drawing on their capacity to pursue deals remotely by deploying their M&A teams in overseas subsidiaries, utilizing local advisors and capitalizing on first-class video communication tools to conduct due diligence.

The rest of the pack, particularly those operating in sectors that rely on physical assets in their businesses, have been grounded on the sidelines, as the global pandemic stymied expansion aspirations.

But the winds of change are gathering. So far in the year to date (YTD), Japan has aggregated 62 outbound deals worth USD 9.2bn, according to Dealogic data.

This compares with 46 deals for USD 9.4bn in the first two months of 2021, and 113 deals for USD 5.8bn in the same period in 2020. It was a different story before the onset of Covid 19, with 131 deals worth USD 13.7bn booked in the first two months of 2019.

Sony’s [TYO:6758] acquisition of Bungie, a US-based videogame developer, for USD 3.6bn marks the largest outbound deal in 2022 YTD, per Dealogic.

Contrast this with the largest outbound move of 2021, Hitachi’s [TYO:6501] USD 9.6bn acquisition of GlobalLogic, a US-based digital product engineering service company. Landing in second place, Panasonic’s [TYO:6752] takeover of Blue Yonder (securing an 80% stake), a US-based developer of supply management systems, for USD 7.1bn.

Entry requirements: Japan’s government is relaxing its travel rules

The Japanese government says it is to shorten the quarantine period for travelers returning from low-risk countries - those with fewer cases of infections - to three days from the current seven days, effective 1 March. Quarantine exemptions are to be introduced for travelers arriving from these low-risk regions providing they have had a vaccination booster shoot, thereby avoiding the need to stay in designated accommodation facilities.

It is a move welcomed by a corporate source involved in M&A, who considers the government’s new arrangements to be a positive sign, with the potential to restart site visits and in-person meetings for due diligence.

Unlike asset-light technology sectors, existing conventional procedures are a mandatory requirement when conducting deals in those sectors featuring hard assets, such as factories and production facilities, the source said. The new rules herald a new dawn in business dealings.

War torn: Caution growing as crisis rages in Ukraine

The good news of easing restrictions is tempered by concern over events in Ukraine, which could manifest in caution among dealmakers. Companies are likely to be scrambling to assess the impact on existing business operations in Eastern Europe.

When it comes to making new investment in Europe, the corporate source says that Japanese companies will scrutinize opportunities more carefully to determine if their investment is worth the risk, examining the level of dependency of companies and countries on Russian natural gas in view of likely further hikes in energy costs because of the conflict in Ukraine.