An interesting trend has emerged over the past year in the Japanese M&A market, with increasingly more investors putting money in R&D companies. They are willing to spend large sums of money & aren’t afraid of any potential risks involved in such transactions..
So, let’s take a closer at the Japanese M&A market & procedure for conducting an M&A transaction in Japan.
Japan: Structuring M&A Deals
Structuring an M&A deal in Japan involves purchasing a target company’s shares. Acquiring assets of a private company in Japan is carried out through division or acquisition. Purchasing a business in Japan is a direct transaction concluded between sellers & purchasers. A corporate unbundling is a transaction through which a company splits up a segment of its business.
Antitrust law prohibits acquisition of shares of Japanese companies or assets thereof through corporate division. Establishing a JV with a Japanese company requires foreign investors to submit transaction-related documents to the relevant ministries through Japan’s Central Bank.
Transactions in highly regulated industries must be approved by the relevant authorities, (e.g. the FSA). Government agencies cannot influence or restrict M&A transactions in Japan.
If a company is sold through acquisition of shares, and the shares constitute a significant part of the company’s assets, such an M&A deal must be approved by an overwhelming majority of stakeholders. Corporate divisions, share swaps & business transfers also require getting approval of the majority of stakeholders.
If a company purchases a stake in a Japanese or foreign company & its ownership rate exceeds twenty or fifty percent, it must notify the FTC & wait for its approval for thirty days. Prior to acquiring a stake in a Japanese company, foreign investors may be required to file reports with the relevant authorities through Japan’s Central Bank
Concluding an M&A deal involving acquisition of a Japanese company’s assets or stakes requires signing an NDA agreement. By signing an NDA agreement, parties pledge not to divulge any data pertaining to the exchange of information during the transaction, facts about the transaction & the signing of the final agreement.
Transferring business in Japan requires signing an SAP agreement, while share exchange or corporate division requires entering into a share exchange or corporate division agreement. A mandatory or optional memorandum of understanding is sometimes concluded prior to signing a final agreement.
Transferring shares of Japanese private companies does not require paying a transfer tax. There’s no tax on conducting financial transactions in Japan, either. No stamp duty is charged on concluding a share purchase agreement. However, if the transfer of business or assets is carried out through division, stamp duty is imposed.
If the seller is a Japanese resident, income tax of twenty percent is imposed on capital gains. If the seller is a Japanese or foreign corporation operating through a permanent establishment in Japan, corporate taxes of thirty & thirty four percent are imposed on capital gains.
Transfer of Employees
Concluding a private M&A deal in Japan involves automatic ‘transfer’ of the target company's employees. If assets are transferred through a business transfer, the consent of each individual employee is required.
Transfer of Benefits & Pensions
In the event of a share transfer, pensions & other benefits are automatically transferred along with employees.
Concluding M&A deals & conducting IPO in Japan continue to be the two most viable options for entering the Japanese market. Should you require more information on concluding M&A transactions in Japan, do not hesitate to contact IQ Decision UK. Our team of experts will be happy to provide advice on M&A transactions of Japanese companies & any other matter related to M&A deals in Japan.