M＆A Advisory Service
With globalization in recent years, overseas alliances are accelerating even for Japanese companies. Cross-border M&A has been attracting more and more attention in recent years to realize international expansion and partnerships quickly. We support the entry into Japan through M&A.
The Group mediates sales and purchases and provides advice on acquisitions and sales by our financial industry knowledge. We also carry out due diligence on acquisitions with our expertise in the Japanese financial industry.
Advantages and Disadvantages of entering into Japanese Market through M&A
In recent years, license screening in the financial industry has become more stringent. Therefore, it takes a long time to completer the registration. The entry of the Asset Management business is not difficult, but licenses for Securities, FX, FINTECH is very strict. It becomes an issue for foreign companies to take a long time for registration.
Besides, it is extremely difficult to build marketing capability from scratch for companies entering the Japanese market. Therefore, it will be much easier and faster to enter the Japanese Market to acquire a company that already has a certain market share in the target market.
Under these circumstances, acquiring an existing registered company through M&A is a viable option. If you employ qualified personnel to secure a new registration to meet the human requirements, the labor cost will be enormous until starting the business.
Furthermore, considering the opportunity cost until the start of business, it may be cheaper to acquire the company even if you consider “goodwill” for the acquisition.
There are certain disadvantages to acquiring an existing company. First of all, the target company would have administrative sanctions immediately after acquisition if there was a violation of the law in the past.
In practice, the relevant authorities may not strictly claim the current management’s responsibility for some violations by the previous regime if the management/members are entirely replaced. Still, it would be subject to the degree of the breach.
There are many cases of the existence of off-balance-sheet debt and bad assets. For example, there are many cases for Type I Financial Instruments Business Operators and Investment Management Business Operators as the Type I Financial Instruments Business Operator needs to satisfy a capital adequacy ratio of 140% (notification level) and maintain net assets of JPY 50 million. And, the Investment Management Business Operator needs to maintain net assets of JPY 50 million.
In short, it’s easy to get into such a situation of “maintaining a license by pretending to have enough money that doesn’t exist.” for those types of business.
It would be terrible to buy such a company. The authorities can’t leave the company breaching the registration requirements, and the buyer has to report the facts. Otherwise, it will be criminally liable.
In the worst scenario, the registration will be canceled if it is malicious. Otherwise, the relevant authorities will ask you to recover the capital adequacy ratio and net assets above the legal limit within a specific time, even if it is not malicious.
Therefore, it might happen to stop business due to cash shortage before starting the business. There have been so many such cases in the past.
Japanese financial licenses are complicated. It is necessary to check whether the license held by the target company is a license that allows your business. It is wasting money if buying the wrong licensed company, but it happens very often.
There is only one way to avoid such a situation. It’s all about legal and financial due diligence. It is necessary to consult with professionals who are familiar with the financial business.
Taking advantage of our strengths specialized in financial business consulting, we can provide optimal M&A advice to overseas clients from a practical point of view. In addition, we analyze the project practically while taking into account the financial industry trend. We also support due diligence as per the request.
Intelligence from Our Network
The Japanese financial industry is a small world, the reputation of the target company will spread quickly. We can collect the reputation of the target company on behalf of the client utilizing the connections of our senior staff (financial industry alumni) in our group. In some cases, we will interview former employees to highlight the “honesty” of the target company which cannot be identified from the financial statement.
Cooperation with Law Firm and/or Audit Firm
We can work with major law firms and audit firms to support due diligence.
We know the points likely to lead to problems during the inspection through our consultant who has experience dealing with on-site inspections by the Finance Bureau. We will thoroughly examine those points, especially for any violations of the laws.
Support post Acquisition
Post-acquisition is our most specialized area. We can clarify what should/need to do after acquisition to proceed with confidence.