A flurry of jumbo take-private deals has fuelled expectations of bumper M&A lending this year and next in Japan while also shining the spotlight on the depth of liquidity among bank lenders in the world’s fourth-largest economy.
Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp are providing a loan of up to ¥3trn (US$21bn) to Toyota Fudosan to support its take-private of affiliate Toyota Industries, adding to other sizeable event-driven financings already in the works.
The three Japanese mega banks, along with Norinchukin Bank and Sumitomo Mitsui Trust Bank, are providing a ¥2.38trn loan backing Nippon Telegraph & Telephone’s take-private of subsidiary NTT Data. In May, Mitsubishi said it is raising a ¥170bn loan to make its food wholesaler unit Mitsubishi Shokuhin a wholly owned subsidiary, while Aeon said in March it is raising a ¥110.5bn loan to take Aeon Delight private.
Increased shareholder activism aiming to improve equity valuations, combined with tougher listing requirements on the Tokyo Stock Exchange, are forcing Japanese companies to pursue take-private deals, according to Yukihiro Kanno, managing director and deputy head of M&A finance at MUFG.
The establishment in 2015 of the corporate governance code, the TSE’s push for capital efficiency since 2022 and the publication of the ministry of economy, trade and industry’s corporate acquisition guidelines in 2023 have all contributed to the trend.
In February, TSE published a paper requesting listed companies in parent-subsidiary relationships to develop initiatives and make disclosures on group management and the protection of minority shareholders.
“The ultimate way to resolve a parent-child listing is to go private, so for the past few years we have been actively discussing with companies whether they need such solutions,” said Toru Shimizu, managing director in Mizuho Bank’s strategic finance department.
“Attracting more foreign capital into Japan and increasing corporate valuations is the best defence against takeovers,” said Manabu Tani, a director in Shimizu’s team. “I think this awareness is finally being instilled in the managers of companies where both a parent company and its subsidiaries are listed on stock exchanges.”
The ¥4.7trn take-private of Toyota Industries is expected to be completed in 2026, but with six months to go before the formal launch of a ¥3.7trn tender offer for its shares, activists are already complaining the bid is too low. The offer price announced on June 3 was 11% below the closing share price that day.
It remains to be seen if Toyota Fudosan will require more debt financing if it revises the ¥16,300 per share offer. Already the borrowing of up to ¥3trn for Toyota Industries is the largest domestic M&A financing in Japan and the country’s second-largest M&A loan, according to LSEG LPC data.
Put to the test
The financing will be put to the test when it will likely be syndicated mainly to relationship banks – both domestic and international – of Toyota Industries after completion of the tender next year.
Earlier this year, a ¥1.4trn loan backing private equity fund Japan Industrial Partners’ leveraged buyout of Toshiba is said to have attracted a strong response from domestic and international lenders. The financing is the largest LBO loan from Asia-Pacific and has taken more than a year to close.
Mandated lead arrangers SMBC, Mizuho, SMTB, MUFG and Aozora Bank targeted more than 100 prospective lenders for the seven-year loan with a leverage multiple of 6.2 times, which was first launched into general syndication in February last year. Closing was initially slated for the end of March 2024 before syndication was put on hold and postponed to the first half of the financial year that ended in March 2025.
The closing of Toshiba’s LBO financing will take M&A loan volumes in Japan this year to a record, eclipsing the US$26.16bn in borrowings transacted in 2007, according to LPC data. Even without Toshiba’s loan, M&A lending in Japan has already reached US$19.5bn.
Opportunities
With the take-private trend showing no sign of slowing down, M&A lending in Japan is poised for growth next year when the loan for Toyota Industries is expected to close.
However, the large sizes of debt financings are raising questions about liquidity and appetite for such deals among domestic banks, making it ripe for international lenders and non-bank lenders to play a greater role.
“As deal sizes become larger, it is unclear whether Japanese financial institutions can provide sufficient funds,” said Toshiyuki Nagai, joint general manager of strategic corporate banking at Sumitomo Mitsui Banking Corp. “The emergence of more diverse players will be a key factor in further expansion of this market.”
According to MUFG’s Kanno, maintaining “marketable financing discipline, including pricing", will be required to attract foreign banks to the market.
Arrangers are also exploring ways to tap funds in the global private credit market.
“I personally think the emergence of private debt is a mixed blessing. They could take a large amount [of Japanese M&A loans], but I think there could be cannibalisation with our business,” Kanno said.
Private credit could play an important role in providing mezzanine financing while senior lenders continue to enhance their presence in the LBO market, according to Kanno.
Deals increasingly feature mezzanine debt while senior leverage levels are getting close to the limits, according to Mizuho’s Shimizu.
“We have begun studying how to effectively use private debt funds [as mezz investors],” he said.