Has Zoom delivered Japanese M&A?

It’s clear that the pandemic has stalled many deal processes for Japanese buyers – who have historically required the on-site due diligence and final ‘seal of approval’ by visiting senior executives from their head office, to complete transactions. However, the growing acceptance of technology as part of a deal process has provided significant benefits to Japanese bidders – and ensured many processes can continue more efficiently (and more with engagement).  

This adoption is likely here to stay, long after the lockdown (particularly for cross-border deal making), specifically:

  • Large party Zooms for the traditional ‘multiple stakeholder’ meetings
  • Pre-recorded video presentations of the target companies’ technology, products and facilities
  • Use of “point-and-shoot-to-order” live GoPro streaming factory visit
  • The use of Drones at virtual site visit
  • Many successful Japanese purchasers of international targets have combined the use of local overseas teams (including the overseas management of companies previously acquired), to screen the deals and conduct approaches in the early stages of M&A, with the use of video conference to involve Japanese head office members at key stages

For the time being, Japan’s international borders remain physically closed so ‘virtual’ is the only means to progress Japanese cross-border transactions.

Perhaps of most interest is that the technology advancements will hopefully address the cultural specificity of a Japanese M&A process that often causes frustration for a Western seller, for example:

  • Granularity and sheer volume of questions asked
  • Lack of prioritisation / focus for Q&A and due diligence process
  • Multitude of stakeholders

Such phenomena is often a sign of Japan’s detailed “engineering-based” approach, and their large internal stakeholder universe registering their specific interests whilst having little coordination between them. But above all, the unclear prioritisation often arises from the Japanese bidders trying to solve long-term information needs at early stages of transaction. In domestic transactions such motive of the bidders is well understood by both sides, and especially in bilateral off-market deals that still account for the majority of the Japanese domestic deals, there are no issues for the stretched timetable or thoroughness of the due diligence. 

The use of AI / machine-learning tools for collaborative workflow management are beginning to address these issues in M&A transactions:

  • Such software tools will very soon facilitate a more streamlined and efficient due diligence dialogue for Japanese companies, by reducing the duplication of questions, prioritising the questions, and tracking the Q&A progress
  • AI and machine-learning tools are emerging and we have seen some examples in action. Newly-introduced web-based services for managing the overall M&A processes could also increase the efficiency of M&A advisors’ handling deals of different types in a limited timeline

How will the China-EU investment agreement benefit you?

The recent China EU investment agreement[1], in our view, has been welcomed positively by both European and Chinese investors – it’s a sign of increased collaboration, a more level playing field for EU investors to access China’s sizable and fast-growing consumer market, and it gives China further access to European IP and brands.

But what does this agreement mean for cross-border M&A with China?

From an outbound perspective, it’s predominantly an attitude shift. The increased collaboration on the inbound front, should in theory catalyse increased outbound activity from China to Europe.

On the inbound side, the agreement commits China to opening up a wide range of sectors to European investment, which were previously heavily restricted to foreign capital.[2] These sectors include:

  • Manufacturing

Almost half of the EU’s foreign direct investment (FDI) into China relates to manufacturing, across a number of sectors (transport / telecomm equipment, chemicals, healthcare equipment etc.).[3]

Similarly, China has agreed to phase out JV requirements for EU companies across the automotive sector, and open market access for new energy vehicles.[4] This would, we expect, lead to more investment opportunities emerging in both directions and notably, provides specific investment opportunities for sector specialists wanting access to China.

  • Financial Services

China had already started the process of opening up the financial services space in early 2020, with major Western financial institutions moving to controlling stakes of their China businesses, such as JPMorgan[5] and Goldman Sachs[6].

China has granted that openness to EU investors and commits to keeping it that way. Under the new agreement, the requirement of forming JV or ownership equity cap has been removed for banking, trading in securities and insurance (including reinsurance), and asset management.[7]

Based on our observations, it appears that China is also easing its stock market access to Western owned entities, although there remain key requirements for such entities – such as independence from its western parents, and demonstrated self-sufficiency (from an operations and technology standpoint). The recent approval from the Chinese regulatory body for the Nasdaq listed ACM Research to take their Chinese entity public in The Science and Technology Innovation Board (STAR)[8], is a good example; ACM Shanghai provided evidence – an extensive amount of this is required - in its IPO Prospectus to demonstrate independence from its parent company.[9]

Perhaps most importantly from an inbound perspective, the agreement also aims to ease various major concerns of EU companies[10]:

  1. Chinese state owned companies will be subject to increased discipline – particularly around discriminating against foreign operators
  2. Transparency in subsidies – especially in the services sector
  3. Clear rules against the forced transfer of technology from foreign operators
  4. Equal access to standard-setting bodies, for EU companies

We anticipate this new agreement will be a catalyst for increased activity – and serves as an ‘outward looking’ move.


[1] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020

[2] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020

[3] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020

[4] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020

[5] JPMorgan Set to Boost Stake in China Securities Venture to 71%, Bloomberg, 3 September 2020

[6] Goldman Sachs to take 100 per cent ownership of China joint venture, South China Morning Post, 8 December 2020

[7] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020

[8] ACM Research Announces Strategic Plan to Extend Access to China’s Capital Markets, ACM Research, 17 June 2019

[9] ACM IPO Prospectus, 1 June 2020

[10] Key elements of the EU-China Comprehensive Agreement on Investment, European Commission, 30 December 2020