Snapshot for week beginning 7 February. The global momentum in dealmaking that started at the beginning of the year seems to be gaining speed. The week saw an impressive 51 actual or potential transactions, the highest number to date in a year billed as the ‘comeback year’ for deals.
The geographic leaders are the usual suspects: North America (29 deals) and Asia-Pacific (12), with Europe trail (7).
Our transaction of the week happens in Japan where consolidation in the financial sector is expected to accelerate this year.
Catalysts for the deals are corporate restructurings broadly aiming to diversify company holdings via overseas investments while at the same time paring non-core businesses domestically.
Deal of the week: Tokai Tokyo Financial to acquire Ace Securities
Tokai Tokyo Financial Holdings, a financial holding company, has announced to acquire common stock of ACE Securities Co., a provider of financial services, for a consideration of JPY11,369 million (USD108.57 million).
Both of the companies involved in the transaction are based in Japan.
Tokai Tokyo adopted a resolution at its board of directors’ meeting held on February 12, 2021 to implement the tender offer as part of the transaction. Tokai Tokyo will acquire all shares (excluding the treasury shares owned by the Target) of ACE Securities’ common stock and make the ACE Securities a wholly-owned subsidiary of the Tokai Tokyo.
In relation to the tender offer, Tokai Tokyo entered into a tender agreement with FUJI SOFT INCORPORATED, the Target’s second largest shareholder to the effect that the prospective tendering shareholder will tender all the shares of target stock that it owns as of today.
In this tender offer, the Tokai Tokyo has set the minimum number of shares to be purchased as 1,869,000 shares (ownership ratio: 37.49%).
Tokai Tokyo intends to make the ACE Securities a wholly-owned subsidiary.
Back in 2016, Tokai Tokyo bought a 30% stake in Ace Securities, a rare consolidation in an industry struggling to remain competitive.
The owner of the brokerage firm Tokai Tokyo Securities thus became the largest Ace shareholder after buying the stake in the privately held Osaka-based firm directly from large shareholders for several billion yen, the sources.
That purchase came as brokers were trying to boost their assets to rely less on commissions from short-term trading of stocks to defend themselves from market volatilities.
fBut, like Japan’s legion of regional banks, the securities industry has resisted large-scale consolidation despite declining profitability.
Boom in Japanese M&A deals
Two years ago, Japanese merger and acquisition (M&A) deals surged to a level not seen since Japan’s 1980s economic boom.
Some of the deal-flow was driven by the banking sector, the most high-profile example being the merger between Fukuoka Financial Group and Eighteenth Bank, two regional banks in Nagasaki.
“Consolidation among Japan’s regional banks has started to gain momentum,” noted KPMG’s global financial services deal advisory lead Stuart Robertson in his 2018 global M&A outlook. “Japanese banks’ recent performance reflects the challenges of shrinking customer bases amid low birth rates, a shift of economic activity and population to major cities, and ultra-low interest rates squeezing the profitability of regional banks.”
After the deep freeze of 2020, deals are expected to make a comeback this year.
There is now a very supportive financial environment where JBIC (the government-backed Japan Bank for Economic Cooperation) and other banks are supporting Japanese companies going overseas with very low costs of funding.
Companies have a surplus of cash and are investing it in M&A.