M&A Market Briefing - Japan June 2019 | 1

M&A Market Briefing - Japan

JUN

E 2019

Japanese M&A has been predominantly an outbound story in recent years. In 2018, corporate Japan’s outbound M&A boom reached new heights, with US$174bn in deals, a staggering 119% increase from the previous year and the largest on record according to Mergermarket data. The surge in dealmaking was bolstered by Japanese Takeda Pharmaceutical’s US$78bn takeover of Ireland-based drugmaker Shire and illustrates the continued buying power of Japanese companies as they search for growth and higher returns abroad.

The overseas acquisition spree is likely to continue through 2019 as Japanese corporations look for ways to put the almost US$900bn they have in cash to work. Already Q1 2019 has seen a surplus of activity with US$22.8bn in 75 deals compared to US$12.5bn and 77 deals in Q1 2018. Also, while Japanese offshore M&A has historically focused on the US, recent trends have seen a shift toward Europe and neighbouring markets in Asia.

Outward Japanese private equity and venture capital (PE/VC) investment has likewise trended up recently. Despite a year on year decrease in value in 2018, such investments in 2019 look promising so far, and total invested capital in the first year has already surpassed the total for FY 2016.

Within Japan, while dealmaking among Japanese buyers has gone up over the past three years, inbound foreign M&A has hit a down trend after hitting a high of US$25bn in 2017. Inbound totals in 2018 were down 74% in value and 27% in volume terms.

Year-on-year change in Japanese M&A (2018)

Japanese M&A: Target sectors (Q1 2019)

0% 5% 10% 15% 20% 25% 30% 35%0%5%10%15%20%25%30%35%

Real Estate

Construction

Transport

Leisure

Energy, Mining & Utilities

FinancialServices

Consumer

Pharma, Medical & Biotech

BusinessServices

Industrials & Chemicals

TMT

Inbound Outbound33%

7%

12%

10%

3%

31%

1%

1%

1%

1%

29%

20%

9%

9%

8%

8%

5%

5%

3%

1%

1%

51%

45%

3%

1%

36%

9%

9%

9%

9%

27%

Deal value Deal volume Deal value Deal volume

Japanese M&A: Deal values

Japanese M&A: Deal volumes

InboundOutbound Domestic

0

50,000

100,000

150,000

200,000

250,000

Q1 2019201820172016201520142013

US

$m

0

200

400

600

800

1000

Q1 2019201820172016201520142013

InboundOutbound Domestic

119%

-74%

97%

-8%

-8%

0%

Dealvalue

Dealvolume

Outbound

Inbound

Domestic

Outbound

2 | M&A Market Briefing - Japan June 2019

Japanese M&A: Target and bidder geographies (Q1 2019)

Japanese PE/VC investment trends

Japanese outbound M&A: Top target geographies (Q1 2019)

Japanese PE/VC outbound investment year-on-year comparison

Japanese inbound M&A: Top bidder geographies (Q1 2019)

Japanese PE/VC domestic+inbound investment year-on-year comparison

Outbound PE Investment Outbound PE Buyout Outbound VC InvestmentInbound PE Investment Inbound PE Buyout Inbound VC Investment

US

$m

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Q1 2019201820172016201520142013

USA Germany Singapore

US$7.6bn US$6.6bn US$1.8bn26 deals 10 deals 4 deals

2017 2018

714 investments worth

US$25bn

689 investments worth

US$4bn Overall PE/VC investment in Japan decreased 82% in value terms and decreased 4% in volume terms

South Korea USA China

US$1bn US$952m US$42m1 deal 5 deals 1 deal

2017 2018

190 investments worth

US$31.1bn

246 investments worth

US$28.6bn Overall Japanese offshore PE/VC investment decreased 8% in value terms and increase 29% in volume terms

Inbound deal value

Inbound deal volume

Outbound deal value

Outbound deal volume

North America

44% 27%

1% 3%

2%7%

34% 39% 47% 45%7% 5% 53% 55%Europe

South America

North Asia

Australasia

South East Asia

3%7%

South Asia 9% 13%9%

Sector spotlight: Japanese M&A in healthcare and life sciences June 2019 | 3

While Japanese healthcare and life sciences M&A has historically been driven by deals in the domestic market, a phase shift is happening as greater outbound dealmaking occurs. In 2018, offshore M&A into healthcare and life science surpassed domestic M&A, trending up as Japanese corporations use strategic acquisitions to buy up IP and close the gap with global competitors. The Takeda-Shire deal in 2018 highlights this as the acquisition will help the Japanese pharmaceutical giant gain scale, make cashflow improvements, and invest further in R&D.

While similar megadeals may be unlikely in the near term, M&A will continue to be a dominant theme in the industry. Already, dealmakers complete US$2.3bn in deals in the first three months of 2019 with further dealflow into key markets in North America, Europe and Asia expected through yearend.

Some Japanese healthcare companies are also considering divestitures as they opt to sell non-core assets and channel resources to core areas. This significant refocusing of the business matched with the proceeds from any sale of non-core business lines will add financial firepower for Japanese healthcare and pharmaceutical companies to pursue further cross-border deals.

Sector spotlight: Japanese M&A in healthcare and life sciences

Sector spotlight: Japanese M&A in healthcare and life sciences June 2019 | 3

*2018 data excludes US$78bn Takeda acquisition of Shire as part of total outbound M&A

Biotechnology Medical(Hospital management, health

institutions, medtech, etc)

Pharmaceuticals

Value (US$m)

977Value (US$m)

1,241Value (US$m)

1,105Deal volume

3Deal volume

3Deal volume

3

Japanese healthcare and life sciences M&A

Outbound deal volume Domestic+Inbound deal volume Outbound deal value Domestic+Inbound deal value

0

5

10

15

20

25

30

35

40

Q1 2019201820172016201520142013$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Q1 2019201820172016201520142013

US$m

*2018 data excludes US$78bn Takeda acquisition of Shire

Japanese outbound healthcare and life sciences M&A: Target geographies

North America Asia Europe

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Q1 2019201820172016201520142013

US$

m

Japanese inbound healthcare and life sciences M&A: Bidder geographies

North America Asia Europe

$0

$300

$600

$900

$1200

$1500

Q1 2019201820172016201520142013

US

$m

Japanese healthcare and life sciences outbound M&A: Sub-sectors (Q1 2019)

4 | M&A Market Briefing - Japan June 2019

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Top Japan outbound healthcare and life sciences M&A deals (2018-Q1 2019)

Announced Date Target Company

Target Dominant Sector

Target Dominant Country Bidder Company

Deal Value USD(m)

08/05/2018 Shire Plc BiotechnologyIreland

(Republic)

Takeda Pharmaceutical Company Limited

$78,198

29/11/2018IHH Healthcare Berhad (16% Stake)

Medical Malaysia Mitsui & Co., Ltd. $2,006

28/01/2019Thermo Fisher Scientific Inc. (Anatomical Pathology business)

Medical USAPHC Holdings Corporation

$1,140

12/03/2019Biogen (Denmark) Manufacturing ApS

Biotechnology Denmark Fujifilm Corporation $890

29/03/2018Irvine Scientific Sales Company, Inc.; IS Japan Co., Ltd.

Biotechnology USAFUJIFILM Holdings Corporation

$800

05/01/2018 Tigenix NV (96.1% Stake) Biotechnology BelgiumTakeda Pharmaceutical Company Limited

$573