Japan’s Private Equity Shake-up: Trends, Opportunities and Integration Challenges

Mergers and acquisitions (M&As) involving Japanese companies hit an all-time high in 2025, with private equity (PE) also breaking records. In the first three quarters alone, PE deals in Japan reached US$29.4 billion, up 30% on the total deal flow in 2024, according to PitchBook’s 2025 Japan Private Capital Breakdown.

PE firms are increasingly active as Japanese companies heed calls from investors and the Tokyo Stock Exchange (TSE) to improve returns and eliminate cross-shareholdings.

Examining this shift, the British Chamber of Commerce in Japan held an event in February to consider how capital, governance reform and global pressure are reshaping the ways Japanese companies grow, restructure and compete, as well as the resultant implications for leadership, talent, strategy and cross-border business.

Pictured left to right: Heather Prosser (FGS Global); Jacky Scanlan-Dyas (Hogan Lovells); and Ben Fourace (G3)

Hosted by Hogan Lovells in Tokyo, the event featured speakers Jacky Scanlan-Dyas, Partner and Head of the Corporate & Finance Practice Group for APAC at Hogan Lovells, and Ben Fouracre, Managing Director and Head of Japan at G3, with moderation by Heather Prosser, Managing Director of FGS Global.

Commenting on the new dynamic in Japan, Scanlan-Dyas said: 'Private equity in Japan is undergoing a massive structural shift. Japan historically viewed private equity as too aggressive, too profit driven and too short term, clashing with Japan norms of long-term stability and company stewardship.

'That has now changed, and the once conservative environment has morphed into one of the most active private equity markets globally,' she added, noting the record 264 PE deals in Japan in 2024.

G3’s Fouracre pointed to drivers such as Japan’s corporate governance and stewardship codes; low interest rates and a weak yen, together with the availability of debt and equity capital; the disposal of 'non-core' businesses to free up capital for new opportunities; an ageing business community with succession issues for founders; and Japan benefitting from geopolitics, with foreign investors seeking options in Japan.

Scanlan-Dyas said corporate governance reforms had 'rebalanced power from boards back to shareholders, and shareholders are having much more impact in the decision-making process in Japanese public companies.'

She pointed to the TSE regulations introduced in 2023 requiring listed companies to assess their return on capital, together with developing remedial measures if necessary. Guidelines from Japan’s Ministry of Economy, Trade and Industry (METI) also say takeover defence measures must be 'proportionate and justified.'

In addition, the disposal of cross-shareholdings has made Japanese companies 'radically more exposed to market forces,' helping fuel greater M&A. She further noted that this increase in private equity opportunity in Japan is likely to persist, with 60% of small business owners over the age of 60 and half reportedly lacking succession plans.

Scanlan-Dyas said the sectors attracting the most attention in Japan are healthcare, infrastructure, manufacturing and technology.

'Japan has incredible robotics, advanced manufacturing and deep tech, but a lot of it has sat within these large conglomerates and hasn’t been fully utilised. PE is coming in with take privates and carve out transactions to advance the development of those businesses,' she said.

Fouracre said PE has the ability to add capital to strengthen research and development, as well as to leverage global networks, creating 'a direct societal benefit' in areas such as pharmaceuticals.

Asked about the differences between M&A transactions in Japan and the UK, Scanlan-Dyas suggested the 'seller mindset.'

'[In Japan] the question is, who is going to look after my company and my people, whereas in the UK, the seller mindset is who is going to pay the most and who has the least execution risk to get this deal done from a regulatory perspective,' she said.

She also noted regulatory differences, with foreign buyers in Japan subject to the 'Foreign Exchange and Foreign Trade Act,' which nominates 'sensitive' sectors for national security, including infrastructure, semiconductors and telecommunications.

Fouracre also highlighted the need for foreign buyers to consider non-financial elements of a transaction, such as the target’s corporate governance, management culture and general compliance, including key person risk.

The seller often 'provides PowerPoints and nice data, but is that really the reality of the situation? How do peers view them? How do they line up against competitors? Do they have capacity to build and develop the business, and to attract and retain talent?' he said.

Asked about the best process, Scanlan-Dyas recommended a foreign acquirer obtain 100% ownership of the target, instead of taking a more gradual approach such as a minority stake or joint venture.

'Looking at the deals that we’ve done over the last 15 years or so, those that have been most successful have been transactions where the UK company has come in and taken full control from the outset,' she said.

'It can sound aggressive, but if you carefully frame that narrative around continuity, employee stability and respect for the legacy, then full control can be seen as responsible … it avoids ambiguous decision making.'

Overall, PE can improve business efficiency, ultimately allowing a business to invest more in its workforce and technology, added Fouracre. However, the key is 'understanding the strengths and the weaknesses of the people making the decisions on the business’ behalf,' he said.

'It’s easy to inject capital but spending it requires a little bit more thought and long-term ability. The firms that do it right understand the core [Japanese] value of the business and why people want to work here. And I think that the successful private equity approaches aim to preserve that value and that quality,' he added.

'We’ve seen emerging models coming through, like employee ownership options, stewardship strategies… they want to keep that cultural aspect and avoid that stereotype of vulture capital.'

FGS’ Prosser pointed to the importance of communication in any M&A transaction. 'We’ve seen how culture and communication can either make or break a deal, not just in private equity, but in any sort of deal when there is misalignment of cultural values and understanding at the management level of both sides of the firm,' she said.

'And then when you add in the increasing layers of stakeholders and how they’re going to be impacted … communicating clearly, transparently and with integrity is very, very important.'