Ensuring longevity via M&As

Ojima: Japanese companies tend to have a long-term perspective when it comes to M&A.

SMALL and medium-sized businesses (SMEs) are increasingly turning to mergers and acquisitions (M&A) as their next strategic move due to succession issues, cost pressures and uncertain economic conditions.

Yusuke Ojima, regional head for South-East Asia at Nihon M&A Center, believes that Malaysia’s M&A market will continue to expand in the next five to 10 years, following a trajectory similar to Japan two decades ago.

“Japan’s declining population and ageing society means many business owners struggle to find successors. This has led to M&A becoming a very common corporate strategy there for sustaining and expanding a business,” he tells StarBiz 7.

This shift has already begun to take shape in the Malaysian market, he says.

“In Japan, over 4,000 M&A deals take place annually, while in Malaysia it remains at over 200 a year. The market here is not as big, but we’re seeing many business owners dealing with succession gaps and are starting to think about M&A.”

However, M&A remains a lesser-known path for Malaysian SME owners seeking to scale, modernise or exit.

To bridge this gap, Nihon M&A Center Malaysia recently formalised a strategic partnership with Malaysian SME-focused accounting firm YYC, with the aim of making M&A more accessible and actionable for local SMEs.

Nihon M&A Center Malaysia is an advisory firm that specialises in facilitating Japan-Malaysia M&A.

Its collaboration with YYC will provide tailored advisory support, expert insights and cross-border opportunities to support SMEs in their M&A journeys.

“We estimate that 5% to 10% of our 20,000 clients could be viable M&A targets over the next five years,” says YYC group chief executive officer Datin Shin Yap.

By adding M&A to its advisory services, the firm hopes to better enable business continuity for its clients.

“We see founders that have worked so hard to build a stable, sustainable business, but their next generation doesn’t want to take over.

“As a result, they are unable to keep up with the rapidly changing business landscape, gradually becoming smaller, and even liquidating and closing,” she says.

“To us, it’s such a waste, as these companies had such potential to grow much further, and the owner could have retired on a high note.”

M&A has thus emerged as an advantageous option for business owners that find themselves without a successor but not up for the rigours of pursuing an IPO to fuel growth.

With an extensive global network and expertise in cross-border partnerships, Nihon M&A Center Malaysia is well-placed to support local SMEs and connect them with international buyers and investors, particularly from Japan.

According to Ojima, Japanese firms are drawn to South-East Asia as a destination for M&A, driven by the need to sustain growth in their own shrinking domestic market.

“Many Japanese companies are looking to expand overseas, because the market in Japan is not growing. An emerging market such as Malaysia, which saw GDP growth of around 5%, is very attractive to them,” he says.

The Malaysian market is also relatively well-known to Japanese investors, given the strong presence of Japanese companies such as Honda, Toyota and Panasonic. Closer proximity, shorter time difference and a similar Asian market context also add to Malaysia’s appeal.

“Another important factor is that in Malaysia, the infrastructure for businesses in terms of financing, accounting and the legal system is well-established, making it conducive for M&A,” Ojima adds.

The sectors in Malaysia seeing significant interest from Japanese firms for M&A include the IT and manufacturing industry, with the cybersecurity, data centre and semiconductor markets gaining notable traction, he shares.

Additionally, the local halal sector has also been particularly sought-after among Japanese companies, due to the high quality of halal offerings and services in the country.

“This encompasses not just food but also the skincare, pharmaceutical and logistics business,” he says.

“Many Japanese companies look towards entering Malaysia’s halal market as a springboard for expanding to Indonesia, the Middle East or Africa.”

For local SMEs, Japanese investors can offer technological expertise and management methods to enhance production and operational efficiency.

Another benefit, Yap and Ojima add, is Japanese firms’ far-sighted approach to M&A, which can provide business owners with the assurance that the business they built up will be well-stewarded and preserved.

“Japanese companies tend to have a long-term perspective when it comes to M&A, compared to many US or European firms which are often quick to sell when the target company cannot generate profit,” Ojima says.

“For Japanese buyers, there is an importance placed on taking care of all stakeholders, including employees, clients and suppliers.”