Japan

Non-carve-out transactions

For whole-entity acquisitions, the most common structure is a negotiated share purchase or, for listed targets, a tender offer. While non-cash consideration is legally possible, cash remains by far the dominant consideration in Japan (see Question 6, below). Where the target has a dispersed shareholder base and the buyer aims for 100% ownership, the tender offer or negotiated purchase is typically followed by a squeeze out. Under Japanese law, the principal squeeze-out tools are:

• a reverse stock split; and
• the demand for sale of shares.

A reverse stock split requires a special shareholders’ resolution (two-thirds or more of votes of shareholders present). By contrast, the demand for sale of shares can be exercised by a shareholder holding at least 90% of the voting rights and does not require a shareholders’ resolution, making it procedurally simpler and less time consuming than a reverse stock split.

Japanese corporate law also provides for a statutory share exchange. A share exchange is designed to make the target a 100% subsidiary of the acquirer. Following prescribed procedures under the Companies Act of Japan, including prior disclosures, the acquirer may acquire all outstanding shares of the target in exchange for cash, its own shares or other type of consideration. However, the statutory share exchange is available only to Japanese joint stock companies (Kabushiki Kaisha) and Japanese LLCs (Godo Kaisha). Accordingly, for inbound investments where the acquirer is a non-Japanese entity, a straightforward share purchase is typically the primary option.

In addition, Japanese law provides for a statutory share delivery under which a Japanese company can use its own shares as consideration to acquire a portion of another Japanese company’s shares. There has been discussion of expanding this regime to allow a Japanese company to acquire shares of a foreign company using its shares as consideration, but as of now its use is limited to domestic transactions.

Carve-out transactions

For carve outs where only part of a business is transferred, the principal options are a statutory corporate split and a business transfer. The key distinction lies in legal effect. In a business transfer, contracts and employees cannot be transferred without obtaining each counterparty’s or employee’s consent. By contrast, a statutory company split transfers designated contracts and employees on a universal basis as a matter of law, generally without individual consent.

A corporate split entails somewhat more stringent procedures and a longer lead time than a business transfer. While a business transfer can, if the situation allows, be implemented in a matter of a few days, a company split requires, as a minimum, a little over one month to satisfy statutory procedures, and in practice it requires additional time.

In practice, the ability to transfer designated contracts and employees without individual consent often drives parties to prefer a company split for carve-out transactions.

In order to conduct a carve-out transaction, two implementation routes are common:

• transferring the business into a seller-formed vehicle and then selling the shares of that vehicle to the buyer; or
• transferring the business directly into the buyer’s group.

The former is often preferred for its procedural flexibility.

Japan’s M&A market has been highly active across sectors in recent years. Continued low interest rates and a weak yen have attracted significant inbound investment, with global private equity particularly being active. At the same time, succession challenges — particularly shortage of successors — among small and mid-sized enterprises sustain a steady flow of small to mid-cap deals.

A notable feature of today’s market, compared with the past, is the surge in public M&A. For example, while fewer than 60 public offers were announced in the whole of 2022, over 100 had been announced by just November 2025. One clear driver has been the Ministry of Economy, Trade and Industry (METI)’s 2019 and 2023 guidelines on acquisitions of listed companies (i.e., “Guideline on Corporate Takeovers” and “Guideline on the Desirable Approach to Fair M&A”). Although the guidelines are considered soft law, they are now deeply embedded in market practice and have strongly influenced process discipline, resulting in more attempts by participants to engage in public M&A.

In addition to the above, although the market is experiencing historic highs, there are a number of listed companies whose shares are traded below book value. Those companies are being urged to take initiatives to improve capital efficiency and then achieve sustainable growth — which is fueling increased public M&A activities.

With heightened activities in the public M&A market, Japan is seeing phenomena that were rare until recently, such as unsolicited bids and “bumpitrage” (a trading strategy in public M&A where event-driven investors buy the target’s shares after a tender offer is announced, betting that the offeror will “bump” the price).

Listed companies are therefore prioritizing preparedness for unsolicited offers and other recent phenomena.

Over the past 12–24 months, the most salient trend in Japan has been the increase in public M&As, as noted above. Historically, unsolicited bids were viewed as taboo in Japan, but that norm is fading. Particularly for listed companies trading below their book value, unsolicited approaches have become a real possibility. Even friendly transactions increasingly encounter competing proposals, the fact of which has elevated the importance of preparedness for interlopers.

In addition, as part of ongoing corporate governance reforms, listed companies are under pressure to optimize their business portfolios. Against that backdrop, we are seeing an increased number of carve outs of non-core businesses by listed parents.

Key drivers of activity — low interest rates, a weak yen, and succession issues among small and mid-sized enterprises — are unlikely to reverse quickly. We therefore expect a robust M&A market over the next 12–24 months, with private equity activity more likely to accelerate than to slow. The current administration remains supportive of inbound investment, suggesting continued foreign interest. At the same time, there is a parallel trend toward tighter investment screening, which warrants attention.

A reform of the tender offer regime is slated to take effect in 2026, so practice around public deals will continue to change, requiring input from professionals who regularly deal with public M&As.

In addition to merger control and inward foreign direct investment screening (see Question 9, below), transactions in regulated industries in Japan (for example, financial institutions) may require sector-specific governmental approvals or notifications.

For acquisitions of listed companies, including by tender offers, it is customary to undergo reviews of disclosure documents by the Local Finance Bureau of the Financial Services Agency and the relevant stock exchange before announcement. The Bureau’s review is detailed and often involves intensive negotiation regarding the extent of disclosure. Although completion of the review is not a legal prerequisite to announce, in practice, parties typically wait for the review to complete before announcing or commencing a tender offer.

There is no general prohibition on non-cash consideration. Nonetheless, even in large transactions, cash consideration overwhelmingly predominates in Japan, and deals using shares or other non-cash instruments, in whole or in part, remain rare.

Several factors contribute to this, including tax considerations and legal constraints. For example, issuing new shares by a Japanese acquirer as consideration can be constrained by in-kind contribution rules. In addition, issuances or dispositions of shares at favorable prices require a special shareholders’ resolution, creating technical hurdles for share consideration deals. Special statutes provide certain exemptions to those requirements, but their usage is still limited.

Broader use of share consideration could enable larger transactions that would otherwise be difficult on an all-cash basis. Frameworks — including tax rules — are gradually being refined to facilitate such transactions. The introduction of the statutory share delivery regime noted in Question 1, above, is one such development.

Earn outs are also available and not uncommon, particularly in acquisitions of growth companies where the parties’ views on forward performance diverge.

Legal, financial, and tax due diligence are standard. Depending on the business and deal specifics, additional workstreams, such as environmental, IT systems, and carve-out planning, are often added.

It is standard to provide relatively broad disclosure of documents and to follow up with Q&A and interview sessions; both sell-side and buy-side typically expect reasonably deep diligence. Sensitive information is managed through clean teams for antitrust concerns, and confidentiality and data protection considerations often lead to redactions or staged access. While Japan does not recognize an attorney–client privilege as in common law jurisdictions, cross-border matters often require structuring disclosures to avoid waiving privileges recognized under foreign laws, guided by local counsel.

Where warranty and indemnity (W&I) insurance is used, underwriters review the diligence record (the extent to which they examine the data room materials and Q&A varies). Areas viewed as insufficiently reviewed may be excluded from coverage. This incentivizes robust diligence and, in practice, sometimes prompts additional seller disclosures late in negotiations to address underwriter feedback.

W&I insurance has become common in recent years. Japanese insurers with Japanese-language underwriting capabilities have deepened their experience, lowering adoption hurdles. As a result, not only private equity sellers but also corporate sellers increasingly pursue clean exits, and W&I is widely used regardless of party type. In auction processes where sellers have strong leverage, we see more sellers requiring W&I or bidders voluntarily offering it to make a proposal more attractive.

Because underwriters assess whether representations and warranties have been appropriately negotiated, W&I does not materially reduce the rigor of negotiating the representations and warranties. However, where W&I is used, deals are typically structured as no-recourse against the seller, concentrating negotiation on carve outs from no-recourse and other specific indemnity points. This can streamline negotiations overall.

Japan’s Foreign Exchange and Foreign Trade Act (FEFTA) provides a prior review regime for inward foreign direct investment in certain businesses relevant to national security. Foreign investors must submit a prior notification for covered investments. The competent authorities are the Minister of Finance and the minister with jurisdiction over the relevant industry. If they find a concern for national security, public order, public safety, or the smooth functioning of the Japanese economy, they may recommend — and ultimately order — modification or discontinuation of the transaction. There is only one public case (involving a foreign fund’s proposed increase of holdings in an electric utility company) in which a formal prohibition order was issued, but each year there are unpublicized cases where notifications are withdrawn and deals are abandoned because of national security concerns during the review.

The standard review period is 30 days, which may be extended to up to five months in complex cases. Conversely, non-problematic filings may be shortened.

In public M&A in Japan, the principal disclosure documents are the tender offer registration statement filed by the bidder and the target company’s position statement.

The bidder’s filing must include extensive disclosures, such as the purpose and the terms of the tender offer, measures adopted to ensure fairness, valuation matters, sources of funds, offer procedures, and summaries of related agreements. For example, where the acquisition vehicle is funded through equity commitments, proof of funding must be attached. In the case of private equity, this often requires tracing commitments back through the fund partnership, making preparation significantly complex.

The target’s position statement discloses whether the board supports the offer and whether it recommends that shareholders tender, together with the reasons, as well as, among other things, the process leading to the target board’s opinion and valuation matters. In friendly deals, the bidder and the target typically coordinate to ensure consistency between the two documents.

Other public documents, including the offer commencement notice and press releases, are prepared largely with reference to the bidder’s and target’s filings.

Upon closing, the results of the offer must be announced. If the target is listed, large shareholding reports may also be required in connection with changes in major shareholdings.

Japan has no agency with generalized approval authority over public takeovers. If a bidder acquires the requisite voting rights to implement a squeeze out, it can complete the takeover. To implement a takeover, the two METI guidelines referenced in Question 2, above, while soft law, serve as important practical guidance in acquisitions of listed companies and are widely referenced in the market.

As noted in Question 1, above, public takeovers commonly follow a two-step structure: a tender offer followed by a squeeze out of remaining minority shareholders. Conducting the tender offer requires comprehensive disclosures to shareholders (see Question 10, above), and, in practice, the Local Finance Bureau conducts a prior review of the filings (see Question 5, above), which functions as a key procedural safeguard around disclosure quality. Further to the disclosure, in squeeze outs, minority shareholders have appraisal rights to petition the court to challenge the consideration. Case law indicates that courts place significant weight on the fairness of the process, making robust procedural safeguards important.

Where a listed company considers a transaction involving potential conflicts — such as a management buyout or a controlling shareholder’s acquisition of a controlled entity — it is customary to establish a special committee, usually comprised of outside directors of the target company. In substance, the committee assesses the fairness of the process and terms. While a transaction can legally proceed without the committee’s support, doing so is uncommon in practice (with a caveat that we are seeing more unsolicited bids recently as noted in Question 2, above).

Historically, unsolicited bids were rare and deal protection provisions were given less emphasis. With the recent rise in competing bids, the use of deal protection measures has increased.

There is no general concern about litigating M&A disputes in Japanese courts, and thus domestic transactions commonly select court litigation. For cross-border deals, however, arbitration is frequently chosen — often at the request of foreign counterparties citing language and neutrality considerations. The Japan Commercial Arbitration Association (JCAA) is a principal domestic forum, but the Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC), and other international institutions are also commonly selected.

There is active fundraising by startups and increased entry by incumbent corporates in emerging technology areas such as AI and fintech. While Japan trails leading global tech firms in core model development, Japanese companies are well positioned in localization and application for the domestic market. As these markets mature and consolidation begins, M&A of businesses in these segments is expected to grow.

Many emerging tech businesses are categorized as software development, which can trigger FEFTA prior notification for foreign investors (see Question 9, above). Although outright prohibitions remain uncommon, the scope and depth of questions during review appear to be increasing, reflecting heightened governmental interest. Together with anticipated tightening of investment controls, this area warrants close attention.

Emerging tech deals also often involve significant data. Where personal information is involved, the Act on the Protection of Personal Information applies, including restrictions on cross-border transfers of personal data, which require careful planning in cross-border transactions.

Legislation in emerging areas is evolving. That said, innovation typically precedes regulation, and frameworks are being developed on a catch-up basis, requiring deal teams to plan for regulatory change during diligence and integration. For example, Japan’s so-called Basic AI Law took effect in June 2025. Unlike the EU’s Artificial Intelligence Act, Japan’s approach does not impose extensive obligations on AI providers or users. Nevertheless, both hard-law and soft-law frameworks are expected to develop further, and deal teams should monitor updates on AI-related legislation.

Despite ongoing globalization, Japan remains a language-intensive market with unique business customs that can be unfamiliar to overseas parties. In many traditional large companies, internal decision making can be multilayered and time consuming. Successful execution therefore benefits from planning that accommodates these dynamics and from the involvement of Japanese-speaking professionals with deep local market experience.