SEISEI INSIGHTS — M&A
Five Traps That Sink Japan M&A Deals: What to Check Before Price
2026-07-20
On a target that looks attractive, the first thing we check is not the price. Even where the asking figure looks cheap against annual profit, wiring funds before understanding the structure behind that number can mean the money is effectively lost. In acquiring a Japanese company from abroad, most buyers stumble on the same five issues. Price negotiation belongs after these have been confirmed.
The Five Issues
| Issue | What to confirm |
|---|---|
| ① The reality behind revenue and profit | Were results dressed up ahead of sale? Figures that have not been through financial due diligence may be a made-up report |
| ② Off-book liabilities | Debts that do not appear in the books — guarantee obligations, pending litigation, unpaid retirement allowances, unpaid taxes. Acquire the shares and you acquire these too |
| ③ Transfer of licences and permits | Depending on the deal structure, licences do not always carry over automatically |
| ④ Key-person and employee retention | Does the SME's core value rest on the owner personally or a handful of skilled employees? |
| ⑤ Advisor conflict of interest | Is the advisor structured to be paid by both buyer and seller? |
① and ②: Reading Behind the Numbers
A company approaching sale may adjust its accounts to make revenue and profit look better. Judge on the surface report alone and you may inherit a valuation far from reality. Financial due diligence is the procedure that closes that gap.
Watch equally for off-book liabilities (簿外債務) — guarantee obligations, unpaid retirement allowances, litigation, unpaid taxes. Liabilities absent from the books transfer to the acquirer in a share deal. Designing how known issues and unknown risks are allocated — through contractual mechanisms such as representations and warranties — is essential.
③: Licences Do Not Come Along Automatically
The structure of the deal drives the outcome. In a share transfer, licences tied to the legal entity are, in principle, preserved. Where the business (its assets) is instead acquired item by item, many licences under industry-specific statutes — construction, staffing, food service — must be obtained anew. If a licence lapses, the business itself cannot operate. Which structure to use should be worked back from whether the licences the target business needs can be carried over.
④: Value Sometimes Lives in People
In Japanese SMEs, core value often depends on the owner personally or a few skilled employees. If, after closing, the owner retires, skilled staff leave, and customers follow them out, what was acquired may be an empty shell. Terms on employee retention, non-competition, and key-person continuity should be settled clearly at the negotiation stage.
⑤: Whose Side Is the Advisor On?
Where an advisor is paid by both buyer and seller, that advisor is not necessarily neutral. Once closing itself becomes the goal, the acquirer's interest is not assured — even if it overpays or overlooks a risk. This is precisely why the Guidelines for Small and Medium M&A require disclosure where a firm is paid by both sides. Whether to entrust your judgment to an advisor who will not explain its fee structure deserves careful thought.
Price Is the Last Question
In a Japanese acquisition, price is not the first question. The reality of the financials, off-book liabilities, licence succession, talent retention, and the advisor's position — only after confirming these five as a structure can the reasonableness of a price be discussed.
This article provides general information on institutional frameworks and practice, and does not constitute individual legal or tax consultation. For specific matters, we introduce qualified partner professionals who handle the work accordingly.