Mizuho chief predicts wave of Covid M&A and succession shake-ups

The president and chief executive of Japanese bank Mizuho has predicted a broad shake-up of the country’s business world as Covid-19 accelerates succession plans and triggers a wave of dealmaking. 

In an interview, Tatsufumi Sakai said Japanese companies could not afford to wait patiently for a return to pre-pandemic conditions, warning that instead they should be adapting their businesses and financial structures to a “with-corona” era that will probably stretch into years. 

Over that period, he added, the modest liquidity issues of the early months of the crisis risk deepening into solvency problems for many companies, increasing the need for capital and accelerating a number of “megatrends” that many Japanese companies have been slow to address.

Core among these is digitisation, said the Mizuho chief, noting the widespread use of paper-based systems by Japanese financial institutions and their clients. In some corners of Japan Inc, he said, resistance to digitisation was so strong that some companies were still using floppy disks, the computer memory storage devices first sold almost 50 years ago.

“I think that this is a good chance to accelerate digitisation. Corona[virus] is a tough and painful story . . . but our task is to see this as an opportunity,” said Mr Sakai.

More immediately, the pandemic would accelerate corporate manoeuvring as companies worked out their survival strategies after securing the necessary liquidity to overcome the short-term hit of Covid-19, he said. Companies would then consider property sales, divesting a portion of the business or selling up wholesale in an M&A deal, said Mr Sakai, who expects private equity to play a growing role in the restructuring of corporate Japan.

For very large numbers of small- and medium-sized businesses — companies that collectively employ about 70 per cent of the Japanese workforce — the pandemic was creating a spate of emergency rethinks on succession issues.

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Before coronavirus struck, said Mr Sakai, Mizuho had forecast it would be dealing with SME succession issues on a “tremendous scale” over the next five to 10 years — a business opportunity created by owners seeking to sell assets or their entire company.

That has been accelerated by health and longevity anxiety among older business owners, he said. The average age of a Japanese SME owner is currently about 60, and some analysts’ estimates suggest that over the next decade, about 40,000 companies a year will confront the fact that they have no successor.

But the grim statistics of Covid-19, with its disproportionate impact on the elderly, have caused a wave of company owners in their 60s and 70s to decide they need to deal with the succession issue sooner rather than later.

“There is currently an enormous demand for M&A,” said Mr Sakai, adding that consultations on succession issues had soared in recent months.