Understanding the Rapid Increase of M&As: Historical background and the economic role of M&As

In the course of postwar economic development, Japan has never faced a situation where mergers and acquisitions (M&As) pervade among domestic companies. But from the later half of the 1990s, the number of M&As began to rise sharply and Japan is now entering an M&A boom for the first time in the postwar period. More than 2,000 M&As were completed in 2004, roughly quadrupling the number recorded a decade ago. What has been driving the sharp increase in M&As, particularly between domestic companies ("in-in M&As"), since the mid 1990s? What characteristics can we observe in the recent increase in M&As as compared to the past development of M&A activities in Japan or among international M&A trends? And what economic roles are the rapidly increasing M&As playing? The goal of this study is to provide preliminary answers to these questions. To this end, this paper attempts to theoretically understand the economic role of M&As by focusing on their double-edged nature. Then, from this perspective, it provides an outline of how M&As were used in the growth process of Japanese companies in the 20th century, thereby revealing that M&As used to play an important role as a corporate growth strategy or as a means of reorganizing business in prewar Japan, and that M&A activities dwindled due to institutional factors in the high growth period immediately after the war. Lastly, the paper focuses on the rapid increase in M&As from 1999 on, examining causal factors, characteristics and the economic role of M&As thereby presenting the view that M&As have been playing a critical role in the process of structural adjustment characterized by creative destruction that began in the late 1990s.