Akai Izumi, co-head of Sullivan & Cromwell’s Japan practice and the winner of the International Dealmaker of the Year award at the ALB Japan Law Awards 2008, has seen the legal market come full circle since foreign lawyers were allowed to enter the market some 22 years ago.
“The legal market has progressed from being a small community with a comparatively small number of lawyers and low demand for legal services to a very well-developed legal sector. The entry and expansion of international firms has contributed to increased competition between domestic and international firms and overall this has benefitted the legal sector, Japanese businesses and the economy as a whole,” he says.
And while the Japanese economy may be hurting at the moment, Akai believes a rebound is on the cards and that the nation’s relatively strong conglomerates will be leading the charge.
“The outbound M&A market is quite stagnant at the moment and will remain that way the first half of 2009,” he says. “The management of most companies have adopted a defensive stance at the moment and that has a lot to do with economic uncertainty. The focus has been on securing liquidity on balance sheets as opposed to looking to expand.”
Akai says that while economic certainty is the key to kick-starting the sector, the release of Q1 financial results and 2010 financial projections is likely to reveal a need to look for strategic acquisitions abroad. “The financial results and projections may affect a change in the conservative outlook adopted by some Japanese companies. What we may see is the market may pressure some of these companies into action, shifting their focus away from just liquidity concerns to taking active steps to implement strategic plans and expansion.”
Some of this market pressure is already telling on the country’s capital market. According to Thomson Reuters statistics, February was one of the busiest months for Japan’s capital markets since mid-2008. Secondary offerings increased 173% and proceeds from follow on offerings raised 183% more from the same period last year – not necessarily evidence that things have turned the corner, but positive signs nonetheless. “Capital markets have been slow and will probably remain that way for a while.” “But that is only one side of the story. The flip side is that, despite the market conditions, companies need money. They need capital to make up for poor financial performance, need shareholder equity and capital on their balance sheets. There is a strong demand for these financing transactions at the moment.
“Companies need to find a balance between confidence of the market and their own needs. This may result in some companies going out at the market more aggressively and I think this will be what happens in the second half of 2009,” he adds.