Buyout deals for startups reach record in Japan before listing restrictions

A PLAN to cull the smallest listings on the Tokyo Stock Exchange (TSE) is spurring a record number of buyouts of young companies in Japan, reflecting Tokyo's push to create more billion-dollar startups to better match the country's global standing in scientific research.

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Regulators are ratcheting up pressure on startups to gain more scale before debuting on the stock market, warning that the TSE will seek to delist companies that fail to reach a market value of at least ¥10 billion ($66 million) within five years of going public, starting 2030. More than 60% of the roughly 600 companies on Tokyo's Growth Market for young companies fall below that threshold, representing some $12 billion in value.

Dozens of founders are selling their companies rather than pursuing initial public offerings (IPO) - the traditional path to gain respect from an establishment that still views young companies with skepticism. The hope is that consolidation would help temper a hyper-competitive domestic market and allow companies with one-of-a-kind technological know-how to attract bigger pools of capital.

"More people are realizing that an IPO isn't always the happy ending you want," said Takashi Nakagawa, co-founder of health-tech company Kakehashi, Inc., adding that his company is prioritizing deal-making to gain scale. "For growth, we're open to acquiring firms that are bigger than us. All options are on the table."

A total of 199 startups were bought out in 2024, more than double the number four years earlier, according to market research firm For Startups. This year, 92 such deals occurred in the first half alone, while the number of IPOs slumped to just 21, on pace for the lowest in years as brokerages shun small-sized debuts.