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The report, released by Search Fund Japan Co., Ltd., marks the 10th anniversary of SF in Japan since their introduction in 2014. It aims to provide a comprehensive overview of the Japanese SF market, which is transitioning from its nascent phase to a growth stage.
Key observations in Japan:
1/ Market maturity
- Japan’s search fund model is younger compared to the U.S., which has over 40 years of history. The Accelerator Model remains dominant, driven by the lack of a robust investor base for the traditional model until recent years.
- In recent years, there has been a gradual increase in traditional SFs.
2/ Statistics
- By the end of 2024, a cumulative 38 SFs had been established in Japan. Of these, 11 are active, and 27 are “closed”. Among the 27 SFs that completed their search activities, 23 successfully acquired a company, while 4 were closed without acquisitions. This represents an 85% success rate in completing acquisitions—significantly higher than international averages.
- The mainstream support of accelerator-type investors in Japan is suggested to have positively influenced the realization of M&A.
3/ Player profiles
- Searchers in Japan often come from consulting or trading backgrounds. Compared to their global counterparts, fewer searchers hold MBAs (only 49%). However, the traditional model in Japan has a higher percentage of MBA graduates (87%).
- Many acquisitions are concentrated in sectors like manufacturing and construction, which face succession challenges. Other sectors include education, healthcare, logistics, and hospitality.
4/ Investment trends:
- Geographically, the Kanto region dominates investment activities due to its high concentration of businesses and searchers in metropolitan Tokyo. However, initiatives in western Japan, supported by local financial institutions, are gaining traction.
- Most acquired businesses are SMEs addressing issues like succession planning.
Challenges and risks:
- Lack of awareness and standardized understanding of SFs in Japan.
- Risk of acquisitions not materializing after the search phase.
- Limited investor diversity in Japan compared to global markets.
Future outlook:
The report highlights the growing significance of search funds in Japan as part of the government’s 2024 Revised Capitalism Design and Execution Plan, which acknowledges their role in economic development. The increasing involvement of international investors and the emergence of traditional search funds signal a maturing market.
Recommendations:
To expand the market, the report advocates for:
- Promoting the traditional search fund model to attract diverse investors.
- Increasing awareness and education (creating MBA programs, workshops) about search funds among potential searchers and stakeholders.
- Encouraging regional initiatives to balance geographical disparities in investment activities.
Conclusion
The report emphasizes the societal and economic impact of search funds in Japan, particularly in solving business succession challenges and fostering entrepreneurship. By supporting more searchers and diversifying investment models, the market is poised for significant growth.
Full report: https://www.searchfund.co.jp/news/20250115
