Limited Conditionality in Acquisition Finance in Japan

I. Background
Historically, Japanese banks have been reluctant to provide debt financing on a limited conditionality basis, such as is common with U.K.‐style certain funds or U.S.‐style limited conditionality in domestic transactions. The first public transaction conducted on such basis in the Japanese market was the debt financing for the acquisition of Macromill Inc, by Bain Capital which was announced in December 2013. Since the Macromill transaction, the use of Japan‐style limited conditionality in acquisition finance has been gradually increasing in domestic transactions but its use remains largely exclusive to top‐tier private equity firms that have strong bargaining power against Japanese banks. Nonetheless, finance‐out provisions are only rarely seen in acquisition agreements in similar transactions.

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