Evolution 4: SPAC, restructuring of boards, and others

A Look into the Evolving IPO Landscape in Japan — Part IV

IPO Evolution In Japan IV

While the majority of startups outside of Japan have been getting their exits via mergers and acquisitions (M&A), most startups in Japan exit by IPO, or going public. And 2021 was the year in which we witnessed some major changes in Japan’s IPO market.


  • Before the global financial crisis hit in 2008, Japan’s IPO market would see at least 100 listings each year. After a long period of gradual recovery, 2021 became the first year Japan’s IPO market racked up more than 100 IPOs since the crisis.
  • Japan’s major stock exchange, the Tokyo Stock Exchange, has a number of boards: the First Section, the Second Section, Mothers, JASDAQ, and TOKYO PRO Market.
  • Mothers is the most popular board for high-growth startups. In 2021, some 93 companies went public on Mothers, a record high since the launch of Mothers in 1999.

Evolution 1: Anchor Investor / Cornerstone investor

Cornerstone investment* has become more popular in Japan since 2021. To learn more about it, please refer to Part I of this series.

※Cornerstone investment (also known as anchor investment): An agreement by an investor, usually a large institutional or sovereign investor, to subscribe for a fixed monetary amount of shares in an IPO.

Evolution 2: Global offerings and foreign investors

More and more Japanese companies have taken on the challenge to try to attract international investors at IPO, using either Global Offering or Rinpo-type Global Offering. At the same time, a growing number of foreign investors are becoming more interested in the Japanese market. To learn more about this trend, please visit Part II of this series.

Evolution 3: Market Cap, IPO size, and PS Ratio

Both market cap and offering size have increased significantly in 2021. Did the companies that went public in 2021 just happen to be bigger? Not really. Here, we looked into their price-sales ratio to find out they were all given a higher multiple. To learn more, Part III can be found here.

Evolution 4: SPAC, restructuring of boards, and others

Besides the quantitative trends we have introduced so far, there are some qualitative changes that would also change the dynamics of Japan’s IPO market.

The Japanese version of SPAC*

The number of SPAC IPOs has surged in the last two years. The number in 2020 was 248, which is about four times of the number in 2019, and the number in 2021 was 613, more than twice of that in 2020.

※SPAC: A special purpose acquisition company (SPAC) is a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company. It is also known as a “blank check company”.

Number of SPAC IPOs in US

Number of SPAC IPOs in US

On the other hand, such a structure is not available in Japan yet.

The Japanese government and main regulator Financial Services Agency made it clear in May 2021 that they would start discussing the possibility of introducing SPAC to Japan. The Tokyo Stock Exchange established a special committee in Oct. 2021 to study SPAC structure, working with prestigious law firms and investment firms to publish their research results.

Yet, as of publication of this piece (March 2022), there is still no clear verdict on whether SPAC will be introduced to Japan.

2. The restructuring of boards

As of publication time, the Tokyo Stock Exchange is planning to execute a restructuring of its four markets into three on April 4th, 2022.

The plan is to restructure the First Section, Second Section, Mothers, and JASDAQ markets into Prime, Standard, and Growth markets.

The three main reasons for the restructuring:

  1. Due to the relaxed rules on delisting, many companies in the First Section remain listed on the board, with most having a very low market cap and liquidity.
  2. The Second Section, Mothers, and JASDAQ boards are considered too similar and can be confusing for both the investors and companies who plan to go public.
  3. Corporate governance of some public companies is quite weak, and the restructuring is to either push them to a lower board or out of the stock exchange completely.

The restructuring will be carried out as shown below:

Restructuring of Tokyo Stock Exchange

Restructuring of Tokyo Stock Exchange

3. Adjustment to IPO’s price-setting process

Responding to criticism from startups that IPO prices have often been too low yet surged on market debuts, the Japan Securities Dealers Association said in September 2021 that it would set up a panel consisting of scholars, investors, and executives from major brokerage houses and startups this month to review the process.

Here are some changes that have been proposed:

  1. Holding “pre-hearings” between issuing companies and institutional investors
  2. Shortening the time period of listing examinations
  3. Making it easier to change the number of shares being sold at IPO
  4. Improving regulations related to cornerstone investments
  5. Changing the default period of lockup


With both external and internal reasons, the IPO market in Japan has gone through a very active year. Stimulated by such activity, the government, regulators, and the stock exchange are in the process of reviewing the existing rules and methods. Hopefully, all parties involved will reach an agreement on how to improve the environment for Japan’s IPO market going forward.

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