The news of mergers and acquisitions by semiconductor distributors has once again come. Kaga Electronics announced that it will acquire the common stock of Xierong Industries through a public offering of shares (TOB) in May 2025. The TOB acquisition period starts on June 2nd and ends on July 11th. We plan to acquire approximately 2.2 million shares, with a total expected acquisition amount of up to approximately 8.7 billion yen. Kaga Electronics was founded in Tokyo on September 12, 1968. It is a well-known independent comprehensive electronics trading company in Japan and a listed company in the Tokyo Stock Exchange.
It focuses on the manufacturing of electronic components, semiconductors, EMS, and information equipment. Proxy brands include Mitsubishi Electric, Renesas, ADI, Omnivision, etc. Kaga Electronics had sales of 547.779 billion yen and operating profit of 23.61 billion yen in the fiscal year of March 2025, making it one of the top five major semiconductor/electronic product distributors in Japan. On the other hand, the sales revenue of Xierong Industry in the fiscal year of March 2025 was 57.79 billion yen, with an operating profit of 974 million yen. After the merger, it will become a distributor with sales exceeding 600 billion yen, but it has not yet reached the scale of 1-341 trillion yen of Macnica Holdings, the current leading electronic distributor in Japan, in the fiscal year of March 2025. At present, the electronic distribution pattern in Japan is dominated by Macnica Holdings, the only company with sales exceeding 1 trillion yen, ranking first. The second tier consists of several companies with sales between 400 billion and 500 billion yen, followed by distributors with sales of 200 billion yen and 100 billion yen. In recent years, the trend of integration between distributors with larger sales scales, or large distributors acquiring small distributors, has been accelerating. About a year ago, Ryoyo Electro (with sales of 129.9 billion yen as of January 2023) merged with Ryosan (with sales of 325.6 billion yen as of March 2023) to form Ryosan Ryoyo Holdings (HD).
The background is that with the acceleration of the Internet of Things (IoT) and digital transformation (DX), the rapid use of new technologies has brought significant environmental changes to the industry, and the functions and roles required for electronic distributors are changing, including the impact of intensified competition between companies and geopolitical risks related to mergers and acquisitions with semiconductor manufacturers and other manufacturers. The merger of the two companies will bring good synergies. Ryosan has many customers in the automotive field, while Ryoyo Electro has many customers in the medical field, which is conducive to integrating and expanding the customer base of the two companies. On May 14th of this year, Ryosan Ryoyo Holdings (HD) announced its first annual financial report after the merger, with sales of 359.811 billion yen and operating profit of 8.542 billion yen. The overall group goal set by the company is to achieve sales of 500 billion yen and operating profit of 30 billion yen for the fiscal year ending March 2029. In addition, although the types are slightly different, Kanematsu also acquired Electronics End Materials Corporation, a distributor of semiconductor silicon wafers, in March 2025. Over time, the restructuring of Japanese semiconductor distributors is not a new phenomenon: in 2003, Macnica and Fuji Electronics merged to form Macnica Fuji Electronics HD. In 2007, UKC HD and Vitec HD merged to form Leicester HD.
The large number of small and medium-sized enterprises is a prominent feature of Japan's semiconductor distributor industry. Traditionally, there have also been many distributors affiliated with the manufacturer system, which has given rise to unique business practices. Therefore, even if there are significant changes in the external environment, it is often difficult to break the existing inertia, and some distributors are forced to struggle. This situation was particularly evident during the COVID-19 epidemic. Despite the tight global semiconductor supply, there is still a market with smooth circulation, which exposes the weakening purchasing power of Japanese distributors, posing a huge challenge to them. Against the backdrop of rising semiconductor/component prices, rising logistics costs, and foreign distributors entering the Japanese market and strengthening their business layout in Japan, it has become increasingly difficult for a single distributor to continue investing. In order to effectively compete with global suppliers, avoid the situation of "not being able to buy others" and maintain this ability, the integration and restructuring trend of Japanese electronic distributors will continue to be promoted in the future. In 2019, five years ago, Texas Instruments (TI) announced the termination of its exclusive distribution agreements with its sales partners, including Marubeni, Avnet, and WPG. This news caused a huge shock in the distributor industry. In addition, mergers and acquisitions by chip manufacturers may also be an important reason for the restructuring of Japanese chip distribution companies. Renesas Electronics acquired Intersil Corporation in 2005 and IDT Corporation in 2007. Since 2008, there has been a trend of termination of distribution agreements between Renesas Electronics and semiconductor trading companies, such as the termination of distribution agreements with RYODEN Corporation (formerly known as Ryoden Shoji Corporation) at the end of February 2011. The role of Japanese distributors in the entire industrial chain is being questioned and reviewed again after the transformation of semiconductor supplier sales strategy and the structural change of the supply chain brought about by the COVID-19 epidemic.
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