By Anton Bridge and Miho Uranaka

TOKYO, Dec 12 (Reuters) - Japan's mergers and acquisitions market is set to maintain buoyant growth momentum into 2026, with increasing deal sizes supported by innovative financing structures involving private capital, a Goldman Sachs GS.N executive said.

As Japan's largest companies streamline business portfolios and target growth investments, financing structures that tap the vast pool of private capital are set to bring more deals over the line, David Dubner, chief operating officer of global M&A and head of M&A structuring, said in an interview with Reuters.

These "high-grade" financing models combine equity and debt with private credit sourced from long-term private capital such as insurers.

When partnering with large investment-grade corporates, the structures maintain investment-grade credit ratings, which significantly lower capital costs.

These strategies are likely to further fuel Japan's M&A boom - which neared record levels in 2025 - Dubner said. Globally, they are increasingly used to finance AI-related data centre and power infrastructure.

"Japanese companies want to invest in innovation and growth opportunities," Dubner said. "The buyers are trying not to overstrain their balance sheets and look for creative sources of capital."

One notable example was the $7.4 billion buyout of Air Lease Corp AL.N in September, where Sumitomo Corp 8053.T and SMBC Aviation Capital joined forces with asset managers Apollo and Brookfield, and Goldman Sachs served as adviser. The investment bank's pipeline of similarly structured deals globally has grown since the transaction.

Private equity firms with insurance capital arms are aggressively seeking opportunities to invest and their partnerships with strategic buyers provide an additional source of capital beyond traditional financing such as equity and debt.

This expands the scope for Japanese firms' buyout opportunities. "Some of the targets that Japanese firms thought were a stretch are real now," Dubner said.

Bigger deals are also on the horizon. Many of Japan's blue-chip firms retain sizeable non-core businesses and trade at a conglomerate discount despite Japanese authorities' multi-year effort to encourage companies to consider their shareholder returns.

And activist investors are echoing the Tokyo Stock Exchange's calls for corporate governance changes, ramping up the pressure on companies to take action.

"Regulatory changes in 2017 allowed for tax-free spin-offs in Japan but we haven't seen the push yet. I think that that dam will open," Dubner said.

Global M&A momentum is also set to continue for the next two or three years as lower interest rates and plentiful capital encourage company management to invest in growth.

"Our global clients are thinking bigger and transformational M&A is increasingly on the docket," Dubner said.

(Reporting by Anton Bridge and Miho Uranaka; Editing by Jacqueline Wong)

((Anton.Bridge@thomsonreuters.com;))