The Tinder for Aging Japanese CEOs Posts a 1,170% Stock Gainby and
Nihon M&A is benefiting from nation’s aging population
Company found a niche brokering deals for smaller firms
When Masao Takeuchi signed away the company he’d spent 25 years building from scratch, one of his biggest feelings was relief.
Takeuchi quit a plush job at Hitachi Ltd. when he was 35 to start a firm that writes computer programs for Japan’s blue-chips. In the beginning he did everything from a second-hand desk in a tiny room, where he also slept. But years later, successful at 59, he watched as former colleagues readied for retirement, and wondered how he could ever do the same. He had no children, and none of his 90 or so staff had money to buy him out.
Enter Nihon M&A Center Inc., a rare deal-advisory boutique in Japan, which introduced Takeuchi to a young company president on the other side of the country who wanted a foothold in the Tokyo software market. Months later, Takeuchi sold. It was just one of 110 deals Nihon M&A facilitated that year, a number that’s been increasing since it went public in 2006. Helping small-business owners find successors has sent its shares up almost 13-fold since listing.
“I felt a weight lift from my shoulders,” Takeuchi said, remembering the signing ceremony in Nihon M&A’s high-rise office in Tokyo. “I knew I had to step down one day.”
In 1991, the son of a Japanese Noh theater actor and a tea-ceremony professor packed in his job as a traveling salesman and founded Nihon M&A. He’d spent the previous 25 years flogging computers to small companies and accounting agencies across Japan, and realized many of them were struggling to pass on their businesses. Suguru Miyake, the current president, defected with him.
While the transition from selling computers to brokering deals might seem unusual, the long list of accounting, regional bank and company connections the men built over the years helped them find people who wanted to sell and buyers they could trust. Nihon M&A’s strength is the biggest network of any such firm in Japan, said Yoichiro Watanabe, an analyst at Mito Securities Co. in Tokyo.
“We’re matchmakers,” Miyake, 64, said in an interview in Tokyo. “Thousands of companies need these services, but almost nobody is providing them.”
About two-thirds of Japanese companies don’t have a successor lined up. Meanwhile, the working-age population is set to fall from about 80 million in 2000 to 40 million in 2060, Miyake says, which means consumer spending will plunge and Japan will no longer need its current level of about 4 million small or medium-sized firms.
“If consumption halves, the number of companies should also halve,” Miyake says. “Two million companies will either go bankrupt or be absorbed.”
Nihon M&A goes after smaller deals that investment banks and private equity firms shun. It gets most of its profits from transactions involving companies with 10 to 100 employees, according to Miyake. The company charges much less than overseas counterparts, and its roughly 200 consultants take on about 500 cases a year, about half of which result in companies being sold, Miyake said. With smaller firms, having a human touch is just as important as being smart, he said.
“It’s difficult to get the right people for this,” Miyake said. “That’s why not everyone succeeds.”
The Tokyo-based company’s shares surged 1,170 percent since listing in 2006 through Monday, when it reported a 25 percent jump in quarterly profit. The stock fell 0.2 percent on Tuesday. It’s up 15 percent in 2016, even as the broader market tumbles.
Nihon M&A has become the darling of some of Tokyo’s most successful equity investors, including Hideo Shiozumi, the lone wolf fund manager who oversees $893 million for Legg Mason Inc. Shiozumi says he invested in Nihon M&A because it benefits from Japan’s demographic predicament.
Nihon M&A has turned the negative of Japan’s aging population “into a very strong positive,” said Praveen Kumar, a fund manager at Baillie Gifford & Co., which holds the stock. Its success is thanks to its consultants, he said. “You need to hand-hold these aging founders, and convince them that it’s a good idea” to sell.
Takeuchi, the former software-firm owner, says he initially wanted to sell to a big company, thinking being part of a bigger group would help put his staff at ease. Nihon M&A helped change his mind, saying the fit with the other company was more important than size.
“They knew, I suppose,” Takeuchi said. “Our firms had the same atmosphere,” referring to the company that bought him out.
Nihon M&A has also been instrumental in helping to change ingrained attitudes to selling companies in Japan. In the past, the heads of small rural firms saw offloading the businesses they built from nothing as something shameful. Nihon M&A has been holding seminars across the country for years to counter these perceptions.
“People used to think that they should sink with the ship they’ve made,” Miyake says. But times have changed. “Now that they’re 65, they think maybe they should go on trips with their wives while their legs are still strong.”
About three years ago, one of his consultants came to Miyake in tears to report a successful deal. A company head with terminal cancer had held on longer than his doctors predicted, because he was desperate to sell his firm so his staff could keep their jobs. He signed the papers in the hospital, and four days later he died.
“When you do this job, you stop watching TV series, you stop gambling,” Miyake said. “The level of drama you can experience goes way beyond that,” he said. “It doesn’t matter how big or small the company is. There’s always a story behind it.”
Some warn that Nihon M&A’s share price may have risen too far. The company traded at 52 times earnings and 16 times book value at Monday’s close. M&A Capital Partners Co., a smaller listed competitor, was valued at 36 times profits.
“Shares have become slightly overpriced,” said Tatsuo Majima, an analyst at Tokai Tokyo Financial Holdings Inc. who covers Nihon M&A. “Unless earnings catch up, it’s difficult to see the shares climbing further.” Recent hires’ wages are eating into the company’s profits, he said.
Miyake, however, isn’t too concerned. He says he’s focusing on expanding the business in Southeast Asia and making the smallest deals the firm mediates more profitable. Takeuchi, meanwhile, is enjoying having some free time, and even spends some of it touring Japan with the company to speak at M&A conferences.
“The acquisition has been good for everyone,” Takeuchi said. “When I meet my former employees now, none of them ask me why I sold.”