Archived IR presentation for the Third Quarter of the Fiscal Year Ending September 30, 2024

The first two questions are similar.
A1. Bad buyers and buyers requiring caution are registered in our internal database as no-contact entities, and their information is shared internally.
A2. What’s most important is to introduce buyer companies that are reliable and creditworthy. For instance, when it comes to the fulfillment of the obligation to lift personal guarantees as outlined in the final contract, having a publicly listed company as the buyer gives the seller a vastly different sense of security, compared to having an individual or a company with an unfamiliar name and origin as the buyer.
Secondly, even when the parties sign a final contract that includes the obligation to lift the personal guarantee, a malicious buyer may disregard the obligation, extract money from the acquired company, and flee. Therefore, when a buyer lacking reliability and credit is signing a contract, it is crucial that the intermediary company take charge, having the buyer repay the existing debt in a lump sum or refinance the full amount on the day of settlement.
That being said, there are also cases where the buyer company is unable to refinance the debt right on the settlement date because it already has loans from many financial institutions. Alternatively, the buyer may be unable to simply secure the funds to refinance.
In these circumstances, we first provide the seller with detailed information on the buyer, which we, as the intermediary company, can possibly obtain through research. We then explain to the seller the potential risk of the personal guarantee remaining should the buyer go bankrupt or fail to fulfill its obligation to lift the personal guarantee as outlined in the contract. Finally, upon securing the seller’s understanding, we ask the seller company to sign the document. If the explained risk is unacceptable, a decision must be reached whether to renegotiate refinancing with the buyer or choose to forgo the settlement, and the intermediary company takes charge of guiding the process. We must avoid a situation where the seller—unaware of the risk of not being released of the personal guarantee—undergoes settlement thinking the deal will be helpful, only to find out otherwise. So, at M&A Capital Partners, our priority is to introduce buyer companies that are trustworthy. If the buyers display any disturbing signs, we then ask them to refinance the existing debt on the day of settlement. If this is difficult, we explain the risk in detail to the sellers and obtain written consent on their understanding of such risk.
A3. As I touched upon in A1-1, we use an internal database to manage information on several hundred thousand companies. When a company asks us to stop making sales approaches, we register the company in our “do not approach” list and conduct strict monitoring so that no sales actions will be taken.

We don’t conduct simulations of contract liabilities.
However, the number of active deals, which will eventually contribute to contract liabilities, is trending quite strongly, reaching a historic high. We attribute this to an increase in consultant counts and rigorous proposal activities.

At the current level, we do not expect interest rates to have a significant impact on our performance. If higher interest rates result in a situation similar to that after the global financial crisis of 2008, when large loans were frozen, it would affect M&A financing. However, currently there is substantial liquidity in the market, and loans are being extended for reliable, quality M&A deals. The inability of buyers to secure funding for their acquisitions would have a greater impact on our performance than interest rate hikes.
The only potential impact of higher interest rates I could think of is a drop in the Nikkei index. If this happens, stock prices will be affected, making it harder to obtain valuations that meet sellers’ expectations, which can hinder their willingness to sell.

The certification system has absolutely no negative impact on our performance; in fact, we believe it is extremely beneficial for the overall industry. At our company, we seek to enhance employees’ practical knowledge in areas such as accounting, taxes, and legal matters by giving monthly tests to check their levels of understanding. Individuals without sufficient knowledge should not take part in M&A consulting. An M&A deal handled by consultants without the proper practical knowledge could cause problems so extensive no one will be able to take responsibility. For this reason, I’m very supportive of the certification system.

We often get asked about whether we are struggling to improve RECOF’s performance. On the contrary, though, we are confident we can grow RECOF’s earnings, considering the company is a well-known brand in the M&A industry and possesses capabilities we do not. We also made RECOF DATA and Mirai Financial Planning our Group companies through M&A, and believe these acquisitions well demonstrate the effectiveness of M&A as a growth strategy. We intend to utilize M&A to achieve our goal of becoming a world-class investment bank, and accordingly, intend to maintain a strong cash position. Profits have slightly decreased since we began paying dividends last year, resulting in an increase in the payout ratio. We aim to maintain this ratio while focusing on paying dividends, rather than buying back shares, and enhance corporate value through M&A and other means.

I believe the size of the M&A market itself is quite large. Although the number of M&A intermediary companies has increased, only about 30 have more than 30 employees. Even if we consider the number of M&A deals involving publicly listed companies only, the number seems significantly insufficient. The options for business owners without successors are limited, suggesting that the potential size of the M&A market remains substantial. While the number of M&A intermediary companies increased, leading to some congestion in the sales front, the actual M&A demand is still not being fully met by the existing companies.
If we continue to deliver quality work, build a strong brand, reputation, and track record, and employ capable consultants, I believe there is ample opportunity for us to further expand the market.