2127.T

Full Recovery Post-Accounting Incident & New Strategic Launch

• Four years after the 2022 inappropriate accounting incident, Nihon M&A Center achieved record sales and ordinary profit in FY2026 (ended March 2026), marking a full-fledged recovery. This quarter is the first under the company's new mid-to-long term plan, Vision 300 Next Genesis, launched as part of the company's "second founding" for its 35th anniversary.
• The company characterizes Q1 FY2027 results as very satisfactory, driven by solid core growth, strong gains from the fund business segment, and record-strong leading indicators for future quarters.

Operational Improvements & Leading Indicators

• New sell-side mandates hit a Q1 record of 347, up 20.1% YoY, with 76 mid-cap mandates (up 31% YoY). New buy-side mandates were 351, up 4.8% YoY. 61% of sell-side mandates are from high-potential urban central areas, a favorable trend.
• The pipeline of active transactions under negotiation grew 17% YoY to a record high of 480 pairs as of end-June. Interim fee revenue rose 17% YoY to 1.358 billion yen, confirming strong active mandate volume.
• Pre-due diligence lead time for new mandates has been reduced from the historical 90 days to 56 days, increasing overall deal capacity and shortening the time from mandate acquisition to closing.
• Headcount: M&A consultant count rose from 626 at end-FY2026 to 635 at end-Q1, with 55 additional accepted offers pending onboarding. Corporate staff increased from 201 to 236, driven by the creation of a dedicated central operations management department for enhanced compliance and deal quality oversight, a response to past fraudulent buyer and risky deal issues.

Strategic & Organizational Updates

• Organizational restructuring was completed to serve listed company clients, including the launch of a new IB coverage division and strategy division to handle large corporate carve-outs and business reorganization demand.
• J-Capital was established as an intermediate holding company for the fund business, which the firm targets as a second core business pillar alongside domestic M&A brokerage. It now hosts AtoG Capital's overseas investment funds and search fund activities.
• A trust-type stock compensation plan was launched to align the incentives of management, employees, and shareholders toward the Vision 300 goal. The company plans to relocate its headquarters to consolidate all teams onto a single large floor to improve cross-team communication.
• Ancillary business growth: The company has supported 60 IPOs on the Tokyo Pro Market, earned advisor certification for new similar regional exchanges, and grown PMI (post-merger integration) consulting to 132 completed projects, with a new joint research initiative launched with Kwansei Gakuin University to advance PMI capabilities.
• Overseas business marked its 10th anniversary, with a new strategic alliance signed with U.S.-based Generational Group to expand network coverage across ASEAN, Korea, and North America. The company also recently completed an acquisition of a U.K.-based M&A firm.
• AI investment is focused on building a proprietary customer conversation database (with customer consent) to enable data-driven operations, and AI tools are already being deployed to reduce salesperson research time for client visits.
• Direct marketing efforts are structured around a regional/industry matrix to deepen customer penetration, leveraging national seminars and local promotional activities. The company has held the Guinness World Record for the highest M&A deal volume for five consecutive years.

• The company maintains its full-year FY2027 dividend guidance at 29 yen per share (25 yen ordinary dividend, 4 yen special dividend), unchanged from FY2026. The expected dividend payout ratio for FY2027 is 71.3% including the special dividend, aligned with the 60%+ payout ratio policy through March 2028. ROE is expected to hit 24.4% in FY2027, and management plans to maintain ROE between 24% and 25% through FY2028.
• Vision 300 Next Genesis targets 30 billion yen in ordinary profit by FY2032 (March 2033). Management states this is a conservative target achievable solely through growth of the domestic M&A business; the fund and overseas business segments will contribute incremental upside above this target. Management targets 10% of total long-term group revenue from overseas business.
• Management expects the upcoming 2027 legal introduction of a mandatory M&A advisor registration system and individual M&A professional qualification to be a net tailwind for the company, with no material negative impact on sales operations or profitability.
• The company targets a minimum 10% net increase in M&A consultant headcount for full-year FY2027, which management indicates is achievable based on current recruiting and retention progress. Management expects the strong Q1 pipeline will drive solid results in Q2 and H1 FY2027, and is confident in meeting full-year guidance, with new Q1 mandates expected to positively benefit H2 results.
• Management expects average M&A sales per deal to remain above 40 million yen, even as it works to increase closed transaction volume, which will pull the average slightly down from the current elevated level near 45 million yen.

Overall consolidated revenue was 9.1 billion yen, up 0.9% year-over-year, with 188 closed transactions (down 11.3% YoY). Reported ordinary profit was 2.252 billion yen, down 11.1% YoY, and pre-tax profit was 3.156 billion yen, up 24.6% YoY. The fund business segment generated a 780 million yen gain on sale of an investment from AtoG Capital, which was classified as an extraordinary gain under accounting rules; if included in operating revenue, total revenue would have been 9.891 billion yen (up 9.7% YoY) and ordinary profit would have been 3.39 billion yen (up 20% YoY). The core domestic M&A brokerage segment saw an increase in average M&A sales per transaction, offset by a year-over-year drop in closed deal volume due to intentional closing delays to build the pipeline. Personnel cost for M&A consultants and front-office staff was 2.2 billion yen, up 6.5% YoY, while support personnel cost was 1.051 billion yen, down 3% YoY. Referral and outsourcing expenses fell 16.1% YoY, as the direct mandate share of closed transactions increased, dropping the referral fee ratio to sales from 13% to 10.8% (a 2.2 percentage point decline). IT expenses were 314 million yen (up 22.5% YoY), and advertising expenses were 259 million yen (up 62.5% YoY), both in line with budget. As of quarter-end, total assets were 54.442 billion yen, net assets were 47.732 billion yen, and the net asset ratio was 87.7%, indicating a very healthy balance sheet.

• The domestic M&A brokerage industry has grown from 30-40 players 10 years ago to 450-500 players currently, with 85% of new entrants founded in the last three years. Intense competition for direct mandates has driven down customer response rates to cold outreach, increasing direct acquisition costs and reducing direct mandate closing rates.
• Past incidents involving fraudulent buyers and poorly structured risky M&A deals that resulted in write-offs required the company to add dedicated compliance and quality control headcount, increasing corporate overhead costs.
• The upcoming mandatory qualification and registration regime will require M&A consultants to spend additional time studying for certifications, which could temporarily draw time away from sales activities if productivity gains do not offset the time requirement. The company is investing in AI to offset this risk.

Q: Why is the company increasing lower-margin partner-acquired mandates instead of focusing on higher-margin direct mandates? What is the benefit of this strategy? / A: Intense new competition in the direct market has lowered cold outreach response rates and reduced closing rates for direct mandates, as customers are overwhelmed with frequent cold approaches. Partner-acquired mandates from long-standing network contacts (like banks and accounting firms) have much higher closing rates because partners already have deep qualitative knowledge of target business owners, leading to better overall productivity than direct mandates despite lower gross margins per deal. The company is also improving direct mandate quality through focused regional and industry specialized teams that have higher trust and response rates, and will continue pursuing both strategies in parallel.

Q: Is the number of delayed deal closings in Q1 unusually high, and how does it compare to last year? / A: The number of delayed deals is not higher than normal. Last year Q1 had 25 delayed deals worth ~290 million yen, while this year Q1 has 16 delayed deals worth ~140 million yen. The 17% year-over-year growth in the active pipeline is due to stronger new mandate acquisition and matching activity, not an increase in delayed deals, and the pipeline growth will support stronger results in coming quarters.

Q: Can the 30 billion yen FY2032 Vision 300 ordinary profit target be achieved by the domestic business alone, and what is the outlook for the fund and overseas segments? / A: The 30 billion yen target is conservative and fully achievable with only domestic M&A business growth, driven by planned headcount growth and improved per-head productivity from better training, lower turnover, and AI support. The fund and overseas businesses will contribute incremental upside above the target. The company targets 10% of total long-term revenue from overseas business, and is expanding search fund offerings across Japan's 47 prefectures in partnership with regional banks, which has high growth potential.

Q: What impact will the new mandatory M&A qualification and registration system have on the company's operations? / A: The new system is a net tailwind for Nihon M&A Center, not a headwind. The company has already started internal training and preparation in advance, and the system raises industry standards that will benefit larger, established incumbents with existing training and data infrastructure. To offset any time spent on training that could pull from sales activity, the company is using AI to automate salesperson research work, freeing up time for training and client engagement.