Nihon M&A Center Holdings Inc. Q2 FY2027 earnings call

• Dividend Irregularity Resolution: Management apologized for prior interim dividends exceeding distributable amounts due to verification process deficiencies. An investigation confirmed no intentional misconduct by officers. No repayment from shareholders is sought, and the impact on financial performance is minimal. Directors voluntarily returned 10%-30% of compensation; however, the Audit Committee waived legal liability to ensure recurrence prevention measures can be implemented.
• Recruitment and Retention Strategy: Headcount increased from 626 to 640, with 56 new hires expected. The company shifted from monthly to quarterly onboarding batches to improve peer bonding and training efficiency. Mid-career recruitment doubled, though new graduate hiring declined. Quality control in hiring and education has improved, aiming to reduce turnover.
• 35th Anniversary and 'Next GENESIS': Celebrated as a 'second founding,' the event attracted key industry figures including bank presidents and PE representatives. AI Brain Partners was converted into a subsidiary to integrate human capital with AI assets. Physical marketing efforts, such as seminars in Okinawa, continue to generate high-quality mandates.
• Operational Efficiency and Pipeline: Lead times for deal closures have stabilized around 340 days, down from a peak of 380 days, indicating improved quality checks without sacrificing speed. New sell-side mandates grew 13.5% YoY to record highs, with mid-cap mandates up 30.3%. Over 60% of mandates are from central urban areas, ensuring high quality.
• Strategic Alliances and Expansion: A business alliance with Raynos supports Post-Merger Integration (PMI) services. Overseas operations in ASEAN remain strong, and a partnership with Generational Group (US top 10 mid-cap advisor) facilitates Japanese expansion into the US market.

Total sales for the first half of FY2026 were JPY 22.599 billion, representing a negligible 0.1% year-over-year increase and accounting for 42.8% of the full-year target. The number of closed transactions was 478, with M&A sales per transaction averaging JPY 45.6 million. Mid-cap transactions totaled 43 deals (19 in Q1, 34 in Q2), showing accelerated closure speed in Q2 compared to the prior year. While revenue remained stable, ordinary profit declined due to increased recruitment and advertising expenses associated with the company's 35th anniversary celebrations.

• Full-year forecast and midterm management plan remain unchanged from previous announcements.
• Management anticipates a recovery in earnings starting from the third quarter, driven by the closure of deals currently under negotiation.
• Confidence is high for a strong fourth quarter and fiscal year-end peak in December, aligning with historical trends where major decisions are finalized.
• The pipeline is expanding with record-high new mandates, suggesting sustained growth momentum into the next fiscal year.

• Regulatory and Governance Risk: Past irregularities in dividend distribution highlight internal control weaknesses, although immediate financial impact is deemed minimal.
• Talent Retention: High competition in the M&A consultant talent market poses risks to recruitment and retention. Previous years saw net declines in headcount due to turnover.
• Deal Closure Delays: Structural changes in check processes and longer negotiation periods temporarily extended lead times, though this is viewed as a transitory factor.
• Market Dependency: Reliance on physical marketing and specific demographic trends (aging business owners) requires continuous adaptation to maintain mandate flow.

Q: Given the competitive talent market, how effective are the new quarterly onboarding batches for mid-career recruits regarding retention and productivity?

A: Takeuchi reported that consolidating onboarding into quarterly batches of ~25 people fosters stronger peer bonds and group identity, significantly improving conversion rates from recruitment to productive staff. While mid-career recruitment volumes doubled, new graduate hiring declined slightly. The focus remains on maintaining a net 6% growth in consultants by balancing aggressive acquisition with rigorous quality control and education to minimize churn.

Q: Is the recent delay in transaction closure timing a structural issue or a temporary factor, and what is driving it?

A: Management characterized the delays as a one-time transitory factor resulting from stricter post-deal verification processes introduced by new administrative staff. Lead times peaked at 380 days but have since corrected to approximately 340 days, matching levels from two years ago. This indicates that the organization is successfully integrating higher quality controls without permanently sacrificing speed, allowing frontline teams to catch up with these new standards.

Q: Are the double-digit increases in mid-cap deals primarily driven by the minimum tax policy, or are there other structural drivers?

A: While the minimum tax serves as a tailwind, management emphasized that the primary driver is a demographic shift among mid-cap owners. The trend is moving away from aging CEOs (60s-70s) seeking succession toward younger managers (40s-50s) using M&A for growth acceleration or divestment. This structural change ensures robust demand independent of temporary tax policies, sustaining the upward trend in mid-cap mandates.

Q: How does management view the relationship between headcount growth and productivity improvement in achieving future targets?

A: Naraki stated that headcount growth and productivity are interconnected necessities; neither alone is sufficient for 10% corporate growth. Simply adding staff without improving quality or reducing turnover leads to diluted productivity. The strategy involves increasing headcount while simultaneously enhancing individual output through AI/DX tools and better education, creating a virtuous cycle where higher productivity reduces churn and supports further scaling.