Nihon M&A Center Holdings Inc. (2127.T) Q1 FY2026 Earnings Call Transcript & Summary

Good morning, everyone. I am Miyazaki. I am the General Manager of the IR Department at Nihon M&A Center. Together with me is Mr. Naraki, who is the Vice President and Director as well as the CFO of the company. And Naraki-san is going to provide the briefing explanation on the most recent results, the first quarter for the fiscal year to March 2026. Today, we have investors from abroad as well. So we're going to provide this session with consecutive interpretation. And the first 15 -- or 10 to 15 minutes will be a briefing from Mr. Naraki on the results. And this is Naraki.

Thank you for joining. I would like to provide a summary of how we did in the first quarter of the fiscal year 2025. Our sales were JPY 9.01 billion, which was up by 18.1% year-on-year, and our ordinary profit also grew to JPY 2.533 billion, and this was up by 63.8%. We closed 212 transactions, and this number was higher than Q1 last year by 11%. And our M&A sales per transaction was JPY 40.8 million, and this was higher than Q1 last year by 6.1%. So we achieved a meaningful and quite a significant increase in both sales and profit. And this is basically thanks to a meaningful increase in the number of transactions to be closed and also in the average revenue per M&A transaction. And about the reasons why our transactions closed got higher is partially thanks to the instigation of what we call kickoff meetings that the meetings we hold for mandate analysis at the beginning of the transaction negotiations. And about the reason why our average revenue per M&A transaction grew, this is thanks to our measures that we have been taking from before to acquire more mid-cap mandates. And about the large transactions whose definition in our company is that transactions that gives us a success fee of at least JPY 100 million. Such transaction volume grew from 10 in Q1 last year to 14 this time. Now on summary of our leading indicators. Our new sell-side mandates was down by 11.6% to 289. And our new buy-side mandates was 335, which was down by 2.9%. And on to the new transaction negotiations. This was up by 10% year-on-year to 329. And we believe that this indicator quite represents what we did in the first quarter. In the first quarter, we were focused on trying to close the transactions for the mandates that we have had. And also another area of our focus was on proceeding and executing our mandates. We have had to a negotiation start phase. However, in the second quarter, we're also going to have an additional focus on acquiring more new mandates, so we can have an even better result in the second half. Next page. And this is a reference phase, the latest results or the latest status of our leading indicators to show in line with or together with the flow of M&A deals. The left-hand side is the onset of the whole deal. The very left-hand side box in the center is the number of new sell-side mandates. This one and the new buy-side mandates, the second from the right, got decreased from Q1 last year. However, the new transaction negotiation, the very right box grew by 10%. But I need your attention on the bottom right corner. This shows our preparatory period that got record low or short. And this is the period that requires from the time that we received mandates. And this used to be 85 days, but it got shorter by 28 days to 57. And on to our income statements. I have earlier talked about our sales, JPY 9 billion and ordinary profit, JPY 2.5 billion. And in between these 2 indicators, there are cost of sales and SG&A expenses, and we have made change to what we include in these. In the current financial year to March 2026, we're starting a classification of our employees that is new, so we can make categorization that's more explicit and so we can promote more optimum use of our resource. So with this reclassification, cost of sales got lower by JPY 533 million and SG&A expenses growth for the same amount. And I will provide more detailed explanation on this categorization change. And I would like to note that the numbers that we are showing on this presentation document and the numbers that we are showing in the separate sanction document that we released together with this yesterday, they have the numbers from the previous year, but the numbers of the previous years are restated according to the latest, the new classification definition. So we can provide an apple-to-apple comparison. This page is on transactions closed, M&A sales and new mandates. The top row is the total number of transactions closed. And please look at the very right-hand side column. So how we read this table is that we closed 212 transactions this Q1. And in Q1 last year, we closed 191, the number that you can see to the left. And the next indicator is M&A sales per transaction. This is the third row from the bottom, and please pay attention to the right column. This first quarter, we had JPY 40.8 million M&A sales per transaction. This is higher by JPY 2.3 million from compared to JPY 38.5 million in Q1 last year. And this Q1, we had or we acquired 289 new sell-side mandates. And in Q1 last fiscal year was 327. So this is down by 28 -- 38. Please move on to Page 11. Final page. This is on the change of the employee classification. And recently, our company has been expanding the scope of our businesses, and we have become a total and more comprehensive M&A company. So previously, we basically had only 2 departments of the sales department and the admin department with staff, but now we have various departments. And about the people who are working at the newly added department, we used to include them in the cost of sales. And however, we have decided on the reclassification of employees, so we can optimize the resource we have -- optimize the allocation of the resource we have by adjusting the allocation between the cost of sales and SG&A expenses. The top row in this table are the M&A consultants who do sales and marketing activities in the front lines. And we also have M&A support people. And the M&A support people that get categorized into cost of sales are the people in -- for example, in the value promotion headquarters. Value promotion headquarters has specialists such as accountants and lawyers. And also Japan PMI consulting people as well as TPM people get included in the cost of sales portion of M&A support. And these are the people who do the external sales activities for non-M&A and about the people in or at Special People Association as well as Corporate Value Laboratory, these are the people that are included in our holdings as well. And the people that I have just explained are going to be included in the cost of sales, although they are part of M&A support people. And everyone else, everyone from the next row and below will be included in SG&A support, be it M&A support people, corporate or financial people. The people who we used to recognize as SG&A expenses before this reclassification were only the people that you can find from the second row from the bottom, the Corporate Headquarter people, Compliance Division people and Internal Audit Office people. But going forward, we are recognizing the people for the bottom 3 major rows as our SG&A expenses. Moving to Page 10, please. At the end of the first quarter, we had 1,118 personnel, and they got categorized according to the new reclassification, and you can find the table on the right-hand side. Page 12. Page 12 shows the transition of the share of our employee in accordance with the previous classification standards. For the current fiscal year to March 2026, we'll be disclosing the breakdown of our employee in according with both old and the new classification standard. And from the year to March 2027 onwards, our current policy is to disclose only the figures according to the new categories. And about our shareholder returns and other policies, there is no major change from the previous fiscal year. So I'm going to skip an explanation on that. And this is the end of my briefing.

We would like to take questions.

[Operator Instructions] Mr. [ Sugiura ], please.

This is [ Sugiura from ] Daiwa Asset Management. I have 2 questions. Starting with my first question, which is on the reclassification of employees. And you have explained that there was a reclassification of employees between the administration staff and the staff included in the cost of sales. And I assume that you did the reclassification to resolve an issue or issues you have had. And I would like to know what that issue is. For example, potentially the issue could be that you had excessive personnel at the administration department, and this is just my assumption. So please let us know why you introduced this change.

Right. Simply put, there were issues or issue that we have recognized, but we didn't address that. And this time, we addressed that finally. In our company, internally, we have been analyzing the transition and changes of that staff number on a monthly basis. And there have been reportings and analysis provided at important meetings, including our Board of Directors meeting. And we have been following the trends, for example, of our client-facing employees from before. So we have been monitoring such important personnel-related numbers internally, but we have not shown that to external parties. So we have decided to have this optimization. So we have been able to track the changes in the personnel mix from before. However, we believe that the issue we had is that we were not disclosing that. And honestly speaking, I feel that this reclassification came a bit late, but by showing our breakdown of employees according to new and old standards, we believe that going forward, we will be able to provide better disclosure to investors about the changes in our personnel mix.

I assume that, that means that previously, your company had not been able to optimize personnel breakdown. And I assume that there will be the reallocation going forward. I would like to know what kind of impact the allocation is going to give on our profit and loss and the content of the allocation that we should be expecting. And please explain to the extent you can explain at the moment?

To talk about our company's history, we made a disclosure about the incidents we had at the beginning of 2022. And following the disclosure of the incident, we stopped recruiting consultants for M&A. However, we continued recruitment for the staff in the administration department, and that changed the mix of direct and indirect employees. We were left with higher nonclient-facing employee ratio. So we have decided to optimize that. And therefore, from the fiscal year 2023 onward to the current, we have been basically keeping the number of the staff people, the admin people or just slightly increasing the admin people, the staff people, while trying to expand the number of the frontline consultants meaningfully. So about staff, we have been quite selective in recruiting them. And about the breakdown of employees, we have been trying to lower the turnover rate of consultants and to improve the ratio of our consultants who have been with our company for at least 3 years. And this policy has been implemented from 2023.

My next question is on the new sell-side mandates that got lower by 11% year-on-year. I would like you to explain how we should be interpreting this. And I also would like to know that -- you have explained that the -- it's because the company had a focus on trying to close in transactions that you had a negative sell-side mandate acquired this time. And please explain what exactly happened as a result of your focus on the closing mandates on the front lines? And also, please explain to us if you had done the new mandates acquisition activities at the usual normal pace, then please explain if you could have had a positive or the growth in the number of new sell-side mandates. So please explain to us what you think the market environment was in terms of acquiring new sell-side mandates?

I think that there are 2 important factors that one important factor is coming from the changes in the environment with the start of the news coverage on the inappropriate value issue. And with the start of such media coverage from around last year, we have made our examination process for buy-side mandates more strict. For example, whenever we doubt that the buyer, the potential buyer doesn't have enough capital sufficiency or capital power to acquire or sell a company, there have been cases where we do not allow them to become our mandates, and we are seeing an increase in the number of the buy-side projects that we have decided not to receive as our mandates. The same trend is applied to the sell-side mandates as well. There have been an increase in number of cases where we have decided that we cannot help the potential sellers as our company, partially because of their earnings results and financial conditions. So there have been an increase in number of cases where we reject potential new sell-side mandates. So simply put, we have become more strict in examining the new mandates to acquire. However, we think that there was an even more important factor. It's that our company got united in trying to close as many transactions as possible because we have lowered our guidance, and we have also lowered our targets in the midterm plan. So we feel that we did everything that we could do. We did the last result, and that led to the more -- bigger reserve or firm resolve in our company to close more transactions. So to explain this factor, this time in this first quarter, we were more focused than before in trying to close transactions. And we were also focused on trying to proceed the mandates that we had acquired to the latter half of the whole deal flow. And so we would say that our focus on these 2 points is part of the reason why we had a decline in the new mandates acquired.

Follow-up question. Please explain if the decline you had in Q1 in new sales mandates was within your expectation. And please also explain if we should be expecting a continued negative year-on-year decline in new sales mandates from the second quarter onward.

Basically, we plan to continue the same actions as what we did in the first quarter. So we assume that we will probably struggle to grow in the number of new sell-side mandates year-on-year. However, that does not mean that we will not do anything. It's probably going to be from the second half of the second quarter that we will start putting a bigger focus on trying to grow in the new sell-side mandate numbers.

This is Yanagisawa. I have 3 questions. My first question is regarding the new negotiation starts. In the -- at the end of the fourth quarter in the previous fiscal year, I believe you had [ 280 ] of the new transaction negotiations. And this time, you have closed 212. So I assume that the closing rate got lowered. Please explain to us the reason for this. And I believe that the -- in Q1, you had 329 negotiations start. And given this number, I assume that it's probably difficult to close more than 300 transactions. So please talk to us about the reasons for this trend and also actions required and actions you're taking?

I believe that there has been a change in environment. It's that the customer -- clients' literacy has improved, and they started approaching more M&A intermediary companies to pick one. And through the process, they have listened to various opinions and have become more careful in decision-making. And our company's policy is to capture this change in customer trend and to take more contact and take more detailed contact and communication so we can convert our mandates into transactions closed. And the actions that we have been taking, including this first quarter are the -- trying to do a more detailed work. For example, our general managers manage the project in progress. And in this work, general managers are now applying more detailed processes or that we used to break down the whole process into -- whole flow into 9 processes, but now that's broken down into 16 processes. So our current general managers are managing our mandates and project in accordance with the more detailed and smaller processes so they can manage project more thoroughly. And also at the onset of the whole flow, we started holding kickoff meetings with a paper that has a summary on important discussion points. So all our stakeholders are aware of the important points to pay attention to. And these are just some of the examples of the actions we're taking to manage our mandates and project with more detailed care. And in this way, we will continue to make efforts to convert new transaction negotiations into closed transactions.

And also about the number of consultants, I would like to know how many you have newly acquired and the breakdown of the new graduates and mid-career people as well as the people who have left your company. So we know that net increase.

In Q1, we recruited 85 people, of which 20 were mid-career and 65 were new graduates. And in Q1, we had a net increase of [ duty ]. Therefore, in Q1, we made 63% progress compared to our annual target in recruiting. And however, the numbers that I have explained only cover the people who have entered our company by the end of June. And there are other people who have entered our company in July and the people from whom we have received or to whom we have given an official offer for recruiting by the end of June, and there are 19 of such people. So if I add the 19, the progress rate compared to our annual recruiting target is 77%.

[ The opinion from Yanagisawa-san is that ] the Q1 should be the quarter with more number of people leaving the company or deciding to leave the company with bonus payments. So there's a possibility that the net increase on an annual basis could be only plus 70. And she thinks that, that] could be quite difficult.

[ And to this opinion, Naraki-san agreed and said that ] the company will continue efforts to try to reduce the number of people who departs from the company. And this is considered to be a top management matter to be addressed mainly by Miyake-san and Takeuchi-san. And especially the focus is the people who have been with our company for at least 3 years. And they have been trying to have more one-on-one sessions. So the company knows more about the next vision of the people who have more experienced in our company. And also, there have been actions taken such as regular meetings held at each group to try to identify potential issues that each group may have in relation to personnel. And about the people who depart from our company, the people who have been with our company for more than 3 years, they're not really leaving our company. The number of people been with us for more than 3 years and deciding to and have left our company is declining. It's rather more new people who are leaving our company. And at the end of March, we had 716 consultants and of which 330 are the people who have been at our company for at least 3 years, and this number was up by 64. And for this category, the people who have been with our company for at least 3 years, the number of people who left our company in this category got lower by 13 from last year. Of course, it's a major issue when a person leaves our company in the early days after joining our company because we spend time and we use our personnel and we use our cost as well in recruiting. However, our current bigger focus is on trying to retain the people who have become able to gain sales by themselves by staying at our company for more than 3 years.

Please talk to us about the trend at the end of the first quarter or the trend for the first quarter about the number of people who have left our company, especially the people who are more experienced in your company.

Trend was basically the same in Q1. The question is on the number of open sell-side mandates or available sell-side mandates. And at the end of June, the company had 2,280 of such open sell side mandates. And at the end of June 2024, 1 year ago, was 2,010 and at the end of March 2025 was 2,200.

Does anybody else have any questions? There seems to be no more questions, we are closing this session. Thank you very much for staying with us till the end. [Statements in English on this transcript were spoken by an interpreter present on the live call.]