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

Good afternoon, ladies and gentlemen. Thank you very much for participating for the financial briefing meeting for Nihon M&A Center Holdings for the Fiscal Year Ending March 2025. For those who are from Europe, must be at a very early morning. Thank you very much for your participation. So myself Miyake, will be here today, and we have Naraki-san, the Senior Managing Director; and also Takeuchi-san from -- the President of Nihon M&A Center.

Hi. This is Naraki. I'm the Senior Managing Director.

Hello. This is Takeuchi. I'm the President of Nihon M&A Center.

Okay. So I'd like to get started. So first, I will go over the highlights, and then we want to take some time for Q&A session afterwards. Let me start with a summary. For March 2026, this is the year underway so far. So we are making a fresh start for sustained growth. So today, first, we'll go over the results from the last fiscal year, and then we want to go over our determination for the New Year, the year underway so far. Last year, the year-ended March 2025, here is a summary. The sales figure. The Q4 alone, we had a record high number in net sales. However, unfortunately, for the full year, we had a year-on-year decline. And that is due to the rate of completed mandates that was reduced. Also it took longer to get completed mandates. Therefore, we had a lower number of transactions closed. However, we have been successful in the mandates for the mid-cap clients. So per unit mandate has been maintained at [ deal ] level or even improving from before. So then why did we see a decline in the number of completed mandates? And let me explain why on the next following pages. But regarding ordinary profit for Q4 alone and the full year number, both recorded highest. First, we had a solid control over our expenses. And also, we have redefined the channel strategies. And so we try to implement zero emissions for each different channel. So for those who are engaged in the networks, we're mainly focused on the sale mandates. And for the buy side was -- for the corporate division was mainly in charge to have a more direct communication. And these measures helped to see an improvement in gross margin. The net sales came out to be JPY 44 billion compared to the forecast, it was 90%. So we failed to accomplish the forecast number. So in Q4, it was JPY 14.2 billion. That was the record high for the quarter. Ordinary profit came out to be JPY 16.9 billion. It was 99.5% of the forecast. So it was slightly below the forecast level of JPY 17 billion. And the Q4 alone was JPY 6.2 billion that came out to be the record high. And the sales per transaction was JPY 39.6 billion. In Q4, it actually achieved JPY 40 million, so making good progress. However, number of transactions closed came out to be 1,078. It is down roughly by 6% and Q4 was 340 transactions closed. So it's down by about 3%. When it comes to leading indicator, the numbers are quite -- showing strength so far. The number of new sales mandates was actually at a record high, 1,398 and the new buy-side mandate number was 1,378. And number of mandates actually increased by 1.5x more than last year. And since we received the order, we analyze the cooperation and we review them to start working on the matching. So such evaluation process and analysis process to prepare a summary of the company is called as a preparatory period. So since receiving of order until we start working on matching, it used to take 90 days, but now it has reduced to 60 days. So now lead time is shorter to get started with the matching. So I believe this will support you to understand how we are achieving -- why we are achieving the strong growth so far. So this is the most important part. So now we're seeing such a momentum and why are we seeing a decline in the number of transactions closed? So we need to address the problem area in order for us to grow further. So first of all, we had external factors. There were major changes in surrounding environment. Last year, in the M&A, SME M&A market, saw drastic changes or significant changes ever for the past 34 years of our business history, I think that was the very first time for us to see such significant changes within a year. The first was the emergence of the inappropriate buyers, like someone like [ Lucian, MJG ], I think you can search on them. So they were reported a lot on mass media on newspapers and TVs. And those who read those articles and media information started to become more anxious. And at different occasions, they kept asking us questions. And at the last minute, they may decide not to go for the acquisition deals because they are afraid of getting any problems. So those are actually the big hindrance. And second point was the SME M&A guideline being revised. This is an external factor, but our contracts and agreements we had to revise the contract 4 times. And also, there is an increased work needed for explanation of key items. So since we are not used to these new things, that took much longer time and that caused the longer lead time to cause some timing delays into the next fiscal year. But this is something we can resolve once we get used to them. And thirdly, this was quite a big impact as well, the interest rate increase. So in Japan, for many years, we were exposed to zero interest rate or negative interest rates. But now we're starting to see the rising interest rates. So the loans to the buyers, potential buyers in M&A deals are pretty much the loans, unsecured loans. So within the limited amount of funding, so where to lend those funds were considered by the financial institutions. So the financial institutions tightened the screening process for M&A loans. In the past, they made decisions of loans in about 2 weeks, but now it was taking a month or for those companies who doesn't have enough credit, then those financial institutions may say no to provide loans. So that actually caused also the decline in number of transactions closed or the time -- it took longer to come to close transactions. So those are the 3 major changes that we saw in SME M&A market, and they were the biggest factors. And we also had internal factors we weren't able to catch up with those changes. That was the main factor. Customers, they learn information from TVs and newspapers, various kind of M&A information were obtained. And so they have more knowledge, they see more increased anxiety. And our existing mandate management system did not cover enough to those concerns. So at the important points, customers will feel concerned about the situation. Since we have more experience, we should have realized or picked up the situation, and we should have taken a step ahead to answer all these questions, but we were kind of receptive. We got the questions and we research and got back to the clients. So it was more receptive business management we had to implement where we are making improvement right now. And secondly, the knowledge and awareness of customers have increased. So we also needed to have the knowledge to be able to accommodate and address and respond to those clients. For the last few years, since we had to increase the number of employees drastically all of a sudden, so we were quite focused on being efficient among the employees. Because we had too much emphasis on efficiency, we weren't emphasizing enough the knowledge and the skills needed for solution businesses. And I think that was the reason for us not being able to address or accommodate all the needs from the clients. So we are required to revise and improve our training system. So actual responses and actions we have to implement. First of all, we will need to increase the time and to dedicate ourselves to clients. And also, we need to increase knowledge to be able to give the appropriate answers to the clients at the right timing and also some anxiety for the buyers will need to be addressed. So we will need to have more stringent reviewing process on the potential buyers that way sellers can feel more relief in conducting the deals. Also, as I mentioned earlier, the management, the defined system to run mandates, we need to take actions in advance of the clients' need comes up. So we clearly define a system for general managers to run mandates to allow them to take actions immediately. So by maintaining that minimum quality to be provided to the clients. And thirdly, when we start the pipeline, when we start the deals, we are having a kickoff meetings by having experienced specialists. And so to be able to explain what the main discussion point in the specific deals, what are the areas of concerns by the buyers or the sellers. So when we bring the deals over to the pipeline, we have a group discussion, so we can all share the same understanding so we can be ready for the expected needs to come. And in addition, solution knowledge, to be obtained. So first, they are required to get the Grade 2 of the bookkeeping or the employees. However, in addition, now they are required to experience the corporate evaluations, at least of 3 companies. That way, the coordination of stock prices between sellers and buyers can be actually substantiated by the consultants with the right explanation. And also, they can be clearly explaining about the financial statements to the clients, and they can conduct the proper due diligence. And as a result, we want to increase the customer satisfaction and improve -- increase the conversion rates and then even to reduce the lead time in total. And the consolidated forecast for the year under review so far. So I hope that you cannot take this as our determination, the resolution. So the sales forecast compared to last year, the guidance number, we reduced or declined the number for the first time since IPO. This was a major decision that we had to make as a major determination, the first time since the IPO. This is the first time since the foundation of the company for the past 34 years, the first time to reduce the number -- sales forecast number. So why? There are 2 reasons, 2 objectives. Like I said, first of all, we want to create more time to become closer to clients. If we are always pursuing the numbers, we don't spend enough to be closer to clients. So we want to set the numbers with some allowance for us, so we can spend more time and to be with the clients. So we want to nurture such a culture first. And secondly, we want to increase the success rate by improving the consultants performance level. And these are the expected results. We have 2 of them. First, we want to regain our customary cycle of attaining result targets. So we have been ending the year in December. So pretty much we accomplished the majority of the full year number as of Q3 end. Then we will work on preparation for the following year during the Q4. That is the ideal image of cycle, and we want to bring it back to this cycle. And secondly, by accomplishing targets, for sure, we want to regain stakeholders' confidence. First, employees. By lowering the budget, there will be an increased number of employees with the successes. So we see -- expect to see the increased percentage of successes, and that will allow them to increase their motivation so they can -- because they regain that confidence. Second point for you, we want to regain the confidence from institutional investors like yourselves, and we want to have a good relationship with the long-term investors looking ahead like 3 or 5 years later, so we can show our growth, and we want to establish ourselves to be able to commit to such growth to come. So sales figures for this year, we're looking at JPY 46.3 billion. Last year was JPY 48.9 billion. Last year was JPY 44 billion, so it's up by 5%. But last year, guidance was JPY 48.9 billion, so it's down by 5.3%. And the percentage completion to be first half 43.4%, second half to be 56.6%. But we want to accomplish more in the second half. So we want to accelerate our efforts so we can actually accomplish our numbers by the end of December as much as possible. Then we also revised our midterm targets along with this change. In the SME M&A market, as we see changes in clients' behaviors, we also modified our midterm management plan targets. So we want to return back to our customary trend of achieving sales forecast and surpassing budgeted figures. Under the previous plan, if we maintain these numbers, we won't be able to accomplish these numbers. So we want to apologize for the fact that we are not able to complete these numbers. Myself and the whole management team is really not happy about not being able to completing these numbers. However, based on the current atmosphere in the company and the current situation, under the revised plan, we should be able to accomplish much higher number than these new target figures. So it's almost like a year later from the midterm plan. That's what we want to accomplish. But first, we have set out the conservative numbers. And then we want to make sure to go above these numbers so we can have upside. Then people will feel like our M&A center has gone back to the previous cycle of business accomplishment. That's what we hope to see. The shareholder return, last year's JPY 29 will be maintained. And this year, we will be facing the changed external environment to bring ourselves back to our customary trend of achieving sales forecast. So this is going to be the navigating year for us steering in that direction. So you might think the guidance number might be a little too low and midterm plan also number went down slightly lower, and that may have caused you some concerns. Since we are causing those concern among yourselves, we decided to maintain a dividend of JPY 29 and including the special dividend of JPY 6. So the growth rate or the profit level that you expect us to accomplish, once we accomplish them, then we will bring the payout ratio to be 60%. And we hope to go back to the level as soon as possible, and we will try our best to do so. And this is our restoring growth -- story for restoring growth. And I am quite confident that we weren't wrong. In 2022, the March 2022, in Q4, we had to announce an appropriate accounting incident. I guess we won't be able to apologize any more than what we did, and we had to penalize over 80 employees at the time. Then that's when we started our restoring story. And the following year, in March 2023, we transformed ourselves to focus more on compliance. So first, we need to get started. We need to stand up first. So we had to have a start. So we focused on compliance but we had to penalize a lot of employees and a lot of them have left the company. So in March '24, we wanted to turn the company to be more uniformity to be accomplished. So we try to activate the club activities, the internal club activities. Also, we created a new health insurance system, and we implemented various measures to improve employee engagement. And last year, it was a changing period. So now we reinforced the basis foundation for regrowth and the employees were moving quite agilely. And also now we have a new President, Mr. Takeuchi for the Nihon M&A Center. According to his policy, we introduced the channel system by different [ measure ]. I think that was quite a big success for us. And as a result, our leading indicators showed a record high. However, unfortunately, as you can see at the right bottom, we had to see the changes in the business environment, which I explained earlier. So we had so many different changes. And therefore, we did not increase the number of closed transactions that may have caused some concerns. However, we made internal efforts, but the recurring profit level, we were able to accomplish very much at the guidance level. And this year will be the conclusion period. So now the leading indicators, internal motivation and actions to address the external environments and they are all addressed. Now we are starting a year to be able to realize the regrowth. This is basically the end of my explanation, but I also would like to dig deeper into our actual results, starting with the full year results. This, I have explained already. So please take a look at this content later as well. And about the income statement key data, I would like to hand over to Naraki-san.

Sure. About our cumulative profit, my important point is the third row below sales of cost of sales. We have referral fees and outsourcing expenses. In FY 2024, we had JPY 5.3 billion. And compared to the same time last year, this number was lower -- and this out of sales, JPY 44 billion was 12.2%. And this was 13.7% in FY 2023, so 1.5 point down. And as I had been saying, the ratio of the network sourced mandates has been lowered, and this is the reason why we had a lower ratio. And also about personnel expenses and transportation expenses. In FY 2024, we had JPY 13.624 billion. And the year before was JPY 13.0 billion. So there was an increase by JPY 590 million or so. And however, this was absorbed by the improvement in referral fees and outsourcing expenses. The next point is the SG&A. This was JPY 8.63 billion compared to the same time last year. This number improved by about JPY 0.5 billion. So we were successful in reducing expenses here. And as a result, ordinary profit was JPY 16.9 billion, and our profitability rate or margin was 38.4% in ordinary profit margin.

Thank you for the summary. About the number of deals closed and also mandates received, these are detailed information. So please check the information. But the cumulative number of deals closed exceeded 10,000 in March. And also, I would like to talk about leading indicators. Our leading indicators are in good state. The first point is the new sell-side mandates. We had a 12.8% improvement here. And it's not just we're having more new mandates. We also are improving in terms of mid-cap mandate rates and also mandates in the central areas are not declining in numbers. So these are all favorable trends. And also about the registration for matching, this is also improving. And also, once there is a matching, we need a registration for the counterparty. That's also improving. And also proposals to buyers are needed. And the number of proposals increased significantly by as much as 38.3% and new buy-side mandates also grew as well. The only area where we need an improvement is the increased new transaction negotiation. This improved by only by 3.7%. Considering a stable growth, we want double of this. We want a 7% or 8% improvement, not 3.7%. So we are taking various measures to improve this new transaction negotiation number. And also, the number of days required during the preparation period, this has been improving from 90 days to 59 days. So overall lead time has been shortened. And also our matching process has been quite smooth. So lead time here, we believe, will be shortened this fiscal year. And on to employees, I think this page is better to use. So last fiscal year, there were 71 net increase in consultants. In guidance, we said that we are planning for 120 net increase in terms of consultants, and we failed to achieve this target. We failed to achieve this target. And there are a few reasons. So it's not just that we couldn't do enough recruitments. One reason is related to development. We had to understand well about the progress in development of employees. Recently, actually, the turnover ratio for people who have been with our company for more than 4 years, this is improving. But not when it comes to employees who are with us for up to 3 years and this is the reason. In this kind of environment, we need to provide more rich education and development. And that's why we had to reduce the number of people we recruit so we can provide a more thorough and rich education to the new people. And from the current ongoing fiscal year onward, we plan to apply the same recruiting approach. So we're going to rather reduce the recruiting plan. It's going to be by about 10% increase that we would like to target in the future. And I would like to hand over to Naraki-san for the next topic.

On this page, we show balance sheet data. We are maintaining a healthy balance sheet. The total asset was JPY 61.786 billion and compared to the same time, JPY 3.1 billion improvement was achieved. And about the total net assets, JPY 47.589 billion and there was an improvement by JPY 3.615 billion. And about the ratio of liabilities, this was 75% compared to last year, 2 points improvement. Shareholder equity and ROE. So starting with return on equity, so it's been progressing over 20%. As you can see in the middle of the chart, for March 2024, we conduct key share buybacks of JPY 14 billion. As a result, return on equity increased to the 20s to came out to be 21.8%. And then regarding March '26, we expect this to be 22.9%. So we are maintaining 20s. Next, share ownership and market cap. As you see on the left-hand side, as of March 31 of this fiscal year, this is the current breakdown of shareholders from the right, 34.3% by individuals. So compared to the year before, it increased by 3.9 percentage points. Financial institutions, 26.6% compared to the previous year, it increased by 1.5 percentage points. Foreigns were 28%. Actually, it went down by 2.7 percentage points. Securities companies was 2.3%. It dropped by 2.7 percentage points. Thank you so much.

Next, let me briefly go through the topics, key topics. Digital transformation and AI, DX and AI; so now we have required to utilize in a full application. So data capitalism is going to start. That's how I'm thinking. So the President Takeuchi at the M&A Center has set up this data-driven management. And so they are taking adverse measures utilizing AI, and this is one of them. It's a business alliance with the [indiscernible] Corporation. This is about the language analysis to analyze the business talks, business interviews. So with AI introduction, we want to have more efficient matching or improve the accuracy of matching or the way conducting the business deals and talks and proposals could be changed or proposed -- reproposed. Under the AI era, of course, with the introduction of AI and by making good use of AI, it's going to be quite important. But at the same time, we also need to differentiate from the others. So internally, how much data -- internal data can be in stored on a database this will have a major impact on our differentiating factor. So we want to incorporate many different information into the [ bring out ] as a data, and this is going to be a strong power to drive us. In a real market, we will be -- have conducted seminars throughout the country. And this year, we are adding more tweaks to conduct more seminars and area marketing strategies for different areas in different regions. We set out the important area to conduct different marketing. As you can see on these pictures, this is focused on Ibaraki Prefecture. It's at the broadcasting station, local broadcasting station, [ Lucky FM ]. This is the famous business management owners in Ibaraki Prefecture. And so we can have a discussion so with me. So it's like Suguru Miyake's Business Management Paradise. That's the name of the program. And we also work with the local basketball team. We are supporting them this Ibaraki Robots, the basketball team. Through this, and we collaborate with the local community to conduct this marketing so we can get potential quality deals. I believe we are successfully conducting all these activities and collaboration with the local regional financial institutions are moving forward, and we are much having deeper relationship with them. And we have been working with Juroku Financial Group. We formed a joint venture for the first time in Japan it's called NOBUNAGA Succession Inc. So we formed this company. And with HIGO Bank, we have established a Kyushu M&A Advisers Company. And now this time with Okinawa Bank, we are forming a joint venture. So we started to look into this possibility here. So having those joint ventures with regional financial banks, we want to be further aggressive. We want to build a much better system scheme to be introduced in the future. And also most importantly, this PMI Consulting business becomes quite important. This is a Post-Merger Integration process. There is an increasing necessity of PMI, as explained on this page because the SME agency is asking us not just to completing the deals, but also make those deals to be successful. Otherwise, we won't be able to survive the 650,000 different SMEs to save them out of the current situation. So that is a mandatory required by the agency. Also, FSA has revised the guideline for SME. So to reinforce M&A support, including PMI. So that was also announced by FSA. Also, again, SME agency has announced so therefore skill maps for specialized personnel and SME M&A business -- scale businesses. And this also covers PMI. For buyers and sellers, also us, all of 3 parties will benefit from these changes. For us, we will have repeating buyers. There are about 25% clients, who are repeating buyers. The first-time buyers, roughly 75% of the clients are the first-time buyers. When we make a proposal, the success rate between the repeating customers versus first-time customers differ by about 10%, a little over 10% because repeating customers have more confidence in the success of buying the business. So that's why they are able to make decisions. But for first-time users, they don't know whether they can be successful by making this purchase. So they are quite concerned and anxious. And so, they tend to be hesitant and lower success rate. So by offering this PMI to those clients, they can be more confident in successes, and this will help to see the increased success rate and the transaction closures. And for the sellers after the transition, so they are also worried about if they can be relieved from the personal guarantees, if they can receive the right amount of funds. But having the PMI, we can form support, we can have the team to make sure to complete the transaction. So the success -- buyer will be successful, and the sellers have no longer any anxious feelings. So this will improve the success rate eventually. In Tokyo market, this is going quite strong so far. For 2 years in a row, we had the largest number of IPOs among all the J-Advisers. And also, overseas activities, we believe that we have come to the third phase of growth. In the first phase, we started dispatching personnel to the foreign countries, and that was it. In the second phase, we hired national staff and built network and we did sourcing of projects. And we created track records, and we developed our know-how overseas. And finally, we have got into the third phase, where we aim to grow more. And fund business, we believe that this year and next year will be a crucial year for our fund business. As new fund, we want foreign companies to be acquired by Japanese companies. So we have established A2G Capital and J-Search covering local banks or together with local banks. So these are established. This is going to be the start of our full-fledged fund business. This is going to be the first year for us to develop fund business, as our second pillar. And to talk about the industry trends, the quality of the services and the morale are required to be improved across in the entire industry. In the recent 2 to 3 years, many boutique companies were established. So now we have a larger -- much larger number of companies in this industry, and that naturally leads to a deterioration in quality and morale. And these were taken advantage of by some malicious buyers, fraudulent buyers, and we are forced to take actions about them. SME agency based on this background, wants to improve this industry and introduced 2 rounds of revisions to their SME M&A guidelines. And in the guidelines, boutique companies, there have been some instructions about what kind of boutique companies they should become. But each individuals are also important to be excellent. So to each player of M&A advisories, skill map was announced, and the skill map is a very broad ranging in content. It has a total of 190 pages in content. I think just a limited number of boutiques can comply with all of what's required and written stipulated in these 190 pages. And as a leading company, we believe that we have entered into a stage, where we start to lead more as a leading company. So we are more aware of our role as a leading company. And besides SME agency, there are self-regulatory bodies, and we have been taking action as part of that body. For example, the list of named buyers, the list of fraudulent buyers are created, and we are distributing this to members. Now we have 181 members in these M&A advisers associations, and we have been enhancing governance. And also, internally as well, we have been taking more actions to prevent troubles. For example, we are more strict in examining buyers. So sellers can feel more relieved when entrusting their mandates to our company. And also, based on academic industry and government collaboration, we are trying to develop this entire industry to be an even better one. For example, certified public accountants -- accountant or rather Yokoi-san is a lawyer. And Yokoi-san becomes CPAO. We appointed him to be our CPAO. And also, we are strengthening the 3-party collaboration, and we are reinforcing our collaboration with academia. And for the first time in Japan, M&A research group was established. And of course, we are the member of that. And I, myself, am serving as its director. So we are making collaboration with various parties. And we would like to reenergize this kind of collaboration. And I am running short of time, so I have to be brief on this explanation, but boutique companies, they are compared when they get selected from customers in this era. I have been repeatedly explaining that companies are places for owners, employees and families to form lasting bonds. This is our basic concept, basic belief when we do business. And based on this belief, we hold quite emotional closing ceremony, and we provide PMI to maximize synergy and also owners of sellers become the legendary Grand Daddy's with our -- that way. And also, we provide representation and warranties insurance. And also, we support the owners of the sellers through our next value, and we are involved in all of these activities for Next Navi. With this, I would like to conclude our earnings briefing session for FY 2024. Thank you.

Now we want to move on to Q&A session. Please use chat function to ask your questions. Due to the time constraint, we only -- we may only introduce some of the part of your questions [ just so you know ]. Okay. So we now move on to taking your questions. And since you are entering your questions, so we -- based on the questions that we've had in the past interviews, first, we want to go through the prepared questions. First question, regarding your resource planning. So as a result of having stricter reviewing process for selecting the candidates, you failed to accomplish the target number. Any change in the quality of applicants so far? Thank you for your question. The quality isn't changing or rather it improved since last year. The management members, senior management are now involved in hiring process like myself, President Takeuchi and also General Manager, Suzuki, the Sales General Manager. So on weekends, we come out to the office and to attend the briefing meeting for the applicants or we are addressing a Q&A session. So the senior management ourselves go out there to be there to take questions directly and answer the questions. Since we started implementing this system, I think the quality of applicants have improved a lot. So both the quality and the volume-wise, I think we have accomplished a good level. What do you feel, Takeuchi-san, how do you feel so far as an interviewer.

Well, in this M&A industry, I think a lot of them are studying a lot. M&A industry had to apply for the positions. So since we are the largest player in the market, so our mission philosophy, a lot of candidates want to accomplish and be aligned with our mission and philosophy. One thing I want to add is, as mentioned -- shown in the previous presentation, so currently, we hire 170 -- we hired 170 sales reps. So we had a concentrated hiring. If it's undergrad out of 170, roughly, we hired 40 college graduates. So these 40 members were selected out of 14,000 applicants throughout the year. In the Middle East, throughout the year, we had 5,300 applicants and out of them, 130 was hired. So the year before last year -- sorry, the mid-career members that -- so the year before last year, we had 4,000 mid-career applicants. So the number of applicants have increased by 30%. And we -- myself and other senior managers and sales headquarters, channel managers will focus on trying to focus on only A rank candidates. And so that way, we did not lose the volume, but also we were able to see the improved quality of the candidates.

Next question. The number of consultants was lower compared to Q3. Q4 tends to have higher turnover rate due to seasonality. But the results this time is not strong enough or reassuring enough as a leading indicator for the new fiscal year. You've also lowered midterm plan target, but my impression is that it sounds difficult to exceed revised target. So what kind of factors do you think you need to exceed the guidance for the new fiscal year? Thank you for the question. About this, I do not feel anxious about achieving the new guidance because for Q3 and Q4, indeed, there was a decline in consultants from 723 to 716. But many of that were the -- actually a significant portion of the consultants who left us are the consultants, who were with us for less than 3 years. For consultants, who have been with us for more than 4 years, we actually had a net increase of 10 between Q3 and Q4. Compared to Q4 last fiscal year, we had an increase of 64. So the ratio of the middle managers, who have been with us for at least 4 years. Last fiscal year, the ratio of this among all employees was 41%, but this has improved to 46%. And compared to that, the ratio of the employees, who were with us for less than [ 30 ] and 3 years declined from 403 to 384 in numbers. So there was a decline here. So we were already selected from before. However, there are people who could not stay up with us or catch up with us. And this is an important educational theme for us. We may have to be more selective to see if the people we try to hire have the firm resolution to stick with us. So we have lowered our recruiting budget accordingly. And for the ongoing fiscal year, Q1, we think that the most important matter for us is the ability to control projects rather than people task. In terms of pipeline, we think that we have enough pipeline in terms of the number of projects and the amount of projects. So closing deals by the deadline is what we need to achieve budget in Q1. But as we learned from last fiscal year, one thing that's important is that the owners of sell side may feel some anxiety in some important milestones. So we have to resolve them by taking actions. And also, the second important point is the financial part. There are cases, where the SMEs with limited trust try to acquire companies. And in those cases, it may take longer time to do financing, and they may even get rejected to receive loans. So about that, from before the -- some agreements, the consultation to financial institutions should start for those cases. And systems and patterns for these kind of cases are being established with the support of Takeuchi-san. And so, I feel that this is going to be more promising. But about this, we want to make meaningful development in Q1, and that should even improve in Q2, Q3. And this way, we believe that the successful closure rate will improve as the time passes. So for the current fiscal year, I hope that the investors should have a positive expectation that we will be exceeding our new budgets. Next question. Regarding the new transaction negotiations, can you tell us the balance as of March end? In Q4, the number of new transaction negotiation came out to be 420 and that was lower than the numbers that we saw in Q1 through Q4. Should we have a cautious view on the sales momentum in the first half this year? Thank you for the question. The number of new transaction negotiations, the number of mandates that we already started negotiations. So the deals with open negotiations compared to last year, we have additional positive 36 deals compared to the number last year. So we have more negotiations going on. The deals under the pipeline, currently, we have 355 deals at the beginning of this fiscal year on the pipeline compared to last year, it's up by 36%, roughly by 10% increase. So not so much to be concerned about it. So in Q4, the number of new transaction negotiation of 280 was lower than the previous quarters. This doesn't immediately lead to the sales momentum in the first half. Now we have shortened lead time for the preparation period. And we now have an organization team to control the matching to implement speedy matching. Also in Q1, we are trying to put more focus on the first half. So we launched an incentive campaign to bring the deals over from preparation period over to matching. So there is no need for you to be cautious about the first half. At least there should be an improvement compared to the previous year, both in the ratio as well as the yen amount. What do you think the Takeuchi-san, who is on the field?

Yes. As Ben explained, the first -- in the first half of this fiscal year, we need to bring out the results. And we now implemented a defined model of managing the deals. This is going to be quite effective. The deal management method. It sounds like we are controlling the methodology. But more importantly, our focus is to increase more time to communicate with the clients. And I think that is what's more requested by this M&A market, which are changing a lot. So once we receive the seller positions and then we get the buyers and then we have top meeting and the basic agreement, due diligence and the final agreement. And so, we have been maintaining and controlling these 6 stages throughout the journey. We have now revised this into 13 different milestones, including the kickoff meeting, also PMI. So for the first time deals, whether the PMI was fully informed or not, also the credit was -- when it was confirmed properly for the getting loans. And so on a weekly basis, we go through all the checking milestones. So for especially the new graduates and the new members joining us also have a better understanding of this whole process. I am feeling that they have a good understanding right now. So in a good sense, we went through a major change in this industry. And now we are catching up with these changes, and we can be confident about that.

The next question. This question is about usage of AI and data. Where do you think you are better than your competitors in terms of data internally accumulated and your future data acquisition? Thank you for this question. This question covers a very important point for us, especially for the coming 3 years or 5 years. This is going to be the area, where we're going to make a significant gap from our competitors. By using AI, everybody will be able to obtain data that's around in the society. As long as you ask the right questions to AI, AI will go through all the information around in the world, for example, all the homepages and other kind of websites. They are all covered by AI and then AI gives you answer. So here, it's quite difficult to make a difference from our competitors. But on the other hand, when it comes to internal data, which our competitors cannot use, this is where we can make a difference, meaning that every day, about 700 employees, they visit 2 customers per day. Then 1,400 customers are visited every day company-wide. And for all business negotiations, we don't record all of the negotiations we are having. But if we start to record every single business negotiation, then we'll be able to record 1,400 negotiation, which is like 28,000 per month. So that's the level of raw data we will be able to collect in the future. And these kind of data include strategies of various companies, situations of various industries and various regions. And also, this includes data about concerns of sellers and also synergies across different industries and information about troubles, issues, all these kind of information will be able to be collected by our 700 members. Compared to the kind of company with only [ 7 ] employees, we will be able to collect 100x more data. And we have already started this kind of action. So we are ahead in starting data collection. And we have 700 people, who can collect data every day. And we have enormous volume of data of various regions, various industry, various companies. And in 3 years or 5 years' time, this is going to lead to a much better quality number of matchings and education and so on. Next question. So even in the midterm period, the performance is expected to stay sluggish. However, you have an accumulated retained earnings. How about providing dividend not as a special dividend, but instead a long-term dividend? Or you could conduct share buybacks if there is a change to the corporate law in the future, it's going to be usable when conducting acquisitions outside of Japan. So how about considering conducting share buybacks? Thank you for the question. Yes, exactly. As you said, all these are in the scope of our studies. So in terms of guidance for the midterm plan, we set conservative guidance numbers. But including myself, all the senior management are not necessarily be satisfied with the guidance set in the midterm plan. So once M&A center started to accomplish the growth as it should be making, then in the near term, we want to implement these actions even during this midterm period. So we are -- that's what we are hoping to see. Of course, this current weak performance continues, then, of course, we have retained earnings instead of a special dividend, but more like an insured dividend will be pursued. But I still have a big hope. That's why we want to set a special dividend. But you might say no need for a special dividend anymore. You've grown this much; you've generated this much profit. So it's okay to -- maybe so 60% organic payout ratio would be good enough. That's what we want to show as an ideal image of the company. When it comes to share buybacks, we are proactively thinking about the possible share buybacks at any time. If there is the right opportunities where we can feel the best benefit, then we want to consider conducting share buybacks then. It doesn't mean it's okay to conduct at any time based on our experiences. The scale of our share buyback is not that big. It's always about JPY 5 billion to JPY 10 billion. In Japan, there has been the boom of share buybacks in Japan. A large amount of share buybacks are conducted. So we really need to figure out the right timing to conduct the share buyback. But if we find the right timing, then we'll be proactively conducting share buybacks as an option. Thank you very much for your advice. Next question. What is new about the new channel system, organizational -- the new organizational structure by mission. The new structure does not look very different from before. I would like to ask Takeuchi-san to address this because this is an initiative led by Takeuchi-san.

Thank you very much. This question captures the essence of Nihon M&A Center. About this new channel system, this represents who we are. We have had 10 channels. And until last fiscal year, we had 5 divisions or 1 sales -- head of the sales headquarter used to supervise everything. But from last year, we introduced 10 channels and each channel top has mission and each channel does activities in a mission-driven manner to support the growth of customers. This is the new way that we have been operating. For example, accounting offices, which is part of our foundation. [indiscernible] is the Head of this accounting channel. What is most important for him is the CPAs at the accounting offices to grow. And he's considering what is needed to support their development and growth. For example, per head is quite limited for accounting offices. So M&A can be used as their product for them to improve their performance. And our head is considering how we can help them in this -- on this point. And also, for example, for Mitsubishi Bank, what kind of corporate culture they have. And new members should also understand the rules in thinking about what we can do to support their -- the bank's development. It's like trackers theory of trying to think about what customers need. So in the similar way, we are applying a mission-driven approach. So we have various missions, and we act to achieve missions. For example, we received sell-side orders, and we also break down what are required of us from our customers. And by achieving each mission, we have been growing in sell-side and buy-side mandates. So we are seeing actual concrete results, and we would like to continue to reinforce this kind of mission channel system.

Next question. Among other transactions closed, how many were large transactions? And how much was the direct deals, the sell-side deals? Thank you for the question. So the transaction of JPY 100 million are increasing year-by-year. Last year-on-year, it increased by 51% compared to the previous year. When it comes to transactions closed, in 2024 full year, we had 79 transactions closed. For the sell-side deals, the direct ratio of the sell-side transactions, -- in 2024, for the full year, 36% and the 64% came from network and the direct deals were 36%. In 2023, it was 38%. So it's down by 2 percentage points. We need to apologize that we are reaching -- almost reaching the planned end time for the session. So the next question is going to be our final question we take today. Various leading indicators continue to be favorable. From when can we expect year-on-year improvement in the number of transactions closed? The number of transactions closed in FY 2024, we had an improvement in sell side and buy side to be 1,078. In the new fiscal year, we are going to exceed this result. And we are going to make sure we will do better than the fiscal year that just ended. Takeuchi-san, what would you say?

Yes, we have the resolution to exceed this result. And as we have been explaining, we need to understand better about the reason why our number of transactions closed got less. And simply put, there were some time, especially in Q3, where we struggle to understand why the closure is declining, but we have been managing data. And we also have been visiting customers to actually understand what's going on. And also, we have been analyzing more about what's going on internally, and that has become the base of what we have announced this time. So now the cloud is cleared. Now we have a better idea about what we have to be doing. So going forward, we will just implement what we know we have to do. In this way, I am confident that we will be able to give concrete better outcome, and our field people are doing their best. So we would like to do our best to meet up to the expectation from investors.

And we have to apologize that we have reached the end of this session. In June, I plan to visit the U.S. on IR roadshow. And in November, I'm going to visit Europe. And also, we welcome web interviews, one-on-one meetings as well. We welcome those occasions. So please continue to monitor how we do. In FY 2025, we would like to make it a year, where we can give clear signs for the V growth, another growth. 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.]