Today, many Japanese companies are facing difficulties in business succession. Now being 70 years post WW2, business executives and owners in Japan who were in the forefront of the rapid economic growth are starting to retire, making succession even harder due to lack of people to take over. There is a man who had predicted this to happen, and started his own M&A business in time when it was not so familiar for most people. The man, is Yasuhiro Wakebayashi, Chairman and Representative Director of Nihon M&A Center, Inc.
In 1991, by gaining capital from CPAs and tax accountants across Japan, he had established a totally independent M&A agent firm not belonging to any financial institution such as banks and brokerage firms. He grew the company to support 3500 M&A cases, operating under a total of 6 offices in both Japan and abroad, with over 200 exclusive consultants, making the firm a leading company in M&A. What was the reason behind the establishment of the company, and what will happen to Japan’s business succession crisis? We interviewed Mr. Wakebayashi, the pioneer of M&A business in Japan, to answer this question.
(Interview by: Minoru Sengoku, CPA and Tax Acountant/Arrangement by KK Floor)
The US Noh tour being the springhead
Sengoku (S): Mr. Wakebayashi, you were born and raised in an art family; your father being a Kanze Style Noh Actor, and your mother a professor in tea ceremony under Urasenke method. What does Noh mean to you?
Wakebayashi (W): If you ask me about Noh, my father was already a professional Noh Actor when I was born. And my elder brother was also learning Noh when he was in Elementary, Junior High, and High Schools, a kind of person who loves all about Noh.
I also had experience to perform as a child Noh actor when I was in Elementary School. There is a long, 650 year history in Noh. I don’t think there is another theater art this long anywhere in the world. This makes me believe Noh is an art which will prevail accepted in a universal manner.
Zeami, founder of Noh, was not only a story writer and actor, but must have been a philosopher, when you see the words he had left us.
There was a tipping point when I was in my third year at college. After I saw the Olympic Game held in Tokyo, I gained a feeling definitely wanting to see Japan from overseas. All the time I was thinking how I can go overseas.
In those days, a college graduate would earn about JPY20000 per month, while an air ticket to the U.S. would cost JPY250000. This is about JPY 3 million in today’s value. After I got a recommendation letter from the college president, I’ve sent about 50 letters to presidents of colleges in the U.S. where there was faculty in drama. Then about 30 of them send me back letters saying they would like me to perform in their college.
Then after a year of preparation, heading by cargo ship, I sailed towards the U.S. which took two weeks. I performed Noh in around 30 different states from September to January. This was a time when supermarkets, food chains, and of course not even computerization was introduced to Japan. Therefore through the Noh tour I had a strong confidence that whatever had happened in the U.S. will definitely happen also in Japan.
Whether it is M&A or AI (artificial intelligence), what had happened in the U.S. after all will eventually happen also in Japan. My experience through the U.S. tour gave me a tremendous influence.
Joining a foreign company, pursuing my future start-up
S: After graduating Ritsumeikan University, you joined Olivetti Japan (now NTT Data Getronics). What did you do there?
W: I was considering to start my own business one day as the only option, since the time before I joined the work force.
Because I thought computers will be an important factor, I wanted to learn the most advanced business operations by joining a foreign company.
What I basically had in mind were the ideas “Sales is science and psychology”. I had the eager to study sales operation in a scientific way unlike a Japanese company, as well as ways of marketing, different methods by business category, and how to create a network structure. Within all, what influenced me the most is corporate analysis.
I was handling computer sales. By tracing from order bills all the way to deposit of payments for each clients, I was creating an analysis report to propose to management of companies, suggesting ways to solve problems by using flow charts, confirming the current situation and issues. Actually. it is exactly what we are doing at Nihon M&A Center today.
We are now in an era when you cannot find an heir to a business
S: You have established Nihon M&A Center Inc. in 1991. Why did you start your own business?
W: For the last 30 years, the average birth rate in Japan is around 1.4. It means the odds of having a son is half of that, which is 0.7. We have finally reached a point where there are cases we can no longer expect someone in your family to take over your business. We now live in a wealthy world, where there are more families rather telling their children they can do whatever they want to do.
Especially in case of children from wealthy business owner families, we see many of them becoming medical doctors. Some pursue their career to become an academic researcher, or go to work in a listed company and work abroad. Those who are forward looking in their lives tend to concentrate in what they have in interest.
In the last 70 years after WW2, Japan’s population and market size both continued to grow. However, from 5 years ago population started to decrease, and market size started to shrink drastically. Both in cars and electronics, sales ratio at overseas exceeds 80% for giant manufacturers. Even for a major food company famous for its soy sauce, 75% of their profit comes from overseas. SMEs can no longer survive under an ordinary management.
Decades ago, a major pharmaceutical company had 350 distributors for wholesale. Today, they substantially have only four. 95% of the convenience store business is now shared by only 3 companies. Days when SMEs can survive on their own is something of the past.
How M&A should take place
S: So, you were thinking things will change and the business structure in market to become what we see today?
W: I have called 550 tax accountants and CPAs across Japan. Out of that over a hundred of them became shareholders, setting up 50 regional M&A companies at the same time. Number of members when we started were 130. One year later, we had placed an advertisement in the front page of Nikkei newspaper saying “We will find a company to take over your company”.
In our advertisement, we have mentioned a company will take over, not a person. Because of this, we had 400 inquiries in 5 business days from Monday to Friday. This was 26 years ago. We were suggesting a “friendly M&A”.
In reality, there are no hostile takeover or corporate raids in SMEs. However, media was creating noise about M&A, so people didn’t understand what M&A really was at that time.
Afterwards there came Takafumi Horie, or vulture funds, but anything improper are no longer remaining.
In M&A, both parties must benefit. If the succession is solved and staff employment is maintained, the seller would be satisfied, and if buyer of the company will cooperatively grow the business, that would be an ideal M&A.
M&A is only a start, not a goal
S: There are criticism only 30% of M&A cases are successful, as many of them do not have synergistic effects, or to be a hostile takeover.
W: You must be 100% certain when you settle M&A cases.
Recently we frequently hear failures in M&A by big corporations. You may say it doesn’t work if you conduct an M&A just to fulfil your budget as a hired employee in a company. A company run by an owner, and large companies headed by hired management have absolutely different cultures, so M&A will only succeed if those involved recognize the difference.
What’s important, is to carefully analyze the current status and find problems, and for the seller and buyer of the company to deeply discuss how to solve the problem.
In 2016, we have set up the PMI division. In English, we call it “Post-merger integration”.
The important thing in M&A, is rather to succeed than for the M&A to take place. This division is responsible to consult how to grow the business by utilizing each other’s strength after the takeover.
M&A must be successful, otherwise it would not make sense. The company which had done most takeovers within our clients had done over 20, and is growing its earnings. If we did not develop mutual trust with our clients, we couldn’t have continued our business. We have entered our 27th fiscal year. Without trust from clients, we must have not been able to continue for so long.
The Four Elements of a good company
S: Nihon M&A Center raise the phrase “contribute to continuation and development of companies” as its corporate philosophy.
W: To conduct our corporate philosophy, I analyze management from four standpoints. The most important is profitability. In a financial statement, it would mean to improve the P/L.
Then comes stability. Balance sheet must be “clean”. Whenever a company face situations such as the Lehman Crisis, end of a Bubble Economy, or a devastating earthquake, the company must have a decent balance sheet to survive. Companies with heavy debt or a distorted balance sheet is vulnerable to risks.
Third, is growth potential. There are quite a lot of SMEs which thinks they are fine with how they are now. Listed companies sometimes also think the same way once they are listed. I would want companies to grow every year by at least 10%.
If management of a company with 100 employees think they are fine with the current status, a newcomer of the company will forever remain a “newcomer”. The newcomer must have raise in salary, promotion, and to have subordinates. Otherwise, companies will not grow.
And last, is social responsibility. We seek virtue to contribute towards society through our operation. For us, it would mean to contribute by solving succession crisis of companies, or to pay dividends to shareholders. It is also important how to contribute to society from the remainder of profit after paying dividend. For example, we are funding scholarship for high school students in the 3 prefectures from the Northeast province in Japan, or sponsor cultural activities such as Noh and music.
How should companies be taken over?
S: There are discussions which is better for a family managed company, to be taken over by a third party, or someone in the family. There are suggestions that old businesses should try to be succeeded by family members as much as possible. Mr. Wakebayashi, what do you think?
W: I would not criticize takeover by family members. However, those who hire employees have a higher social responsibility. Corporate management is a specific skill. There are those who are good at manufacturing, those good at accounting. They have different types of skills.
In management, you need leadership, self-confidence, and be pro-active. A sense of theory is required, and you must be the signboard of the company. You cannot become a true top management unless you have a self-diversity.
In Niigata, there was an old couple aged around 75 running a 200 year-old Japanese Sake brewery hiring about 20 staffs. They had 2 sons; both bright, and became medical doctors, leaving no one in the family to take over the business.
Only sake craftspeople remained, and at that time had no other choice but to soon shut down the business. Closing the business means, to fire all staffs.
One day, there came an Izakaya (Japanese style liquor restaurant) chain store owner who tasted the sake. The owner found the sake very good, and started providing in his 250 Izakayas, which doubled the sales. This owner also thought of exporting the sake due to the recent boom of Japanese Sake. By exhibiting in a contest in Paris, the sake won the gold prize, making the export grow.
S: A company moments away from shutting down, now becoming an exporter. What a turn-around M&A that was!
W: In Shimane, there was a small iron factory with 20 staffs. President of the company took over the business from his father by paying extremely high inheritance tax. His child still in young age, he was wondering how much his child must pay to inherit the business. Though he was worried whether his son can actually take over, from an introduction of an accounting firm, the company was sold to a listed company.
Iron factories buy steel as ingredients. They used to buy from a second tier wholesale merchant, but after the takeover by a listed company, they are now buying from a first tier wholesaler, managing to drastically cut cost. Also, rumors were spread locally that the company is listed, which made recruitment easier. Credibility had risen, so banks would not complain even though they make investment in facilities. This factory’s profit from sales had grown 50% in 2 years.
S: That is a case which the takeover by a listed company enhanced the company’s growth potential, profitability, stability, and social credibility. What does Nihon M&A Center have to meet demand from clients?
W: We are not just an M&A introduction company. M&A is just one of the many management tools available. We would like to enhance our quality so that all of our staffs can consult business strategies.
Our strength is that we have 30 in-house specialists such as CPAs, tax accountants, lawyers, and judicial scriveners.
As a leading company in the M&A industry, to fulfill expectations from our clients, we believe not a single mistake can be made. Therefore, we have tax accountants check tax related matters, legal matters to be dealt by lawyers, and CPAs for accounting, all inside the company.
S: Can you leave a message to our subscribers?
W: I have toured abroad since my early days. I would want young Japanese people to break out towards abroad more.
From the universe’s perspective, length of our lives are just a blink of an eye. I kept living by thinking I would do whatever I want to, and spend a life without regret. I want young people also to do what they are fond of, and spend life without regrets. Please realize your dreams.
Yasuhiro Wakebayashi (Nihon M&A Center Inc. Chairman and Representative Director)
Born 1943 in Kyoto Prefecture, from a Kanze style Noh actor father, and an Urasenke tea ceremony professor mother. After graduating from faculty of management at Ritsumeikan University in 1966, Wakebayashi joined Olivetti Japan (now NTT Data Getronics). Established Nihon M&A Center Inc. in 1991. Became President and Representative Director of the company in 1992. Now is Chairman and Representative Director. He is known as the pioneer of the M&A industry in Japan. Proactive in social contributions, he is active in both business as well as private matters.
Name: Nihon M&A Center, Inc.
Established: 25th April, 1991
Business details: M&A introduction, corporate recovery support, corporate reorganization support, MBO support, corporate evaluation, consultancy on capital policies and management
HQ: 24F Tekko Building, 1-8-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005
(Branches: Osaka, Nagoya, Fukuoka, Sapporo, Singapore)
TEL: +81-3-5220-5454 FAX: +81-3-5220-5455
Capital: JPY1.2 billion / Listed in the 1st section of Tokyo Stock Exchange (security ticker code 2127)
Chairman and Representative Director, Yasuhiro Wakebayashi
President and Representative Director, Suguru Miyake