Meet NGTG: the Danaher of Japan riding the SMB succession bonanza

Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.

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Every so often, a chance encounter completely changes your perspective. Such experiences are exceedingly rare in the serial acquirer industry, which is dominated by conservative Scandinavian and North American companies. Everyone’s reading from the same hymn sheet. Proprietary deal sourcing. Hands-off management. Prudent capital structures. 

Now… What if you didn't have to abide by these seemingly ironclad rules to be successful? What if the biggest opportunity of all was NOT in Europe or America - but Asia, the hitherto terra incognita for serial acquirers?  

Meet Next Generation Technology Group, or NGTG: a 7-year old serial acquirer of Japanese manufacturing companies. NGTG’s portfolio comprises 10 companies engaged in activities like “resin film printing and molding” and “cold forging and press processing”. In 2024, NGTG reported revenues of ¥11.1B ($74M at the spot rate) and Adjusted EBITDA of ¥2.2B ($15M).  

On the face of it, NGTG is an unlikely iconoclast. Its raison d’etre is acquiring stable, cash flowing businesses cheaply (2-5x EBITDA) - and keeping them. Except that there is nothing ordinary about the changes permeating Japan. Japan is still the world’s 4th largest economy, - but with an SME population that is shrinking at an alarming rate (by 40,000, or 1% p.a.), tracking the demographic decline. Startlingly, 56% of the Japanese SMEs that went out of business in 2023 were profitable (source: NGTG investor presentation).  

Just picture thousands of business owners literally begging you to take over.      

Sounds like a HoldCo nirvana? NGTG’s investors seem to think so. At the time of writing, its share price is up 2.5x since the IPO - which took place <2 months ago. NGTG’s market cap is roughly $300M. While in Stockholm at the Redeye conference we sat down with NGTG’s founder and majority shareholder Eiichi Arai. 

What Arai-san said blew us away. In the interview, we discussed:

1. NGTG’s competitive positioning

2. The type of owners NGTG acquires from, and their motivations to sell

3. Multiples paid for acquisitions

4. The truth behind NGTG’s “99% leverage” deals 

5. What Arai-san did when a portfolio company lost 50% of sales overnight 

6. Why NGTG does not bother with cold outreach 

7. How Arai-san allocates his time 

Here’s NGTG investment case condensed in a 12 minute presentation.

Hang on, can we talk about London first?

And specifically, our next Software Serial Acquirer Summit. If you are in the space of buying, selling or running software companies, join us on 6 May in London’s Old Street for an afternoon of learning and networking.

If you have never been to a RollUpEurope networking event, check out the notes from the previous software event, in November 2024. Hopefully see you in London in a few weeks’ time!

1. NGTG’s competitive positioning

RollUpEurope (RUE): Arai-san, thank you for sitting down with us! Let’s start with a warm-up question. NGTG’s estimates that there are 120,000 profitable manufacturing companies in Japan - out of a total SME population of 3.4M. With an opportunity this large, and M&A multiples this low, how come there are so few succession focused permanent investors in Japan?

Eiichi Arai (EA): Good question. I will give you a two-part answer. Firstly, succession in Japan is a recent phenomenon. M&A activity follows industrial cycles. The US had experienced an M&A boom in 1960 and 1970s involving largely businesses founded during the 2nd industrial revolution. In Japan, the industrial revolution occurred much later, in the decades following WW2. Corporate succession is happening now, and M&A has become more acceptable only recently. Still, there are formidable barriers to entry in the small/mid cap space. NGTG’s capital structure is difficult to replicate for traditional businesses. No such problem for Private Equity, but why would they in the absence of management fees? PE is less motivated by capital appreciation these days.    

Moreover, NGTG straddles a niche between PE and strategics. Many sellers don't want to sell to PE, fearing their business will get re-sold. With strategic buyers too there are concerns. They may change the company name. Or the distributors. Or disrespect the management. 

NGTG differentiates by cherishing the independent, individual company. 

2. The type of owners NGTG acquires from, and their motivations to sell

RUE: Is there not a discrepancy between a typical succession story (owners nearing/in retirement) and the actual age profile of the people who have exited to NGTG (many in their 50s and even 40s)? 

EA: Not really. As we explain in the investor deck, there are 3 distinct succession types:

1. Owners in their 50s who want to continue as CEO for 5 years with NGTG supporting the transition

2. Younger owners (early 40s) who will continue as CEO for another 10-20 years, again, with NGTG's backing

3. Finally, Traditional retirement cases where owners want to exit immediately

Let’s double-click on Type 1. Often, there is a logical successor - a longtime manager. However, she/he lacks the capital to buy out the owner. NGTG acquires the business and trains this internal candidate for 5 years alongside the seller. Many sellers are excited about the opportunity to "reboot" their businesses using NGTG's network and know-how. 

RUE: For your very first acquisition, Toshima, you stepped into the CEO shoes for 2 years. Cycling to work and all. In the picture below, you are actually working on the production line. That appears to belie the notion of a decentralised HoldCo. What happened?

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