Nihon M&A Center: Record Mandates, Falling Profit, and a Dividend That Broke the Legal Limit
The pipeline is the best it has ever been and the P&L is going the other way — because management is buying growth in people, brand and AI while cleaning up an interim-dividend overpayment it disclosed the same morning.
2127.T · Earnings Call · 2026-10-30
The pipeline and the P&L are telling different stories
Nihon M&A Center closed the first half of FY2026 with sales of ¥22.599bn, up 0.1% year on year and 42.8% of the full-year plan — a flat top line built on slightly fewer closings (478) at a slightly better price per deal (¥45.6m). Ordinary profit fell. The cause management gives is not demand but deliberate spending: SG&A up 11.1%, advertising up 31.3%, IT costs up 15.5%, commission expenses up 38.7%, the last three all tied to the 35th anniversary campaign, a rebuilt recruitment engine, and front-loaded AI and DX investment. Miyake was unusually direct about the trade: “The sales was JPY 22.599 billion. This is 42.8% of progress for the full year. This is an increase by 0.1% year-over-year.” — Suguru Miyake, Representative Director · 2026-10-30 He then spent the rest of the prepared remarks arguing that this is a trough, not a trend.
Underneath, the leading indicators are the strongest the company has ever printed. New sell-side mandates reached 699 in the half, up 13.5% year on year; mid-cap mandates hit 155, up 30.3%; buy-side mandates ran at roughly 400, up 3.1%. In the second quarter alone the mid-cap count was 79, up 29.5% — a sharp acceleration from 19 in Q1. Management called the mandate count a record high and noted that over 60% of new mandates sit in the central metropolitan areas, which it reads as a quality signal because those sellers are easier to close.
Mid-cap: structural shift, or a tax holiday nobody wants to admit to riding?
The mid cap theme has been the company's central strategic argument for at least four quarters — in January the CEO framed it explicitly as the defence of revenue per deal, warning that ¥45-46m would be too good and that ¥40m was the honest target. That number has now printed at ¥45.6m for the half, above the CEO's own comfort band, while mid-cap volume accelerates. Either the mix has genuinely improved, or the pricing is flattered by something cyclical.
Analysts asked directly whether the minimum tax is the driver. Takeuchi conceded it is an industry-wide tailwind but argued the composition of sellers has changed: business owners in their 40s and 50s are now bringing deals, divesting to accelerate growth rather than because of succession. “Whereas the mid-cap management in their 60s and 70s, they were trying to have someone succeed in the businesses or transferring their businesses, and they were taking the lead. Whereas nowadays, we are seeing those management in their 40s and 50s.” — Naoki Takeuchi, Executive Officer · 2026-10-30
Miyake was blunter still.
The minimum tax bubble is not what I describe the current trend to be. So, in the second quarter, you could see that this minimum tax's impact was not there, but then the mid-cap was on the increase.
That is a useful disconfirmation to hold on to — if the mid-cap inflection is demographic rather than fiscal, it should survive the tax's expiry. If it does not, the whole revenue-per-deal defence collapses back toward the CEO's ¥40m anchor. Note also that this is a pure success fee model: every increment of deal size drops straight through to revenue with no delivery cost attached.
The retention saga, now in its fourth telling
The Turnover rate problem is not new and the call did not pretend otherwise. What is new is that the fix appears to be biting. Headcount moved from 626 to 640, with 29 joiners in October, 27 more acceptances, and 56 further additions in train. Onboarding has been consolidated from monthly to quarterly so cohorts train together. “In terms of the mid-career, we have been successful in recruiting more than double of the numbers of the people at the mid-career level.” — Naoki Takeuchi, Executive Officer · 2026-10-30 Miyake called the change in atmosphere after his own 90-minute induction session palpable — soft evidence, but the first time in several quarters the tone on hiring has been anything other than contrite.
The contrast with January is instructive. Then, Takeuchi described personally sitting in final-round interviews every Friday afternoon to close the expectation gap that was driving new hires out, and admitted only 60% of first-year consultants closed a deal at all, with a target of 80%. “I spent half day every week, I decided to be part of the final interview with a potential candidate, every interview.” — Naoki Takeuchi, Senior Managing Director · 2026-01-30 The mechanism has since been professionalised — a new checking layer under Saito-san, more mid career hiring, and quarterly cohorts — but the underlying economics are unchanged: Naraki was candid that “if we want to grow by 10% as a company, productivity improvement alone is quite not enough to grow 10% as a company.” — Takamaro Naraki, Executive Officer · 2026-10-30 Growth requires net heads, and net heads require the churn to stop.
The related worry is Lead time. The gap from mandate to close stretched to roughly 380 days by Q4 before returning to about 340 days in Q2 as the new sign-off discipline bedded in. Management insists this is transitory and not a structural lengthening of negotiations — a claim worth testing against H2 closings.
The governance bill nobody wanted to present
The call opened with an apology, not a result. Prior-year interim dividends were found to have exceeded the distributable amount permitted under the Companies Act, a consequence of deficient verification of provisional financial statements. A Special Investigation Committee found no intentional misconduct by officers or employees, and the company will not claw the money back from shareholders. Directors including the President will voluntarily return 10-30% of monthly compensation, and the Audit and Supervisory Committee declined to pursue legal liability on the assumption that prevention measures — clarified calculation processes, stronger board supervision, external specialist review — are implemented.
Financially it is noise; reputationally it is not. The same document reaffirmed a ¥29 full-year dividend including a ¥4 special, a 71.3% payout. That is the second consecutive call where the dividend was defended rather than raised, and the overpayment episode makes any future special dividend a governance question as much as a capital-allocation one.
What is genuinely new
Three things. First, AI Brain Partners was converted into a subsidiary, which Miyake framed as investment in human capital and AI capital running in parallel rather than as a cost line. Second, a US alliance with Generational Group to feed Japanese mid-cap buyers into American targets — the first leg of a stated Asia-to-US-to-Europe sequence following ten years of ASEAN build-out across five local entities. Third, J-Capital, the intermediate holding company for the fund business, is being scaled in earnest.
The bet for the second half is simple and testable: record mandates convert into closings, with the December quarter carrying the peak as it did last year, and the stepped-up cost base proves to be an investment rather than a new permanent floor. Against a share price we cannot see in this dataset, the question is whether the market is paying for the pipeline or the profit. For four quarters running, the company has asked investors to look at the former. This quarter it finally has the leading-indicator numbers to make that argument — and a dividend scandal to make it harder to hear.