M&A ADVISORY BUSINESS SUCCESSION
For corporate clients contemplating M&A or reorganization, Frontier Management provides comprehensive advice and assistance. Services in this area include tabling of M&A strategies, selection and approaching of target companies, a wide variety of due diligence (surveying and analysis), calculation of enterprise value, negotiation of contracts and terms and conditions, and handling of closing procedures (settlement, etc.). Against a background of owner-managed companies struggling to find successors, demand for these services is currently on the rise, as growing ranks of companies seek M&A as a succession solution.
Deal Advisory Services (Including Cross-border M&As)
Drafting of M&A strategy, preparation of a longlist and approach to potential buyers/sellers
Feasibility analysis of disposal, proposal of acquisition strategy, carve-outs, proposal of transaction structure, providing negotiation and contract advice, and closing support
Corporate valuation services including estimation of corporate value and merger ratios, and drafting fairness opinions
M&A-related services including financial and tax due diligence and PPA
Post-M&A (PMI) Consulting
Planning and formulation of strategies relating to Post M&A Integration (Formulation of integration plan, formulation of business strategies and mid-term business plans, and designing the organization and governance, in addition to functioning as the Integration Management Office and providing support for progress management)
Business Succession Consulting
Providing consulting services to address various issues relating to the succession of management and assets for companies including privately-owned entities
We are ranked in the top 10 in domestic M&A Advisory Services
Our members who have pursued various M&A projects at foreign investment banks, securities firms, audit firms and consulting firms provide advisory services to a wide-range of projects. We are ranked among the top 10 advisors in Japan in terms of the number of projects handled.*
* : According to the advisory track record for 2011 to 2018 compiled by Bloomberg
We are capable of dealing with cross-border M&A by coordinating with partner firms around the world
In addition to the bases of Shanghai, Singapore and New York (preparing to open), we have established a network with about 30 overseas M&A advisory firms including securities divisions of major US commercial banks and European and Indian securities divisions, and provide support in cross-border deal sourcing and execution.
We provide coherent and consistent advice from M&A strategy formulation to M&A execution support and beyond to Post M&A Integration (PMI).
FMI provides a full package of support for Japanese companies (clients) seeking to enter or withdraw from China or expand or integrate their local affiliates, ranging from initial market research to devising strategy, capital alliances (M&A), and post-merger integration support.
Characteristics of FMI’s Business Succession Consulting
FMI’s scope of expertise as an M&A specialist goes well beyond handling succession by selling companies outside (third) parties. Whether or not succession candidates are within the family and regardless of management status, we provide comprehensive services that address every succession-related issue from the perspectives of both management succession and asset succession.
Family succession advisory services
Initial analysis of issues
Organization of management and asset (tax) issues and solution (direction) proposals
Issues organized and solutions (direction) proposed for each business succession method (family succession, executive/employee succession, M&A)
Proposals on stock valuation and succession methods for treasury stock succession
Assistance with devising and executing treasury stock succession scheme through organizational restructuring, utilization of a holding company, and other solutions
Support for building next-generation management structure (e.g., the Business School)
Advisory services for third-party succession (M&A)
Analysis of financial/business/legal issues and clarification of risk factors in M&A negotiations
Support with preparing disclosure documents
Creating optimal structure in line with owner intentions
Selecting company candidates for transfer
Support for creation of business plan
Estimating initial stock (business) value
M&A implementation support
Initial discussions with candidate companies
Advice on negotiating basic terms and coming to an agreement
Support for creation of basic agreement, memorandum of agreement, etc.
Support for due diligence and Q&A handling
Advice on negotiating final terms and creating final agreement
Support for closing procedures
Frequently asked questions on business succession
- Our company is unlisted but has multiple shareholders among whom the shares are dispersed. Will this be a problem for business succession?
- Smooth business succession generally requires increasing the voting stake of the successor, ideally to at least two-thirds. This allows for decisions on important issues at the general meeting of shareholders. Approaches to concentrating dispersed shares in the successor can include the successor purchasing them from other shareholders, the company acquiring them as treasury stock from shareholders other than the successor, or third-party share allocation to the successor.
- When should we start planning for business succession?
- Business succession planning should generally start early. Even if you think succession is a ways off, we recommend having planning done by a specialist on what options are available.
- How are unlisted shares valued when they are transferred to a family member?
- When shares are transferred (inheritance, gift) between family members, they are valued by the valuation method established in the National Tax Agency Basic Instructions on Evaluation of Assets. The instructions stipulate three valuation methods: comparative value of similar company; the net asset method; and the dividend discount method. The valuation method applied depends on the ownership stake after share acquisition, the size of the company issuing the shares, and other factors.
- Do special tax provisions apply when shares are transferred to family members?
- Special provisions of the taxation system apply to inheritance settlement, grace periods for inheritance tax and gift tax payments, and other areas.
- I want to transfer shares to my children for succession, but I’m worried about giving them the authority to make all management decisions. Is there an alternative?
- You should consider separating succession of management rights from succession of property rights. You can also create a mechanism whereby shares are transferred as property; you can retain the right to participate in certain decision-making remains possible even after shares are transferred through investment trusts or classified shares, like =golden shares.
- Is there a problem with leaving share succession up to our CPA?
- In general, advice from CPAs tends to be based narrowly on a tax perspective. Cases can involve an overemphasis on reducing taxes, which impedes corporate management down the road: for example, by dispersing shares among family members who don’t participate in management. When considering succession measures for your company’s stock, you should consider the impact on management.
- What are the advantages and disadvantages of business succession planning for executives/employees?
- One advantage is that the continuity and integrity of management is maintained if the executives/employees have been working at the company long term. At the same time, in many cases, there may not be sufficient funds to acquire the shares held by the present owner. If the present owner is the guarantor for bank loans, the successor and the financial institution must agree to the successor taking over the guarantees, which can present various difficulties.
- What methods are there for business succession to executives/employees?
- The company’s shares can be transferred or gifted to the successor. Or the business can be transferred to a company set up to receive it by the successor executive/employee. Other methods are also available.
- How are shares valued when they are transferred to a third party through M&A?
- It’s generally common to use the following valuation methods, but methods vary, depending on the nature of the business and its scale. FMI performs trial calculations by multiple methods at the preparations stage.
DCF method: The company is valued based on its expected future cash flow from operating activities.
Comparable peer company analysis: A corporate value factor is determined with respect to certain financial figures at a listed company of comparable size and industry. The company’s value is then calculated by multiplying the company’s financial figures by that factor.
Net asset approach: The company’s value is calculated based on net assets after making market valuations of all assets and liabilities stated on the balance sheet.
- How are M&A partners identified?
- FMI proposes an optimal partner from our own network after determining the owner’s requirements. Information is also gathered from financial institutions and other partners as necessary, and in-depth meetings are held with the owner to narrow down the list of candidates.