Nomura has launched a fund designed to parachute young executives into Japanese companies whose old owners lack a successor, a looming issue in the country where a third of small and medium-sized businesses are run by people over the age of 60.
In its eagerness to inject fresh blood into the ageing arteries of Japan’s business world, Nomura’s Japan Search Fund Platform will broaden the qualifications required of the next generation of chief executives, with ambition, hunger and an appetite for risk potentially trumping a formal education.
The fund plans to pick would-be chief executives, known as “searchers”, and help them identify companies where they could be installed as the successor. When a new leader starts, the fund would provide an injection of capital and receive a stake in the business.
The project intends to help connect young executives dedicated to turning round businesses with a company to support the succession. The searcher then becomes the successor chief executive, ideally rejuvenating the organisation and letting investors — including Nomura, Daido Life Insurance and regional banks — to exit the deal at a profit.
The venture, which Japan’s largest investment bank launched in partnership with an existing company that specialises in nurturing future chief executives, emerged as Fumio Kishida, Japan’s prime minister, has stressed his government’s support for small and medium-sized businesses.
Japan’s profile as the fastest-ageing nation means that tens of thousands of privately owned companies are run by greying members of the founding families, according to Nomura and government estimates. Many of those are high-quality businesses, but do not have either willing or capable successors.
Nomura is not the first to spot the commercial potential of the country’s mass succession problem in a sector that employs more than two-thirds of the working population.
It is entering a field already crowded with private equity buyers and acquisition brokerages like Nihon M&A Center, Strike Co and M&A Capital Partners, which collectively conduct hundreds of deals a year in sectors ranging from construction and retail to wholesale and services.
As Japanese corporate governance standards have risen, listed companies that believe they have an appropriate scion to take over face an uphill struggle to convince shareholders that their offspring is the ideal candidate.
Noriko Shimazu, who heads the Japan Search Fund Accelerator now partnering with Nomura, said that the difference between the new venture and the competition would be in identifying companies that were still undecided about making a deal and presenting them with strong chief executive candidates.
“We’re not choosing searchers based on their MBA or education, we want them to show us their potential,” said Shimazu. In addition to being entrepreneurial and active, prospective chief executives should be able to, “learn through trial and error, blaze their own trail and have excellent communication skills”.
The expected average size of the deal is between $1.8m and $4.3m, with internal rate of return expected to be on par with buyout funds at about 20 per cent, Nomura said.
