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A 32-year-old nears billionaire status by using AI to broker Japan mergers

TOKYO – Mr Shunsaku Sagami saw first-hand the growing succession problem among entrepreneurs in Japan, which is grappling with the world’s oldest population.

The 32-year-old’s solution: using a proprietary database and artificial intelligence (AI) to broker deals for small and medium-sized companies – largely those founded by clients now on the brink of retirement.

His M&A Research Institute Holdings has surged sevenfold since listing in Tokyo last June, boosting Mr Sagami’s fortune to about US$950 million (S$1.27 billion), according to the Bloomberg Billionaires Index.

As Mr Sagami tells it, he owes the idea to his grandfather, who dedicated his life to running a small real estate agency in his home town of Osaka. Unable to find a successor, he had to shut it down when he retired in his 80s.

“In his office, there was a licence for real estate agents framed up on the wall,” Mr Sagami recalled in a recent interview. “Seeing that taken down and thrown away was sad.”

M&A Research Institute noted in an April presentation that 620,000 profitable enterprises in Japan are forecast to be at risk of closure because of a lack of successors, and the government estimates that by 2025, there will be 2.5 million small- and medium-sized firms whose owners are more than 70 years old. About half of them have no plan in place, which could lead to company shutdowns and 6.5 million jobs lost, costing 22 trillion yen (S$216 billion) in gross domestic product.

“There are a huge number of small companies with ageing founders, with no obvious successor, that are increasingly open to selling their business,” said Mr Tim Morse, director of Asymmetric Advisors, which provides recommendations on Japanese equities. “Traditionally, selling out has not been seen as a culturally positive thing, but that is changing.”

Since its founding five years ago, M&A Research Institute has grown to more than 160 employees, including some 115 advisers, and has about 500 deals in the works. It closed 62 transactions in the six months to March, up from 26 in the same period in 2022, with sales more than doubling to 3.9 billion yen. In the fiscal year ended September 2020, sales were just 376 million yen.

Alpaca breakthrough

Mr Sagami, who owns 72 per cent of M&A Research Institute, knew from early on that he wanted to build his own business. To hone his skills in different areas, he worked as a designer, software developer and marketing officer. He also tried setting up an e-commerce company and tutoring firm before he had his first breakthrough in 2016: a women’s fashion and make-up business he called Alpaca, after the furry South American animal known for producing quality wool. He was just 25.

Public relations agency Vector bought Alpaca in 2017, but Mr Sagami found the process long and inefficient. So he came up with an AI algorithm that would match buyers with sellers and simplify many of the administrative steps and paperwork, taking inspiration from Japan’s automation machinery maker Keyence Corp.

Unlike mergers and acquisitions consultants, who often rely on regional banks for introductions and compete with one another for deals, M&A Research Institute uses the extensive database it built to do the matchmaking, focusing on companies with sales of up to 500 million yen. Its advisers then do the negotiations, and an agreement can be completed within six months – shorter than the timeframe for a typical acquisition, even when there are no regulatory hurdles.

Fees are charged only when a transaction is closed and can reach up to 5 per cent for deals of 500 million yen or less. They averaged 60 million yen per sale in the latest quarter. BLOOMBERG