For the past six months, I have been trying to understand why NextGen has consistently outperformed other serial acquirers. After recently catching up with the NextGen team, several factors became clearer.

1. Valuation: From 36x to 21x

*While the current FY12/25 EV/EBITDA multiple appears high at 36x (based on ¥2,400M EBITDA), this figure is misleading because it excludes recent M&A activity.

*The Pro-Forma Shift: Next Gen acquired 7 companies this year. Their contributions will only hit the books in FY12/26.

*Forward EBITDA: Management anticipates FY12/26 adjusted EBITDA of ¥4,000M.

*Adjusted Multiple: Based on these projections, the forward EV/EBITDA drops to 21x.

*Peer Benchmarking: This 21x multiple aligns with global “serial acquirers” like Danaher and Indutrade (typically 15x–25x). Future stock growth is expected to shift from “multiple expansion” to organic and inorganic EBITDA growth.

2. Competitive Advantage: The “Buy and Hold” Model

Next Gen differentiates itself from Private Equity (PE) through its acquisition philosophy:

*Successor Crisis: They capitalize on the Japanese “successor crisis,” where profitable small businesses lack heirs.

*Founder-Friendly Terms: Unlike PE firms that flip assets, Next Gen offers permanent ownership and autonomy. This makes them a “preferred buyer” for founders who care about their company’s legacy.

*Operational Support: They use a proprietary “value-up” manual to improve acquired businesses rather than just providing capital.

3. Financial Discipline & Risk Management

Next Gen maintains a stricter balance sheet and higher margin profile than its immediate Japanese peers. I shared numerical details with my clients.

4. Key Takeaways

*Market Sentiment: The recent price surge was the market “front-running” the consolidation of the 7 new acquisitions.

*Arbitrage Opportunity: As long as Next Gen can buy companies at 4x and trade at 21x, the valuation remains sustainable.

*Ownership: High “skin in the game” with CEO Mr. Arai holding 65% and management holding another 15%.

*Sourcing: Interestingly, management sees no quality difference between leads from regional banks versus M&A consultants.

If you’re interested in learning more about Next Gen and its growth potential, I’d like to invite you to experience my service—completely free of charge. I am confident that once you discover the value, convenience, and quality I offer, you’ll be glad you gave me a try. Some of my clients who have a dedicated Japan research team find my take unique and actionable.

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