Today’s IPO of Next Generation Technology Group Inc (TSE:319A) – interview with Eiichi Arai

Gustaf: Hi Eiichi, congrats on your IPO! What has NGTG been up to lately?
Eiichi Arai: Gustaf, since our last interview, we acquired our 10th portfolio company in January 2024. After that, we paused new acquisitions to focus on preparing for our IPO. In 2024, our primary focus has been implementing value-creation strategies across our existing portfolio companies while also developing new deal pipelines in collaboration with advisors and brokers.‍

‍

Gustaf: How much equity did NGTG raise from its founding in 2018 up until today’s IPO?
Eiichi: We raised only a few hundred million Japanese yen (equivalent to a few million U.S. dollars) since our inception. Despite that, NGTG is expected to generate consolidated revenue of JPY 11 billion (approximately $70 million) and adj. EBITDA of JPY 2.1 billion (approximately $13 million) in 2024.

We achieved this scale with minimal equity by securing cost-effective, high-leverage debt packages for our acquisitions – sometimes reducing our equity contribution to near zero. The average interest rate on our group's existing debt is around 1%.

Another key point is that our current Net debt/adj. EBITDA ratio remains below 2.0x. While this is primarily because we have paused new acquisitions, our disciplined approach to acquiring companies at low valuations ensures that even when we use significant leverage, our existing debt declines rapidly through strong cash flow generation from our portfolio companies.

Post-IPO, as we resume acquisitions, our leverage will naturally increase, but we will actively manage it to stay within our target range of 3-4x adj. EBITDA.‍

‍

Gustaf: How were you able to achieve this?
Eiichi: On a macro level, we have benefited from the Bank of Japan’s low-interest-rate policy. While there have been expectations of rate increases, historical data shows that Japanese interest rates have consistently remained in a lower range compared to other markets. Over the past 20 years, the 10-year government bond yield has rarely exceeded 2% and has been far less volatile than in other economies.

Another key factor is our strong relationships with regional banks. Many of these banks struggle to find quality companies to lend to, and when we identify a strong business – one with an EBITDA margin above 10% – they are eager to offer us highly attractive financing packages.

Additionally, our experienced team, proven track record, and mission of bridging technology to the next generation – a vision that resonates with many regional banks – have further strengthened our banking relationships, allowing us to secure even better financing terms.‍

‍

Gustaf: How do you expect the IPO proceeds will be used?
Eiichi: The IPO will raise JPY 1.4 billion (approximately $9 million), which we intend to allocate toward future acquisitions. While we have historically been able to acquire smaller companies (with a few million USD in EBITDA) without requiring equity contributions, these proceeds will give us the flexibility to pursue larger deals at attractive valuations. This added optionality will allow us to accelerate our M&A growth strategy.

‍

‍Gustaf: Any other comments on your growth strategy?
Eiichi: Our growth strategy remains unchanged: we will continue driving sustainable expansion through disciplined M&A at the low valuations and by enhancing the value of our acquired companies post-transaction.

With the increased credibility and recognition that come with being a publicly listed company, we expect to receive more deal introductions. Our benchmark has always been Danaher and other leading serial acquirers in the U.S. and Europe, such as Lifco, Indutrade, and Halma. In the long run, we aspire to catch up with them and establish ourselves as a prominent serial acquirer from Japan.

‍

Gustaf: For readers who wish to connect, how can they reach you? Will you attend the conference hosted by our friends at Redeye?
‍Eiichi: Thank you, Gustaf. You can contact us through our official website or connect with me directly on LinkedIn. We’ll be attending the Redeye event in Stockholm this March. If you’ll be there or are in Stockholm, we would be happy to meet in person.