HK activism fund manager Protocol Asset Management initiates a shareholder letter to Nihon

15 Nov, 2019 08:51
source: Singularity Financial

Hong Kong – November 15, 2019, a Hong Kong shareholder activism fund manager Protocol Asset Management (HK) Limited just initiated a friendly shareholder request letter to the board of Nihon M&A Center (“Nihon”, 2127.JT) , to bring active suggestions to Nihon management in order to help upgrade Nihon from being a good company to a great company.

Nihon provides M&A advisory services to small and medium-sized enterprises. The Company, established by certified public accountants and tax accountants, offers M&A related services such as reorganization and MBO (Management Buy-Out) as well.

The full context of the email request to the board is released as below –


November 15, 2019

Mr. Suguru Miyake, President
Nihon M&A Center Inc.
24F TEKKO BUILDING 1-8-2,
Marunouchi, Chiyoda-ku, Tokyo, Japan, 100-0005

Dear Suguru-san:

We are Protocol Asset Management Hong Kong Limited (“PAM”), a friendly Asia shareholder activism investor.  Collectively, as a firm, we have over 50 years investing in the global equity markets. As of late, we have been researching the M&A brokerage sector in Japan and have given significant research efforts to understand your industry and your company.

Considering that you have been a Board Member since 1992 and President of Nihon M&A Center (“Nihon”) since 2008, we commend your achievements and contributions to the growth of the company. Overall, we think that your company is a good company with solid fundamentals. However, we believe that Nihon has room to upgrade itself from being a good company to a great company.

During our research, we have observed the following:

– Nihon M&A Center has been growing excessive cash balances, which we believe needs to be addressed

– Although Nihon has made a small expansion of its business footprint into South East Asia (i.e. in Singapore and most recently in Jakarta, Indonesia), there are inadequate new growth opportunities currently available

– The company can be even better by focusing efforts on other aspects of the business, as we have outlaid below

In the essence of partnership, we hope that the brief recommendations shared with you in this letter will be considered by your Board and adopted as a thoughtful approach to upgrading Nihon M&A Center from good to great.

Our Proposals

  1. Capital Allocation & Structure

– Return of excess cash, share buybacks, and possible increase in leverage, as cost of debt is less than cost of equity

  1. Strategy & Operations

– Switch from advisor/agency model to greater emphasis on private equity/principal model (similar to that of Blackstone and Carlyle versus Moelis and Greenhill) and build-up fund management AUM and capacity

  1. Compensation

– Align executive pay with shareholder value

  1. Investor Relations

– More proactive in IR to increase investor awareness

PAM has more detailed information regarding the above recommendations, supported by our research, expertise and rationale. By executing the above, we believe your company could be even better. The future still has opportunities for improvement and we think this is the right time for Nihon to make the proper executions with its existing competent teams.

We offer our assistance to implement our proposal and would highly value a personal meeting with you. We believe Nihon M&A Center and its stakeholders can benefit from our experience, our network, and sound advice on capital allocation, strategy & operations, compensation and investor relations.

We would not have made the significant efforts to learn and to better understand your company if we did not believe in a bright future for Nihon’s growth potential and dedicated employees. We are confident that by acting as partners, Nihon can grow to be even more durable. We look forward to the possibility of meeting with you soon.

For Nihon to Maintain its Leadership, Nihon Must Be Open-Minded.

Sincerely,

Bing Lin
Chief Executive Officer
Protocol Asset Management (Hong Kong) Limited