There is no material impact on our consolidated financial results.

We view the modern entertainment industry as a structure where “Contents,” “Platform,” and “Fans” are organically interconnected. Within the value chain of delivering IP contents – such as anime and film – to fans via entertainment platforms, GENDA is currently focusing its efforts on expanding our platform presence.

The essence of our business model lies in “vertical integration – leveraging our platform as a physical touchpoint to expand into high-value IP and contents.” By combining Transformational Growth through M&A with the synergy of our “Contents x Platform,” we are committed to driving long-term growth in EPS (Earnings Per Share).

There are two primary challenges regarding the acquisition of IP:

(1) High development costs and significant uncertainty regarding ROI

In-house IP development requires substantial upfront investment. Furthermore, the inherent uncertainty of whether a title will become a hit creates a structural risk – “there is no guarantee of success regardless of the capital invested.”

(2) High valuations for IP holders and content owners

Acquiring established, high-potential IP through M&A often leads to significantly higher valuations for IP holders compared to platform companies. Since our investment policy prioritizes “fair acquisition price,” we avoid overpriced M&A deals that do not contribute to EPS accretion. Consequently, such targets are less likely to be prioritized.

On the other hand, platform business exhibits the following characteristics:

• Stable Cash Flow: Backed by a long track record of operations, this segment generates consistent and reliable cash flow.
• Reasonable Valuations: Due to business succession needs and market maturity, platforms can be acquired at more reasonable valuations compared to “entertainment contents” or IP holders.
• High Cash Conversion Efficiency: The business structure allows for high cash recovery efficiency – with an EBITDA to FCF (Free Cash Flow) conversion rate of approximately 50% for amusement arcades and 70% for karaoke rooms.

This aligns perfectly with GENDA’s investment discipline of prioritizing “fair acquisition price” and “EPS accretion,” ensuring a steady pipeline of deals that enhance shareholder value.

  For these reasons, our primary strategy is to steadily execute a roll-up of platforms that offer attractive investment potential. As a result of this cumulative effort, our network now spans over 1,000 locations in Japan and more than 13,000 in North America. With a network of this magnitude, GENDA has become an “essential customer touchpoint” for IP holders, creating an environment where it is easier to forge close-knit partnerships. It is important to note that this was not designed as an IP strategy from the outset; rather, it is a competitive advantage gained through a disciplined series of capital-efficient M&A.

Regarding the full-scale acquisition of IP, our policy is to consider this once we have secured a sufficiently robust platform network.

Due to the inherent structure of the amusement arcade business, we do not anticipate recurring cycles of large-scale reinvestment. Once equipment is purchased, it remains operational over a long period. Consequently, our North American operations will mirror the high cash-generation profile of our existing amusement arcade business in Japan.

The amusement arcade business model is characterized by front-loaded capital expenditure on equipment and interiors at the launch or acquisition stage, followed by the steady accumulation of earnings through the utilization of existing assets. By performing appropriate maintenance and selective machine rotations, these assets continue to contribute to revenue well beyond their formal depreciation periods. Our North American amusement business follows the same structural model as our domestic operations. Once the initial rotation of game machines following an M&A acquisition is complete, the business transitions into a stage where it consistently generates FCF, requiring only ongoing maintenance CAPEX.