FAQ
M&A Strategy
1) Amusement arcade
We have achieved robust PMI results. For details, please refer to the following documents.
April 23, 2024″M&A Progress andFY2025/1 Q1 Outlook” P10~18
https://ssl4.eir-parts.net/doc/9166/ir_material_for_fiscal_ym5/154262/00.pdf#page=18
In M&A in the amusement business, as disclosed today in “M&A Progress and First Quarter Outlook”, all of the six amusement arcades acquired after SEGA ENTERTAINMENT have shown significant growth in operating income before depreciation and amortization (EBITDA), and and PMI is progressing well.
In addition, for the three amusement arcade projects prior to the IPO, the timing of the cash flow to GENDA stated in February 2022, a little over two years ago for Takarajima, and October 2022, about 18 months ago for Sugaidinos and Avice, but they have already achieved a full recoup of the initial investment, and the cash flow generated now is all upside for stakeholders. The current cash flow is entirely upside for stakeholders.
In addition to appropriate entry valuations based on cash flow (that is not assuming PMI), which is GENDA’s primary focus, the PMI has actually been successful and the situation is showing a “flywheel effect”. With regard to amusement arcades, since the PMI “format” has been established, we will proceed in the same manner for projects after the IPO.
PMI is also progressing very well in the karaoke business. Specifically, Shin Corporation, which had been making loss in the single-month of February for 35 consecutive years since its establishment, quickly returned to surplus in February 2024, the first single-month profit since its establishment, when GENDA began consolidation. The Company’s full-year target of achieving its highest profit since its establishment is now even more certain.
We will continue to strive to maximize synergies outside of amusement arcades, such as karaoke. We will announce these results at the appropriate time once we have comparable data for a certain period of time after the M&A.
As mentioned above, the synergies themselves from the affiliated group of entertainment companies can be realized in a wide range of fields. However, as we answered in “Q1” of this document, GENDA is thoroughly committed to acquiring companies at appropriate valuations, and our Investment Committee is leading us in the basic principle of investment: invest money and recover more money than it is invested. We are thorough in our efforts.
Therefore, GENDA conducts M&A transactions that allow for a sufficient return on investment even without the improvement of business performance through PMI, and for GENDA, PMI only adds extra value.
2)Amusement arcade-related
We have achieved robust PMI results. For details, please refer to the following documents.
June 11, 2024 “FY2025/1 1Q Earnings Presentation” P20~21
https://ssl4.eir-parts.net/doc/9166/ir_material_for_fiscal_ym3/157494/00.pdf#page=21
3)Karaoke
We have achieved robust PMI results. For details, please refer to the following documents.
June 11, 2024 “FY2025/1 1Q Earnings Presentation” P20~21
https://ssl4.eir-parts.net/doc/9166/ir_material_for_fiscal_ym3/157494/00.pdf#page=23
4)F&B
We have achieved robust PMI results. For details, please refer to the following documents.
June 27, 2024 “Latest Announced M&As” P21
https://ssl4.eir-parts.net/doc/9166/ir_material_for_fiscal_ym5/158415/00.pdf#page=21
The entry valuation being high relative to the cash flow to be generated by the target company in the M&A transaction, is a critical issue. This is because there is a high probability that the cash invested will not be recouped in the future.
Therefore, GENDA places the highest importance on cash flow-based valuations in its M&A strategy.
From the above perspective, the absolute amount of goodwill itself is not necessarily a problem in theory. However, in general, the absolute amount of goodwill tends to be larger for more high valuation M&As, and it is important not to increase the absolute amount of goodwill in order to avoid unnecessarily depressing operating income, after deducting goodwill amortization expenses under Japanese GAAP.
In light of the above, GENDA’s “M&A discipline” places the highest importance on entry valuation on a cash flow basis in M&A and ensures that M&A are conducted at appropriate valuations. Once this premise is fulfilled, we also strive to minimize the amount of goodwill to the extent possible.
As a result, the recoup of the initial investment is progressing smoothly, as described in the “M&A Progress and First Quarter Outlook” disclosed today.
In addition, as described in “Q3” of this report, PMI has been more successful than expected due to significant synergies in areas other than amusement arcades. We will announce the status of PMI in areas other than amusement arcades in the future as well.
For example, in amusement arcade M&A, assets with relatively small book value such as crane games, or assets that have depreciated to a small amount in terms of book value, may generate ample cash flow, supported by customer demand due to the popularity of cartoons and other factors.
In such cases, the net asset value on the balance sheet may appear smaller than the valuation based on future cash flows, and as a result, goodwill may easily arise as a result. However, based on the theory of valuation, GENDA gives priority to valuations based on cash flows, while also trying to minimize the amount of goodwill as much as possible.
Although GENDA is committed to acquiring assets at appropriate valuations, we understand that some investors may have concerns about whether the acquisition price is at an appropriate valuation, since the acquisition price is undisclosed.
As a disclosure on this point, we have announced that it is making steady progress in recovering its investment, as described in the “M&A Progress and First Quarter Outlook” disclosed today. In the case of M&A, which generally requires a long period of time to recoup the initial investment, GENDA has completed the recovery of investment in the pre-IPO amusement arcade M&A at an early stage, and all cash flows generated now and in the future will be returned to GENDA’s stakeholders in excess of the original investment amount. (See “Q3” below for the status of PMI other than amusement arcades.)
Furthermore, by financing the majority of the acquisition price with debt financing and minimizing GENDA’s cash contribution, GENDA’s actual recouped cash has exceeded the aforementioned gross basis recoup of the initial investment.
Stock Information
There is no fact that has been decided on the market change at this point in time.
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