We are aware of your opinion that we should have waited a little longer and made the offering after the stock price had recovered.

We have decided to move forward with this follow-on offering due to two primary factors. Let us explain each of them in detail.

①Minimal impact of current stock price on future EPS

First, to ensure complete transparency, please refer to the spread sheet calculation sheet also attached in Q1. While the input of stock price is 969 yen, which is the offer price, you will see that even a 20% increase in this price would only result in a few percentage points of additional EPS.

The reason for this is that the absolute yield on our capital deployment (M&A) is sufficiently high compared to the cost of financing (debt + equity). In essence, our yield on investment far exceeds our cost of funding.

This is a direct result of our disciplined M&A strategy. We consistently conduct M&As only at right valuations (yield on investment is sufficiently high), compared to the consolidated earnings and cash flows. Furthermore, because we are maximizing debt within appropriate limits (minimizing our cost of funding), this effect is shown very clearly.

Consequently, minor fluctuations in our funding costs have a negligible impact on the overall picture.

While the offer price of 969 yen is 5% lower than the offer price (1,021 yen) of our previous offering (in July 2024), our calculations show that this short-term price difference is fully absorbable over the mid-to-long term. This understanding led us to proceed with the follow-on offering at this timing.

As mentioned earlier, although we are committed to EPS growth, we have no intention of relaxing our discipline in fundraising. On the contrary, we recognize that conducting equity financing at the highest possible stock price is crucial for minimizing dilution for existing shareholders.

In next ②, let us explain another main reason for proceeding with this follow-on offering at this timing even with that perspective.

②Loss of opportunities for M&A at hand is certain while the recovery of stock price is unpredictable

The recovery of stock price, especially heavily influenced by macroeconomic factors, is inherently unpredictable. Conversely, the “loss of opportunity for the growth in EPS” caused by missing promising M&A opportunities right in front of us is certain.

As mentioned earlier, even if we were to accept risks and wait until the stock price increases by 20%, the additional EPS benefit would be limited to a few percentage points.

On the other hand, it is confirmed that we will miss M&A opportunities during that time, which could increase EPS. As a result, it is confirmed that a few percentage points of additional effects from merits gained by accepting risks and waiting will be jeopardized (again, it is unpredictable if the stock price goes up or down).

This creates a dilemma where we must weigh the “uncertain merits” of waiting for the recovery of stock price against the “certain demerits” of losing M&A opportunities. Our quantitative analysis clearly shows that the impact of the latter is significantly greater.

Furthermore, regulatory requirements prevent us from conducting a follow-on offering while holding undisclosed material information (such as M&A). For a company like ours, which engages in continuous M&A, this means we must temporarily “suspend” all ongoing projects to make a follow-on offering. This makes identifying the right timing for a follow-on offering significantly more challenging compared to typical companies.

Therefore, the decision to proceed with a follow-on offering is intrinsically linked to the “loss of opportunities for the growth in EPS,” requiring a careful weighing of the consequences of missing those opportunities.

What makes it more difficult is that we cannot always freely choose the most opportune timing for fundraising because M&A opportunities do not appear solely at “our convenience” and the intentions of the selling companies also play a significant role.

Given these constraints and structural realities, we made the following judgment:

・The impact of current fluctuations in stock price on EPS is limited.

・The recovery of stock price is uncertain.

・The loss of opportunities for M&A which will boost EPS in future is certain.

Considering these three points comprehensively, and after thorough and sincere discussions among all officers and employees, we concluded that proceeding with a follow-on offering at this timing is the most rational decision.

As a matter of fact, our officers and employees currently hold approximately 20% of the company’s shares, aligning our management incentives perfectly with those of our external shareholders. Moreover, as we have insight into growth potential not yet disclosed to external shareholders, we felt an even greater responsibility to make this decision with conviction.

We currently have numerous attractive M&A opportunities in our pipeline that cannot be fully addressed with our existing debt capacity alone. In this situation, we have successfully improved financial leverage markedly and rebuilt the robust financial foundations so that we can accelerate our M&A strategy furthermore.

Moving forward, even after this follow-on offering and secondary offering, our officers and employees will keep being involved in the management as a major shareholder and as “representative of shareholders.” Through our long-term incentive design, including stock acquisition rights, we will truly embody the “management with shareholders.”