Exploring New Frontiers in Corporate Value

To begin, I’d like to ask about the evolution of corporate culture in Japan. In recent years, a complex set of issues has come into sharper focus—improving capital efficiency, corporate governance reform, business succession among SMEs, and challenges tied to population decline. Amid these trends, it feels as though both listed companies and small and mid-sized firms are being pressed to transform in significant ways. From your perspective as chairman, how would you describe the stage of evolution Japan’s corporate environment and capital markets are currently in, and what key challenges do you believe they are facing?

I think the effort to build corporate governance frameworks in Japan has really gathered momentum over roughly the past decade. The push to improve capital efficiency—particularly ROE—has intensified, and alongside that we’ve seen steady institutionalization of changes such as appointing outside directors, strengthening governance systems, and promoting diversity.

Among these, the biggest shift I sense is that a mindset of “reviewing” and “replacing” business portfolios has spread within companies. This was not very common in Japanese firms in the past, but today it’s becoming the norm to consider how core business domains should be restructured. There are multiple drivers behind the rise in stock prices. One is that the weak yen has boosted profits, especially among manufacturing companies, lifting overall performance. Another is that governance reform and a growing commitment to portfolio optimization, like I mentioned earlier, have taken root within companies and are clearly supporting the market.

On the other hand, what do you see as the major challenges?

As you suggest, there are several serious challenges. First, Japan’s population decline is an unavoidable reality. In rural areas in particular, aging and outmigration are reducing the number of local businesses, and the market itself is shrinking. This is a structural issue, and it means the underlying assumptions for corporate management are changing significantly.

Another issue commonly seen across Japanese companies is that “new business models and technologies are not being commercialized quickly enough.” Japanese firms certainly have technological capability, but the mechanisms and speed needed to scale technologies into viable businesses are still far from sufficient. In fact, many of our clients are large listed companies, yet even they often ask us for support starting from very basic questions like “How should we launch new businesses?” or “How should we design our next management strategy?”

In that context, we hear that shortages of management talent and succession issues are even more severe for small and mid-sized companies.

That’s absolutely right. Management talent is concentrated in major cities like Tokyo and Osaka, leaving rural regions with a real shortage of capable leaders. At the same time, while business owners are aging, an enormous number of firms have no successors. Among mid-sized and regional companies, we often see situations where “there is no business strategy going forward in the first place,” or “there is no one who can take responsibility for designing it.” We receive strong demand from these kinds of companies as well.

How does Frontier Capital approach the issue of business succession?

Right now, we are working on succession challenges faced by regional SMEs by acquiring or investing in them ourselves, dispatching talent, and raising their enterprise value through hands-on involvement. For small and mid-sized companies in rural areas, paying standard consulting fees is often not realistic. So instead of traditional consulting, the practical options are either “M&A” or “value enhancement through investment.” We propose the most appropriate method for each case—whether M&A is right, or whether investment is better—and design the optimal solution case by case. That is one of our strengths.

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Please also tell us more about your cross-border M&A initiatives.

Another distinctive feature of our firm is cross-border M&A in the so-called mid-cap segment—deals in the tens of billions to hundreds of billions of yen range in Japan. Through our overseas network, we source these opportunities and introduce them to Japanese companies.

We are a member of a global network called CFI (Corporate Finance International), which connects us with independent M&A boutique firms of similar scale around the world, including Europe and the U.S. Without this kind of network, it would be very difficult to bring mid-cap cross-border opportunities to Japanese buyers. Major Japanese securities firms and Big Four–affiliated firms tend to focus on much larger deals. But what Japan needs now is to accumulate experience through relatively lower-risk, mid-sized cross-border M&A transactions. We believe that will become the most valuable long-term growth strategy for Japanese companies.

Let me dive a bit deeper into cross-border M&A. In recent years, acquisitions of Japanese SMEs by foreign companies have increased, while Japanese firms are also becoming more active in acquiring overseas companies. In this environment, what challenges do Japanese firms face when trying to pursue cross-border M&A?

There are several, but first, there is still an absolute shortage of boutique firms like ours that can reliably introduce overseas M&A opportunities of the right size to Japanese companies. In other words, there are not enough reasonably priced, mid-sized opportunities circulating in the market. Second—and this may be even more fundamental—there is anxiety about PMI, meaning post-merger integration. For Japanese companies below the large-enterprise tier, confidence is overwhelmingly lacking when it comes to questions like: “Can we manage an overseas company properly after acquiring it?” and “Can we integrate the organization locally and enhance its value?”

It’s not enough to have people who simply speak English. Regional mid-sized companies rarely have management talent capable of leading cross-border integration. That is exactly why it is essential for us to provide consistent support all the way through PMI.

So PMI is the biggest bottleneck?

Exactly. Many companies hesitate not because of the acquisition process itself, but because they’re worried about “what comes after.” It’s a major barrier. If I add one more point, exchange rates are also an issue. With the yen weakening, the prices of overseas targets have risen, and many companies step back thinking, “It’s too expensive to buy.”

What we always tell clients is: “Yes, the purchase price may be higher, but the foreign-exchange effect also increases the profit impact you can capture after acquisition, so the contribution to your P&L can be very large. In the long run, it’s not necessarily a loss.” Still, it’s true that many Japanese companies face a psychological hurdle on price.

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I’d also like to ask about your consulting business. In particular, how do you work on reform and turnaround for domestic mid-sized and small companies? We’ve heard you go quite deep into execution—such as dispatching executive officers.

Yes. Broadly speaking, there are two patterns in business turnaround. One is the “restructuring type,” where management has already deteriorated and relationships with financial institutions need to be rebuilt. The other is the “reform type,” where performance is not necessarily poor, but fundamental structural change is required.

I previously worked at the Industrial Revitalization Corporation of Japan, so “restructuring” is one of my specialties. Over the years I’ve built extensive networks with regional banks, credit unions, and government-affiliated financial institutions nationwide. As a result, local financial institutions often say, “When it comes to turnaround, Frontier is the go-to firm.” Our defining trait is our hands-on style. We don’t just create reform plans—we stay alongside clients through execution. For regional mid-sized and small companies, purely proposal-based consulting doesn’t work. We roll up our sleeves with them, and if needed we send directors or executive officers into the field and see it through. That is our approach.

That’s exactly where your firm’s “execution capability” comes through.

Yes. In regional companies, paying large fees for “intangible consulting” is difficult. So there are three practical solutions. First is the long-term, hands-on model of dispatching people and working closely together. Second is reform through digital tools—DX for operations, visualization of productivity, and so on—allowing value to be raised at relatively low cost. Third is a short, intensive support approach that delivers concrete results within six months to a year, suitable for both restructuring-type and reform-type cases. We provide all three styles, but we are particularly strong in the third. For owners of mid-sized and small firms, “results they can feel in the short term” are the most persuasive.

When I worked at a Swiss consulting firm, I often found that while strategy could be formulated smoothly, execution took time and was difficult. By contrast, your process feels very fast from strategy design through implementation. What kind of structure or resources make that possible?

You’re exactly right. First, a turnaround won’t succeed unless a company has a strong sense of crisis. Many firms introduced to us by regional financial institutions already recognize they have serious issues. That’s why our support can work quickly and effectively.

Also, we have a specialized division called “Specialized Consulting & Transaction,” which includes not only consultants but also members experienced in fraud investigations and M&A. That means we can combine optimal solutions as needed, from both financial and strategic perspectives. For example, if simple self-led restructuring isn’t enough to repay debt, we can pair it with M&A to bring in a new sponsor. If needed, we can also handle debt rescheduling or redesigning shareholder structures. Having a team structure that can assess and execute these responses is one of our strengths.

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We understand your company will reach its 19th year in January 2025. Over the next three years, what direction are you aiming for and what goals do you hope to achieve? As chairman, what is your vision or dream, and how do you want to guide Frontier Management going forward?

Thank you. There are two themes I’m especially focused on. The first is continuing to drive cross-border M&A. I currently also oversee our M&A division and plan to stay deeply involved. Among Japan’s mid-sized companies, only a minority are actively pursuing overseas M&A. Supporting and accelerating that isn’t just about helping individual firms grow—it’s also a social contribution to Japan’s broader economy.

Going forward, I want to keep building deal volume while also strengthening our solutions around PMI after M&A. I see a lot of potential there. The second theme is strengthening “investment.” From the beginning, we’ve pursued a business model that integrates consulting, M&A, and investment. By linking these three organically, we can raise enterprise value and, depending on the case, bring companies to the next stage such as a sale or IPO. That allows us to take real risk ourselves while committing to value creation in a true sense.

So rather than being a mere advisor, you’re taking risk yourself and taking responsibility for outcomes.

Exactly. Consulting often happens under confidentiality agreements, so from the outside it’s hard to see what was done. That can be frustrating. Even as an M&A advisor, our name may appear in deal announcements, but it’s still rare for the extent of our value-creation contribution to be visible.

By being involved in cases where value enhancement leads to clear outcomes like IPOs or sales, we want to show society “what we contributed.” In other words, when someone says, “If you can advise, then do it yourselves,” we want to be able to answer proudly, “Yes—we actually are doing it.” We already operate our investment business through Frontier Capital, and going forward we want Frontier Management itself to engage more proactively in investment. For instance, if a client is anxious about overseas M&A, we want to be able to say, “Then we’ll invest alongside you and share the risk.” That would give clients major reassurance.

In three years, I want our strengths to be clearly recognized from the outside around two pillars: “mid-sized cross-border M&A” and “investment-based support.” And if someday the enterprise value of our investment business surpasses our other businesses, I think that’s fine too. The essence of what we do won’t change: taking risk, delivering results, and being responsible for corporate growth. That stance is at our core.

That’s an excellent vision. Alongside that strategy, how do you think about talent development?

Talent development is also a very important theme for me. At our firm, employees have opportunities to work across consulting, M&A, and investment. I’ve personally been involved in all three. I started my career as a lawyer, and through experiences at the Industrial Revitalization Corporation and other government-affiliated institutions, I’ve built a multi-disciplinary background. I consider myself a “multi-skilled professional.” So for our people as well, since they chose to join Frontier, I want them not to stay confined to a single specialty. I want them to engage in diverse domains and become all-rounders in management. That’s because we aren’t merely advisors. As professionals who receive compensation for tackling clients’ management issues, we need broader perspective, deeper expertise, and stronger execution capability than the average manager.

I currently serve as an outside director of TEPCO, and I actively speak up on everything from legal affairs and accounting to strategy and business risk. I can do that because I’ve accumulated wide-ranging experience rather than limiting myself to one field. That’s exactly the kind of multi-skilled, proudly professional talent I want the next generation at Frontier to become. I intend to place even more emphasis on developing that capability.

This is my final question, and it’s a bit challenging. If you were asked to “introduce Frontier Management in one minute” to business leaders and investors around the world, how would you describe the firm?

Frontier Management is a professional firm that is not merely advisory in nature, but is committed to executing management reforms together with our clients. For critical management challenges faced by Japanese or overseas companies, we take risks ourselves, and when necessary even participate as capital partners, working side by side on the ground.

We are not bystanders—we sweat alongside clients as stakeholders. Through that, we deliver visible results and create long-term value. That is our reason for being. Whether the theme is business turnaround, cross-border M&A, or new business creation, we “see it through together.” That is the true strength of Frontier Management. And while we are rooted in Japan, our perspective and our networks are always global.

For more information, visit their website at: https://www.frontier-mgmt.com/eng/