M&A Research Institute H1 FY25 Earnings: Growth Amid Challenges
Consulting Growth Meets M&A Headwinds and a Bold Buyback
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M&A Research Institute ($9552.T) recently released its financial results for the six months ended March 31, 2025, revealing a mixed performance. As Japan’s leading SME M&A intermediary, MARI is navigating a challenging landscape with declining M&A deal closures, a little offset by robust consulting growth. Here’s a breakdown of the key figures, outlook, and what it means for quality-focused investors.
H1 FY25 Results: Consulting Shines, M&A Struggles
MARI reported net sales of ¥7,658M, down 10.2% year-over-year (YoY) from ¥8,526M, reflecting a tough environment for M&A deals. Operating profit fell sharply to ¥2,480M (-49.8% YoY), driven by fewer deal closures (114 vs. 123 in H1 FY24) due to increased competition. Net profit followed suit at ¥1,568M (-50.6% YoY), with an EPS of ¥26.81 (-50.6% YoY). The operating margin compressed to 32.4%, a steep decline from 57.9% last year, as costs rose significantly—SG&A expenses jumped 41.1% to ¥2,289M, fueled by advisor growth (329 advisors, +36.0% YoY).
On the bright side, MARI’s consulting (incubation) segment soared, with revenue up 1,211.0% YoY to ¥563M, though it remains loss-making (¥-166M operating loss). This diversification highlights MARI’s strategic pivot to offset M&A cyclicality, but cost pressures from rapid headcount expansion continue to weigh on profitability.
Full-Year 2025 Outlook: Cautious Optimism
MARI revised its full-year forecast downward, reflecting M&A challenges. Net sales are now expected at ¥17,950M (down 22.6% from the initial ¥23,200M), with operating profit at ¥5,732M (-44.9%) and net profit at ¥3,960M (-40.9%). EPS is projected at ¥67.65, a significant drop from the initial ¥115.19. The company anticipates closing 275 M&A deals (down from 367), implying 161 deals in H2—a tall order given the competitive landscape. Consulting revenue is a bright spot, raised to ¥1,450M (+20.8% from initial), though losses are expected to persist (¥-668M).
The steep revision and H2 dependence introduce execution risk, but MARI’s growing pipeline and consulting momentum provide some optimism. The decline in results is much higher than I had anticipated and I will have to adjust my valuation models.
Capital Allocation: Buybacks and Dividends
MARI announced a significant ¥7.5 billion share buyback program, targeting up to 7,500,000 shares (more than 12% of issued shares!) from May 1, 2025, to September 30, 2025. This aggressive move signals strong confidence in undervaluation and could boost EPS by ~14.6%, assuming no share price change—a meaningful tailwind for shareholders. The dividend policy has changed after the announcement of the buybacks and the payout ratio will go to 10% with the aim of maintaining a stable and consistent dividend.
Valuation model
Based on the reduced earnings and steep decline in expected net income and free cash flow I have adjusted the Reverse DCF model, also considering the high buybacks which will result in a lower share count and a lower cash position. At current share price the market is expecting a 10% annual growth based on the depressed cash flow levels for 2025.
Quality Assessment: Growth Potential with Risks
For Quality Investors, MARI presents a mixed picture:
Strengths: Consulting growth (+1,211.0% YoY) showcases diversification, while a ¥7.5 billion buyback and consistent dividends reflect capital discipline. Financial strength is robust, with total assets at ¥12,930M and an 82.0% equity-to-asset ratio.
Weaknesses: Margin compression (32.4% vs. 57.9%), M&A volatility (114 deals vs. 123), and cost pressures (advisors +36.0% YoY) highlight operational challenges. The severe forecast revision (-44.9%) adds uncertainty.
MARI offers growth potential if you are comfortable with cyclicality, but stability-focused quality investors may find the volatility and risks less appealing.
Investment Takeaway
MARI’s consulting growth, aggressive share buyback, and capital allocation make it an intriguing option for growth-oriented quality investors. Margin pressure and M&A cyclicality warrant caution and results are much worse than I expected. The bold share buyback program is a relief. Investors should monitor H2 deal execution and margin trends closely. For now, growth investors may see value long-term, while stability seekers might wait for clearer signs of recovery. Because of the high Investment Readiness Score, the low valuation and the growth perspective I had initiated a 1% position earlier this month. Given the high volatility in the earnings I am not planning to increase this position.
Disclaimer
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