Deal report · sample
IT services company
Custom software development and maintenance · Greater Tokyo · 2004 · 18 employees (15 engineers)
- Prepared for
- US search fund, first acquisition in Japan
- Date
- September 2026
- Exchange rate used
- ¥150 = $1
A profitable software house with ten straight years in the black and 60% recurring maintenance revenue. The catch is a broker fee that adds 18% to the price, and one client that brings in almost half the revenue through the owner's personal relationship.
Asking price
¥120M $800K
All-in cost
¥115M $764K
asking + fees + debt, less cash
True earnings per year
¥19.5M $130K
listed as ¥22M
Multiple
5.9×
all-in cost ÷ true earnings
Payback
5.9 years
at true earnings, before tax
Match score
82 / 100
Good business, but the all-in price is 5.9× true earnings. Worth it only at a lower bid.
01Snapshot
- Revenue
- ¥310M ($2.07M)
- Top client
- 48% of revenue (a listed company's subsidiary)
- Recurring share
- 60% (maintenance and operations, renewed yearly)
- Owner
- 67, handles sales personally, wants to retire within a year
- Debt / cash
- ¥15M debt, ¥45M cash (net cash ¥30M)
- Engineers
- Average tenure 9 years, two are over 60
02True earnings
What the business actually earns for a new owner, starting from the profit on the listing.
| Line | ¥ millions | USD |
|---|---|---|
| Operating profit as listedTen consecutive profitable years. | ¥22M | |
| Add back one-off retirement paymentPaid to a former director last year. Will not recur. | +¥4.0M | |
| Add back owner's private expensesCompany car and life insurance for the owner, booked as business costs. | +¥1.5M | |
| Cost of replacing the owner's sales roleA sales manager who can hold the top account, at Tokyo market salary. | −¥8.0M | |
| True earnings per year | ¥19.5M |
The listed profit is roughly honest. The adjustment that matters is the owner's sales role: someone has to keep the top client.
03All-in cost
What you actually pay, including the fees that do not appear on the listing and the debt you take over.
| Line | ¥ millions | USD |
|---|---|---|
| Asking price | +¥120M | |
| Broker's minimum fee (buyer pays)Not shown on the listing. Adds 18% to the price. | +¥22M | |
| Marketplace fee (2.2%) | +¥2.6M | |
| Less net cash you receive¥45M cash less ¥15M debt. | −¥30M | |
| All-in cost to you5.9× · payback 5.9 years | ¥115M |
Verdict
Negotiate. Bid ¥85M, walk away above ¥95M.
At asking, you pay 5.9× true earnings after netting out the cash. A bid of ¥85M brings that to 4.0×, in line with what small Japanese IT companies actually trade for. The seller has had the listing up for four months with few bidders, so there is room.
Suggested bid: ¥85M $567K
¥85M asking + ¥22M broker fee + ¥1.9M marketplace fee = ¥108.9M all-in, less ¥30M net cash = ¥78.9M net cost, 4.0× true earnings.
04Flags
Red flag
Top client is 48% of revenue and the relationship is the owner's
Ask for the contract term, notice period and whether a change of ownership needs the client's consent. Make the owner's 12-month stay a condition.
Red flag
Broker fee invisible on the listing
¥22M minimum, paid by the buyer. This is the most common surprise for foreign buyers.
Check
Two engineers over 60
Check retirement plans and who holds the knowledge for the top client's systems.
Check
Possible unpaid overtime
Small Japanese IT firms often use a fixed overtime allowance. If hours exceed it, back pay can be claimed for three years.
Good
60% recurring, ten profitable years, ¥30M net cash
The business itself is sound. The issues are price and concentration, both negotiable.
05Questions to ask the seller
- 1.Top client's contract: term, renewal date, notice period, change-of-control clause.
- 2.Who manages the top client day to day, other than the owner?
- 3.Will the owner stay 12 months, and would he accept part of the price as an earn-out?
- 4.Engineer roster with age, tenure and salary. Any planned retirements?
- 5.Overtime policy and actual hours for the last 12 months.
06Documents to request next
- Three years of financial statements with itemized schedules
- Revenue by customer for three years
- Top five client contracts
- Employee roster with age, tenure, salary and overtime records
- Bank loans and guarantees
07How the succession would work
Share purchase with 15–20% of the price as an earn-out tied to the top client renewing. Owner stays 12 months as chairman with a sales handover plan. Appoint the longest-serving engineer as operations lead.