In April 2024, MUFG Innovation Partners (MUIP) collaborated with startup media BRIDGE to host a study session about a new type of IPO known in Japan as the “swing-by” IPO. This approach, which involves a startup first becoming a subsidiary of a large corporation and then going public, is attracting attention as a growth strategy and exit model for startups. The term “swing-by” refers to the space exploration technique of maneuvering a spacecraft using a planet’s gravity, such as to accelerate or change direction. The term “swing-by” IPO was coined to describe the process of first leveraging the resources and distribution networks of large corporations to facilitate rapid growth before going public.
The session featured Wataru Yamaki, Founder and Chief Executive Officer (CEO) of Kanmu, previously an equity-method affiliate of MUFG that became an MUFG subsidiary in December 2022 when MUFG acquired an additional interest at a valuation of ¥25 billion. Joining him was Takashi Sano, Chief Investment Officer of MUIP. This is Part 3 of a three-part series.
Wataru Yamaki
Kanmu, Chief Executive Officer
After graduating from Keio University’s Faculty of Science and Technology with a degree in Information Engineering, he joined Studio Ousia, which promoted university-industry collaboration projects, as a data analysis engineer. In 2011, he founded Kanmu.
Takashi “Taka” Sano
MUFG Innovation Partners, Chief Investment Officer
As the Chief Investment Officer of MUFG Innovation Partner (MUIP), he manages an AUM of ¥80 billion and is responsible for investing in startups and developing new businesses globally. Prior to MUIP, he undertook startup investments and CVC operations at Global Brain. Before that, at Sony, he was involved in financing new business projects such as technology investments and joint ventures, and managed overseas operations as the category head of the retail energy business.
How is a swing-by IPO different from a standalone IPO?
Q&A session with the audience
Audience question #1: Could you please share what is different or has changed regarding management issues in a swing-by IPO, as compared to standalone management or IPO?
Yamaki: To put it simply, since we are in a parent-subsidiary listing scenario, there are generally constraints on equity ratios. However, apart from that, the swing-by IPO can be considered as an extension of the standalone IPO, so there aren’t many differences. When it comes to maintaining budgets, that’s necessary for IPOs in general and aiming for a swing-by IPO doesn’t fundamentally alter that. It is not possible to aim for a swing-by IPO from the outset. A swing-by IPO is the result of aiming for a standalone IPO, and in that process, it becomes the case that the company can benefit from the synergies and financing possibilities of the swing-by process.
Taka, what is the buyer’s perspective?
Taka: Here is what I think happens generally (with the caveat that I do not necessarily represent MUFG’s view) . In Japan, the fundamental premise for startups is still that it should aim for an IPO. I believe there are various data points, but approximately 90%, or almost all cases, in Japan aim for IPOs. In contrast, in the U.S., more than 90% of cases are M&A. It’s about setting milestones: You start a startup, achieve a certain scale, identify potential buyers, and if they agree to an acquisition, the business can scale further after. Some entrepreneurs start with this process in mind.
While such cases are still relatively rare in Japan, considering that these cases happen outside Japan, whether it’s a 100% acquisition or a swing-by IPO, having options like these could result in finding the optimal partner to grow further, be it a corporate business or a financial institution. I hope to see more of such cases unfolding in the future.
Audience question #2: Please tell us about your considerations for when to conduct a swing-by IPO
Yamaki: I don’t think one can precisely pinpoint the timing of an IPO, as it often depends on various factors, but the intention is usually to pursue a dual-track approach of IPO and M&A options in parallel. If there’s a compatible company that could expand the business significantly and provide various opportunities, then we would pursue that. Another commonly mentioned point is that institutional investors won’t engage unless the valuation meets a certain threshold. So, choosing the swing-by IPO as an option and aiming for that threshold together creates a beautiful narrative.
Audience question #3: Unlike IPOs, M&As can be challenging due to the difficulty in disclosing information beforehand, and sometimes not being able to disclose anything externally until the announcement. How did Kanmu handle internal communication in this case?
Yamaki: Initially, since FreakOut was a major shareholder and what we were doing wasn’t too different from FreakOut’s business, explaining that wasn’t complicated. However, there were instances where the discussion was leaked to the newspapers beforehand, so everyone already knew about it. We prepared contingency plans for such scenarios, so we could explain what our timeline was, without panicking.
Taka, what advice would you give from the perspective of an investor?
Taka: From the investor’s perspective, I think it’s crucial for the startup to consistently emphasize that this is one important milestone as part of an ongoing journey – that it is the beginning of a growth phase. That is an important message to send.
Yamaki: We had extensive discussions with manager-level personnel beforehand. Essentially, during the due diligence process, discussions centered around how to leverage synergies. It wasn’t just about the management team; we discussed extensively with the working-level and manager-level employees what synergies could exist, what could be accomplished with them. It’s crucial to get buy-in from key personnel.
Taka: Actually, it’s incredibly important from the buyer’s perspective too. There are quite a few cases where, despite a successful acquisition, key personnel end up leaving. When you’re aiming to grow a company beyond its current state, having the necessary personnel is vital. It becomes a very important issue for the acquiring company.
Any final thoughts?
Yamaki: As management, being acquired might feel frustrating at times, but if that feeling exists, perhaps it’s better not to proceed. If management firmly intends to pursue a certain path because they believe it’s the right thing to do, then it’s likely to succeed. If decisions are driven by external pressures or financial factors, maintaining momentum becomes difficult. Ultimately, whether management has conviction is perhaps the most critical factor.
Taka: IPO is certainly one option, and M&A outside of that is another. Seeking the optimal financial structure and continuously considering various options – It’s simple to think about yet challenging to execute, but I believe it’s incredibly important.
