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 1 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.
What is a swing-by IPO, and what does it help to achieve?
Takeshi Hirano, Senior Editor and Co-Founder of BRIDGE, opened the discussion by providing the background for what has come to be known as the swing-by IPO:
Soracom was founded in 2014, by a team that worked at AWS in Japan, as an ambitious cloud service for the Internet of Things (IoT). It attracted the attention of many companies and the media, including myself.
Just two years after the service launch, in August 2017, Soracom announced that it became a KDDI subsidiary through a stock transfer to KDDI. The acquisition, which valued the company at hundreds of millions of yen just three years after its founding, had a significant impact on many investors, entrepreneurs, and the startup ecosystem.
Three years later, in 2020, Soracom announced a new roadmap for public listing as their next growth path. When they joined KDDI, they had 80,000 contracts. They then gained further traction, eventually achieving 2 million contracts. The management team’s strategy to reach greater heights was dubbed the “swing-by” IPO.
A year after the above announcement, in June 2021, Soracom entered into capital and business alliances with six companies: Secom, Sourcenext, Sony Group, Nippon Gas, Hitachi, and World Innovation Lab (WiL) as part of its independent management policy. Three years later, in March 2024, the company went public at an estimated market capitalization of ¥36.5 billion (as of February 20, 2024), and has since elevated to greater heights.
While this is an impressive growth story, it also poses a question: What is interesting about what seems to be a type of parent-child listing, without an element of technical novelty that, for instance, SPACs had when it became popular in the U.S.? Based on his extensive experience covering startup acquisitions, Hirano observed the following:
I have covered many cases where startups were acquired by large companies. Founders care particularly about ‘momentum’. What is important for startups is the expectation of growth. An acquisition risks cutting off this momentum.
For example, what if the founder lets go of all his/her shares? That might signal to third-party observers that the founder feels that ‘the job is done’. The feeling that the founder or management might leave the business can be a significant negative for startups.
The key message here is that it is easy for the acquiring company and the acquired company to say that they will aim for further growth after the acquisition. However, it is important for the founders and management of the acquired company to remain as key stakeholders, and for the acquiring company to share with the founders and management the same narrative of subsequent growth. According to Hirano, this PR impact is one hidden benefit of the swing-by IPO.
Growing as part of the MUFG Group
Kanmu, founded in 2011, is a startup whose main business is the Bundle Card, a prepaid card app that can be issued to anyone in as quickly as one minute. In 2012, the company joined Mitsubishi UFJ Financial Group (MUFG) through a stock transfer by some of its existing shareholders including FreakOut Holdings, a digital marketing technology company, to MUFG Bank.
In an interview at the time of acquisition, Kanmu CEO Yamaki described the company’s growth strategy and IPO plans as follows:
Question: You announced that Kanmu will become a subsidiary of MUFG, but some shareholders, including yourself, will remain. What kind of management structure and milestones are you aiming for in the future?
Our leadership team will remain the same. As a company, we still consider an IPO to be a strong option. The business is growing steadily. Given the nature of our business, we decided that having a parent company would be beneficial. For example, ACOM, which specializes in consumer loans, is a listed subsidiary of MUFG. (Interview with Yamaki in January 2023 on Kanmu’s ¥25 billion valuation by MUFG, in Japanese).
