Japan succession: The long goodbye

"Nikesh is a unique leader with unparalleled skills around strategy and execution. He should be CEO of a global business, and I had hoped to hand over the reins of SoftBank to him on my 60th birthday - but I feel my work is not done. I want to cement SoftBank 2.0, develop Sprint to its true potential and work on a few more crazy ideas. This will require me to be CEO for at least another five to 10 years - this is not a time frame for me to keep Nikesh waiting for the top job."

So said Masayoshi Son, CEO of SoftBank, when it was announced last week that his presumed successor Nikesh Arora would step down as president and COO of the company. In promising to stick around until the age of 70, Son appears to be conforming to the Japanese corporate stereotype: the founder who just cannot let go. For years, private equity firms have talked up the succession planning opportunity in Japan - and now they claim to be seeing more deal flow than ever before - but Son's situation underlines the difficulties in these situations.

Arora joined SoftBank in 2014, giving up a high-profile job at Google, and was responsible for a string of large investments in growth-stage technology companies across the region, including Snapdeal, Ola, Didi Chuxing, Coupang and Grab. On replacing Son as president last year, Arora invested $482 million in SoftBank as a show of commitment to the firm's future. But it is a future in which he will now play no part beyond that of advisor, with a replacement president and COO - a SoftBank journeyman - already appointed.

Arora was facing criticism for some of his investments, but SoftBank continued to back him. Speaking to Fortune, he gave a relatively understated account of his departure: Son works 12-16 hours a day and hasn't contemplated what life would be like without his life's work; when Arora pointed out ahead of a shareholder meeting that Son was nearing 60 and the supposed transition point, the founder thought about it and decided he wasn't ready; and Arora concluded he could not stay on as CEO-in-waiting for another 5-10 years. (Incidentally, Son has bought back Arora's SoftBank stock.)

The succession planning opportunities pursued by GPs in Japan's middle market involve companies far smaller than SoftBank; their targets are among the 3.8 million small and medium-sized enterprises (SMEs) in the country. The consensus view at the recent AVCJ Japan Forum was that founders are becoming more willing to sell. According to a survey conducted by buyout firm NSSK, two thirds of these individuals have no successor in place, and almost all of them personally guaranteed the bank loans extended to their companies.

The combination of demographic and economic expedience is thought to have contributed to the 2,000 M&A transactions involving SMEs last year, the highest level of activity seen in the space since before the global financial crisis. PE firms want to secure a slice of this deal flow. GPs believe their value-add credentials and willingness to engage in one-on-one negotiations - thereby saving founders the trouble of a wider auction process during which a lot of confidential information is disseminated - make for a strong enough incentive to overcome any reluctance at selling to private equity.

Some entrepreneurs, however, are not for turning. Several investors note that when founders reach 75-80, it is too late; they are often fundamentally opposed to private equity and would rather take their shares to the grave than sell up. As such, they tend to focus on the younger generation, people in their 40s who are more open-minded and look at the windfall from an exit in terms of how it can support the next stage of their lives.

It remains to be seen whether SoftBank's eternally youthful Son is ever of the mindset to join them.

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• Topics
• North Asia
• Buyouts
• Softbank
• Japan