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Medirom Healthcare Technologies (MRM) intends to raise $18 million in an IPO of its American Depositary Shares representing underlying common shares, according to an F-1 registration statement.

Tokyo, Japan-based Medirom was founded to develop a retail salon network of corporate owned and franchised health salons in Japan.

Management is headed by founder and CEO Mr. Kouchi Eguchi, who was previously head of the internet division of Carchs Co. and a director of the Association of Japan Relaxation Industry.

Below is a brief overview video of the firm's Re.Ra.Ku brand:

Source: Medirom Channel

As of June 30, 2020, the firm owned and operated 138 salons and franchised 151 salons covering major cities in Japan.

The locations typically average about 670 square feet in size and are staffed by six relaxation therapists.

Medirom has received at least $1.3 million from investors.

The firm markets its services through online and offline advertising efforts as well as locating its salons in high foot traffic areas near train stations and shopping centers.

MRM also seeks to provide marketing support for its franchise operators through magazine advertisements as well as training operators to upsell services to customers and maximize promotional efforts.

Selling, G&A expenses as a percentage of total revenue have been rising as revenues have decreased in the most recent reporting period.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, swung to a negative (1.3x) in the most recent reporting period, as revenue contraction occurred.

According to a market research report by Ask Wonder, the market in Japan for health and wellness was an estimated $49.2 billion in 2017.

This represents a forecast CAGR of 8.0% through 2020, although the distancing effects of the Covid-19 pandemic have likely reduced this growth substantially.

Also, Asian health salons have typically been focused on the beauty aspect of health and wellness, but have more recently sought to expand their service offerings.

MRM has been developing a digital preventative healthcare offering, which includes a sampling segment, a smartphone health monitoring app and preventative healthcare services delivered through the app.

Major competitive or other industry participants include:

  • Raffine
  • Karada Factory
  • Riracle
  • Temomin
  • Noom

Medirom’s recent financial results can be summarized as follows:

  • Contracting topline revenue in 2020
  • Sharply reduced gross profit and gross margin
  • A swing to operating loss and net loss
  • A swing to cash used in operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of June 30, 2020, Medirom had $2.2 million in cash and $37.8 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was negative ($6.1 million).

Medirom intends to raise $18 million in gross proceeds from an IPO of its American Depositary Shares representing underlying common shares, offering 1.2 million ADSs at a proposed midpoint price of $15.00 per share.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

The company founder owns one Class A ‘golden share’ which provides him with key veto rights regarding amendments to the firm’s articles of incorporation and issuance of additional common stock, among other aspects.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $83.2 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 22.98%.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include investments, acquisitions, or strategic collaborations to expand our customer base, as well as the development and marketing of new services.

Management’s presentation of the company roadshow is not available.

The sole listed bookrunner of the IPO is Maxim Group.


Medirom is seeking U.S. funding to provide cash as it tries to weather the Covid-19 pandemic-induced slowdown in its business.

The company’s financials show sharp topline revenue contraction along with other major financial metrics.

Selling, G&A expenses as a percentage of total revenue have risen; its Selling, G&A efficiency rate has swung to negative territory as revenue has declined.

The market opportunity for providing health and wellness services in Japan is large and was expected to grow at a moderate rate before the Covid-19 pandemic.

However, given the pandemic’s uncertain timeline as to country herd immunity and the interest of consumers in Japan to want close contact in a retail setting with wellness providers is an open question.

Maxim Group is the sole underwriter and there is no data on IPOs led by the firm over the last 12-month period.

As to valuation, compared to a basket of publicly held Retail (Special Lines) companies in January 2020 with an aggregate Enterprise Value / Revenue multiple of 1.19x, MRM is seeking an EV / Revenue multiple of more than double that figure, of 2.68x.

Given the firm’s contracting topline revenue swing to a loss and cash used in operations and the high price management is asking IPO investors to pay for an uncertain future trajectory, the IPO is not enticing to me.

My opinion is to AVOID the IPO.

Expected IPO Pricing Date: December, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice. Past performance is no guarantee of future results.)

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