The Goodwill Exceeds the Check

On March 3, 2025, Nippon Paint Holdings completed the purchase of 100% of the equity interests in LSF11 A5 TopCo LLC — the entity the annual report describes as holding AOC, LLC and its group of companies, and which the disclosures thereafter simply call AOC — taking its stake from zero to all of it. The news release stated a price of US$2,194 million, which it rendered as ¥333,466 million at ¥152 to the dollar. It did not state how the purchase would be funded, or when AOC's earnings would enter consolidation. The annual securities report for the fiscal year ended December 31, 2025 states both — external borrowings on one page, March 2025 on another. This piece is about that report: where a bought business is placed once it has been bought, and which tables carry it.

The funding answer was public four months before completion. The signing release of October 28, 2024 put the price at US$2,304 million, converted in that release at ¥145.0 to the dollar, and stated that the company would fund the acquisition by debt financing and did not intend to undertake equity financing. It gave the expected closing as the first half of FY2025. It stated EPS accretion from the first year. It named the seller structure — LSF11 A5 Parent, L.P. holding 100% of the target, with Lone Star Fund XI, L.P. among its investors — and described AOC as a specialty formulator operating chiefly in the United States and Europe. It also printed the target's own prior figures: consolidated net sales of US$1,496 million and EBITDA of US$528 million for the year ended December 31, 2023, an EBITDA margin of 35.3% (528 ÷ 1,496) on a measure the release does not reconcile to the segment profit the filing would later report. So the price appears three times, in three forms: US$2,304 million in October 2024, US$2,194 million in March 2025, ¥332,017 million as consideration transferred in the filing.

The company's name for the practice is the "Asset Assembler" model. Its investor-relations pages define it: a smaller headquarters, autonomy and accountability pushed out to "partner companies" — the in-house term for its consolidated subsidiaries, of which there are 267 — and M&A specialized in paint and adjacent fields, stacked up to grow safely. The annual report states the acquisition criteria: markets with steady growth, competitive advantage, EPS accretion from year one, and valuations that put ROIC above WACC within three years. The stated object of the whole model is "Sustainable EPS Compounding," organic and inorganic both.

The criteria appear in the company's other documents in slightly different words. The integrated report for the same fiscal year puts them as carefully selected M&A in "resilient growth markets within the chemicals domain," with "EPS accretion from the first year and achieving ROIC above WACC within three years at each acquired company" — the return test attached to each acquired company rather than to the group. That report defines a partner company as a consolidated subsidiary of the holding company, and states that for asset-assembly transactions the company does not factor synergies into the acquisition price, while pursuing them after the acquisition by leveraging the platform. The April 2024 strategy briefing states the object plainly — Asset Assembler "is about EPS compounding through organic and inorganic initiatives" — and sets the target conditions as low-risk and good returns, cash generative, of any region, business area or size, with a balance between risk and valuation, and sustainable EPS accretion from Year 1. The same briefing prints the revenue CAGR of three eras: +1.9% for 2000–2014, +5.4% for 2015–2018, +16.9% for 2018–2024.

The accounting frame matters as much as the strategy, because the company reports under IFRS. Under its stated policies, goodwill is not amortized. It is tested — every fourth quarter, or whenever an indicator of impairment appears — against a recoverable amount defined as the higher of fair value less costs of disposal and value in use. An impairment, once recognized, is not reversed. Purchased growth, in other words, does not fade from the balance sheet on a schedule. It stays at cost until a test says otherwise.

The purchase-price allocation for the deal — pages 107–108 of the 186-page filing, and again in the February 2026 earnings release — reads as follows. Consideration transferred: ¥330,236 million (US$2,016 million), plus a basis adjustment of ¥1,781 million (US$11 million) — ¥332,017 million (US$2,027 million) paid in total. Identifiable intangibles: ¥143,065 million (US$873 million), split into trademarks at ¥64,749 million (US$395 million), customer-related assets at ¥73,784 million (US$450 million) and technology assets at ¥4,517 million (US$28 million). And then the line that organizes everything else: the fair value of acquired assets and assumed liabilities, net, was negative ¥126,296 million (US$771 million).

So the goodwill on the deal is ¥458,314 million (US$2,798 million) — 138% of the consideration itself (458,314 ÷ 332,017). The note describes the goodwill as mainly reflecting future excess earning power, and records that no portion is expected to be tax-deductible. The company bought a business whose separable pieces, valued one by one, came to less than zero net of its liabilities; everything above that line, plus the price, is filed under one word.

Now the stock rather than the flow. At December 31, 2025 the consolidated balance sheet carries goodwill of ¥1,468,989 million (US$8,968 million), up from ¥968,993 million (US$5,916 million) a year earlier, next to other intangibles of ¥614,148 million (US$3,749 million). Total assets are ¥4,017,738 million (US$24,528 million); equity attributable to owners of the parent is ¥1,803,859 million (US$11,013 million). The filing does not add goodwill and other intangibles together, so we will: ¥2,083,137 million (US$12,718 million), which is 115.5% of that equity. Goodwill alone is 36.6% of total assets (1,468,989 ÷ 4,017,738) and 81.4% of owners' equity (1,468,989 ÷ 1,803,859).

A year earlier the same four lines were smaller and the three ratios lower. The results release of February 14, 2025 prints, at December 31, 2024, goodwill of ¥970,745 million (US$5,926 million), other intangible assets of ¥457,429 million (US$2,793 million), total assets of ¥3,071,378 million (US$18,751 million) and equity attributable to owners of the parent of ¥1,590,982 million (US$9,713 million). On the same arithmetic: goodwill was 31.6% of total assets (970,745 ÷ 3,071,378) and 61.0% of owners' equity (970,745 ÷ 1,590,982), and goodwill plus other intangibles, ¥1,428,174 million (US$8,719 million), was 89.8% of that equity. All four of the lines that release printed sit above what the FY2025 filing prints for the same date: goodwill by ¥1,752 million (US$11 million) against the ¥968,993 million at which the FY2025 bridge opens, other intangibles by ¥1,044 million (US$6 million) against ¥456,385 million (US$2,786 million), total assets by ¥2,796 million (US$17 million) against ¥3,068,582 million (US$18,734 million), and equity attributable to owners of the parent by ¥1,462 million (US$9 million) against ¥1,589,520 million (US$9,704 million); our verified excerpts do not itemize the differences. On what the stock does to a ratio, the company's own account is in the integrated report: it states that goodwill affects ROIC, that capital efficiency can appear lower because of the accounting treatment, and that goodwill arising from active M&A offsets ROIC improvement generated organically.

The year's goodwill bridge is mostly, but not entirely, that one deal. Opening balance of ¥968,993 million, plus the ¥458,314 million recognized on the LSF11 A5 TopCo LLC acquisition, minus a goodwill impairment of ¥5,486 million (US$33 million) at the Cromology group recorded in the February 2026 earnings release, comes to ¥1,421,821 million (US$8,680 million). The closing balance is ¥1,468,989 million. The residual ¥47,168 million (US$288 million) is not itemized in the passages we verified; the filing's risk section notes, separately, that overseas subsidiaries' statements are translated into yen at period or closing rates, and that about 90% of revenue is overseas.

The funding answer also sits in the filing: external borrowings of ¥807,825 million (US$4,932 million), a figure the company says includes both liquidity on hand and the funds for acquiring all interests in LSF11 A5 TopCo LLC. Bonds and borrowings stood at ¥1,418,884 million (US$8,662 million) at the parent and ¥3,008 million (US$18 million) at consolidated subsidiaries at year-end. The cash-flow statement frames the same year from above: operating activities brought in ¥187,526 million (US$1,145 million), investing consumed ¥321,988 million (US$1,966 million), financing supplied ¥254,732 million (US$1,555 million). The year's operating cash did not cover the year's subsidiary acquisitions of ¥299,943 million (US$1,831 million); borrowing did.

Between the borrowings and the business sits a structure. A second release dated March 4, 2025 records that the acquired entity is a three-tier stack — LSF11 A5 TopCo LLC, LSF11 A5 MidCo LLC and LSF11 A5 HoldCo LLC — with the company holding 100% of TopCo, TopCo 100% of MidCo and MidCo 100% of HoldCo; the release states these as membership-interest ratios, not as voting rights. Capital was increased at all three on March 3, 2025, to US$2,430 million at TopCo and US$2,397 million at MidCo and at HoldCo, figures the release marks as approximate. The stated reason is refinancing AOC's debt after the acquisition, using Japan's low yen-based interest rates against overseas markets — which the release calls one of the Asset Assembler model's advantages. The three became specified subsidiaries the same day, their capital having passed 10% of the company's own. The release does not state the total injected; it states the effect on performance and financial position as negligible.

Three figures in the filing answer to the name "spent buying subsidiaries." The cash-flow statement's line reads ¥299,943 million (US$1,831 million); the statement itself does not name what was bought. The business-combinations note computes ¥332,017 million paid less ¥32,427 million (US$198 million) of cash held by the acquired companies, or ¥299,590 million (US$1,829 million). The MD&A repeats ¥299,943 million. The ¥353 million (US$2 million) between the statement line and the note is not itemized in our verified excerpts. Same name, two tables.

The same three lines ran the other way a year earlier. In FY2024 operating activities brought in ¥167,401 million (US$1,022 million), investing consumed ¥148,106 million (US$904 million), and financing consumed ¥37,377 million (US$228 million) rather than supplying anything. The prior year's cash-flow statement carries the line under the title "Purchase of shares of subsidiaries," and it reads ¥35,892 million (US$219 million) — covered 4.7 times over by that year's operating cash (167,401 ÷ 35,892).

On the income side, AOC entered consolidation from March 2025 — ten months of the year — and entered segment reporting as a fifth segment of its own. Its external revenue: ¥157,282 million (US$960 million), or 8.9% of consolidated revenue of ¥1,774,231 million (US$10,832 million). Its segment profit: ¥48,585 million (US$297 million), against consolidated operating profit of ¥257,104 million (US$1,570 million) — 18.9%, with a caveat attached: the five segment profits sum to ¥262,067 million (US$1,600 million), which is ¥4,963 million (US$30 million) above the consolidated figure, reconciled by the single adjustment line the segment table prints, described in its note as headquarters expenses not belonging to any reportable segment and intersegment eliminations, and not split into amounts.

The margin is where the new segment stands apart. Segment profit over external revenue — both taken from the segment note at pages 110–111 of 186 — gives AOC 30.9% (48,585 ÷ 157,282). Computed the same way, NIPSEA runs at 16.2%, Japan at 13.7%, DuluxGroup at 8.6%, the Americas at 5.4%. Ten months of a segment that did not exist a year ago out-margined, on this arithmetic, every segment the group already had.

The prior year's segment note carries four reporting segments in the release we verified: Japan, NIPSEA, DuluxGroup, the Americas. Computed the same way — segment profit over revenue from external customers — FY2024 margins were NIPSEA 13.6% (124,255 ÷ 914,370), DuluxGroup 10.1% (40,374 ÷ 398,534), Japan 9.6% (19,446 ÷ 203,112), the Americas 6.3% (7,778 ÷ 122,702). Those are the release's figures. The filing prints the same year again in its own prior-year column, on the five-segment basis it adopted when AOC was added, and there NIPSEA's segment profit reads ¥122,813 million (US$750 million) against the same external revenue — 13.4% (122,813 ÷ 914,370) — with the segment total at ¥190,412 million (US$1,162 million) and consolidated operating profit at ¥186,206 million (US$1,137 million). The over-sum is not new either. In the release, FY2024 total segment profit of ¥191,854 million (US$1,171 million) sits above consolidated operating profit of ¥187,647 million (US$1,146 million), reconciled by a printed adjustment of negative ¥4,206 million (US$26 million) that the table describes — headquarters expenses not belonging to reportable segments, and intersegment eliminations. The filing's restated column runs ¥190,412 million above ¥186,206 million on that same ¥4,206 million, and the note under its FY2025 table repeats the description word for word beside the ¥4,963 million. Both years, one adjustment line and one sentence describing it.

How much of the year's growth was bought is not split out in the MD&A passages we verified: the text attributes the 8.3% revenue increase to contribution from AOC among other factors, without separating new consolidation from existing businesses, and without a volume-price-mix or currency decomposition. The subtraction, though, is available from disclosed figures. Consolidated revenue of ¥1,774,231 million minus AOC's ¥157,282 million leaves ¥1,616,949 million (US$9,871 million) for the pre-existing group, versus ¥1,638,720 million (US$10,004 million) a year earlier — lower by ¥21,771 million (US$133 million), or 1.3%. The company's own segment table shows NIPSEA down 2.9% and the Americas down 3.1% in yen terms; the risk section notes yen translation at period rates on a group that is about 90% overseas. From these disclosures, currency and volume cannot be separated.

A separation the MD&A does not make does appear in the integrated report, on a different measure. It states that consolidated adjusted operating profit rose 37% in 2025, including the contribution from the AOC acquisition, and that organic adjusted operating profit — the existing businesses — grew 10%. Adjusted operating profit is a company-defined measure: the pages we verified give neither its definition nor the amounts behind the two percentages, and neither figure decomposes revenue. On revenue, the subtraction above remains the only route the disclosures permit.

Where does the ¥1,468,989 million (US$8,968 million) sit? The policy note answers in method: goodwill is allocated to cash-generating units identified, as a rule, along management's business classifications. The segment note answers in columns: revenue, segment profit, depreciation and amortization, impairment losses, capital expenditure — a per-segment goodwill balance is not among the columns in the pages we verified (111–112 of 186), and non-current assets appear there by geography rather than by reporting segment. Within our verified excerpts, the stock of bought growth appears on one page as a single number, and on no page broken out by reporting segment.

The test's inputs are described in kind rather than in figures within those excerpts. Recoverable amount: the higher of fair value less costs of disposal and value in use. Discount rate: based on a pre-tax weighted-average cost of capital reflecting the time value of money and asset-specific risk. Numeric discount rates, long-term growth rates, CGU-level balances and sensitivity tables do not appear in the pages we verified — 100 and 106 of 186 — which is a statement about our excerpts, not about the whole filing. The audit committee's report adds process: it discussed the reasonableness of goodwill valuation with the auditor multiple times as a key audit matter, and examined internal controls and finances at recently acquired group companies in the United States and Kazakhstan.

The test does fire. The February 2026 earnings release records a goodwill impairment at the Cromology group: ¥5,486 million (US$33 million), housed in the DuluxGroup segment — 0.37% of the year-end goodwill balance (5,486 ÷ 1,468,989). That is small against the stock; we note it because it is the mechanism in motion. The risk section, for its part, lists goodwill impairment by name among M&A risks, in a passage that also names AOC — plans not unfolding as expected, synergies not appearing, invested funds not being recovered.

Who owns the assembler: the large-shareholder table at December 31, 2025 shows Nipsea International Limited with 1,293,030 thousand shares, 55.54%, and Fraser (HK) Limited with 85,000 thousand shares, 3.65%; the table's listed holders total 78.26%. The filing's notes state that Goh Hup Jin holds 90.91% of the votes in Nipsea International, the parent company, and the risk section records that the Wuthelam group came to hold 58.7% of the company through a third-party allotment whose payment completed in January 2021 — enough for material influence over both ordinary and special resolutions. The governance report describes a special committee of independent outside directors for transactions with the major shareholder.

The scoreboard the company set for itself was drawn before its biggest purchase. The medium-term targets announced in April 2024 — revenue CAGR of +8–9%, EPS CAGR of +10–12% — are premised on the 2023 portfolio, expressly not assuming the AOC acquisition. Against that yardstick, the company reports 2023–2025 EPS CAGR excluding AOC at +9.8%, or +10.3% on an adjusted basis. Meanwhile the consolidated EPS that includes AOC printed ¥76.66 (US$0.47) for 2025, and guidance for 2026 puts it at ¥85.34 (US$0.52) — an implied +11.3% (85.34 ÷ 76.66). One measure excludes the bought growth to grade the promise; the other includes it to state the result.

On February 14, 2025 the company guided FY2025 to revenue of ¥1,740,000 million (US$10,623 million), operating profit of ¥198,000 million (US$1,209 million) and basic EPS of ¥57.05 (US$0.35); the pages we verified carry no statement of whether that guidance assumed AOC's consolidation. The year printed revenue ¥34,231 million (US$209 million) above the guided figure, operating profit ¥59,104 million (US$361 million) above it, and EPS 34.4% above it (76.66 ÷ 57.05). Basic EPS a year earlier was ¥54.22 (US$0.33) as that release printed it, and the filing's own five-year table restates the same year at ¥53.60 (US$0.33), the figure the integrated report's table carries as well — so the series runs 53.60 to 76.66 to a guided 85.34 on the filing's basis, and 54.22 to 76.66 on the basis first printed, while the integrated report states EPS rose 87.5% across 2023–2025 without stating, in the pages we verified, the basis on which that is computed. The yardstick itself has since been redrawn, and the report gives its reasons: a more cautious outlook for NIPSEA China, and AOC now integrated into the portfolio, operating chiefly in a United States market the report describes as near-term challenging, from which it expects "a degree of short-term dilution to our overall growth rate." The same report gives medium-term consolidated CAGR targets assuming the 2025 portfolio — revenue mid-single-digit, adjusted operating profit and adjusted EPS high-single-digit — in letter bands, where the April 2024 briefing printed c.+8~9% and c.+10~12% against a base its footnote defines as the 2023 portfolio including the two India businesses, NPI and BNPA, and Alina in Kazakhstan.

The next entry is already scheduled. Every fourth quarter, the ¥1,468,989 million (US$8,968 million) meets its test against the higher of two estimated values, and either stays or is written down without the possibility of coming back. Until then, it sits where the ledger put it.

Currency note: yen amounts in this piece are converted at ¥163.8 = US$1, the rate retrieved from the source below on July 24, 2026, applied uniformly to all periods. Converted figures follow the precision of the disclosed yen amounts, which the filing presents in millions of yen with sub-unit amounts truncated. The one exception is the March 2025 news release, whose dollar figure of US$2,194 million was converted by the company itself at ¥152 to the dollar and is reported here as the company stated it. Ratios and percentages are unit-free and carry no conversion.