Analysis and assessment of new M&A trends
Recently, under the guidance by the Southern Finance Omnimedia Corp., the 21st Century Business Herald, LC Securities, and Gortune Investment jointly held a webinar - the Southern International Forum of Finance and Economics: 21st Century Board of Directors of Excellence (Session 1). This webinar focused on new M&A trends and the 2021 A-share M&A Market Summary and 2022 Forecast Report.
Ms. Yu Hong, Vice President and CFO of CR Capital Management, attended the webinar. She delivered a keynote speech on the changing mindset of both parties in M&A and restructuring under the registration system.
Ms. Yu pointed out that there were roughly 97 M&A deals for A-share listed companies that disclosed restructuring plans in 2021, with a deal size of approximately RMB 266.6 billion. This represents a significant decline in both the number and size of deals when compared with the 217 M&A deals of RMB 483.3 billion in the same period last year. However, the IPO market was completely different. 2021 saw a record 524 IPOs in the A-share market. At the same time, enterprises continued to maintain great enthusiasm for IPO applications. In June 2022, 429 enterprises applied for IPOs and more than a thousand enterprises lined up for IPOs.
Ms. Yu believes this phenomenon is related to the registration system reform. She pointed out that M&A and restructuring parties generally collaborate for industrial integration and indirect securitization.
However, in the audit era, the size of profits and compliance issues make it difficult for some companies to securitize independently. Therefore, indirect securitization through M&A and restructuring became the mainstream. "After the implementation of the registration system, it has become easier for companies to securitize through a stand-alone IPO. As a result, many companies no longer choose to sell themselves to listed companies, but instead go straight to IPOs to maximize their business value," Ms. Yu said.
However, she believes that from another perspective, the implementation of the registration system has also brought significant changes to the M&A market. Sellers have more flexibility. M&A transactions are increasingly focused on the nature of M&A. More emphasis is being placed on the fundamentals and the long-term development of the acquiree. There is also a greater focus on industrial synergies and integration between the acquirer and the acquired company.
"Forty of the 97 M&A deals disclosed in 2021 were inter-industry deals, and 37 deals were for industrial chain extension or vertical expansion of the listed company's business. These two types of deals together accounted for approximately 80%. There were only 20 cross-industry M&A and restructuring deals," Ms. Yu said.
In addition, she also highlighted that the increasing number of IPOs has resulted in "dilution" of the platform value of listed companies. For a long time in the past, there was no such concept as "cost of going public" in the capital market. This caused a large number of equity invested companies to rely on "M&A" by listed companies to find a securitization exit path as soon as possible.
"The reform of the registration system has made IPOs in the capital market less profitable than in the past. In the future, more and more listed companies will find that their previous short-term arbitrage mentality and explicit and reasonable costs for IPOs in the capital markets will not cope well with the high premiums of M&A and the securitization exit path after losing their liquidity and financing capabilities," Ms. Yu added.
She introduced that the CR Group boasts a long M&A history and strong M&A strengths. It has always practiced its industrial logic in M&A. It is committed to improving the quality and efficiency of its industry development through M&A and integration.
"CR Capital Management, as the Group's industrial fund platform, has been supporting the Group's capital operation based on the Group's industry strategy. In 2020, we acquired DIRUI (300396), an IVD company, using CR Capital Management as a platform. This has closed the gap in the IVD sector for the Group's healthcare industry. We will also continue to improve our industrial logic and carry out M&A and investment around CR Group's competitive industries," Ms. Yu said.
