Resource Optimization: M&A Market Heats Up

Recently, several listed companies in the A-share market have disclosed announcements regarding the planning of significant asset restructuring, further enhancing the activity level of the mergers and acquisitions (M&A) and restructuring market. Wu Chao, a business director of the investment banking division of Minsheng Securities, stated in an interview with China Securities Journal that listed companies should fully recognize the importance of M&A and restructuring in helping enterprises improve quality and efficiency, seize the policy opportunities of the capital market, focus on their main business and actual development, fully leverage the functions of M&A and restructuring, and further consolidate their industry status through these activities, developing new quality productive forces according to the specific circumstances of each enterprise.

A surge of announcements from listed companies has been observed. On September 24, the China Securities Regulatory Commission (CSRC) issued the "Opinions on Deepening the Reform of the Listed Company M&A and Restructuring Market," aiming to further strengthen the resource allocation function of M&A and restructuring, and to play the main role of the capital market in corporate M&A and restructuring. This is to adapt to the needs and characteristics of new quality productive forces and to support listed companies in injecting high-quality assets and enhancing investment value.

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The release of the "Opinions" has further stimulated the vitality of the M&A and restructuring market. According to incomplete statistics by the reporter, from September 24 to October 20, 52 listed companies in the A-share market disclosed announcements related to asset restructuring, involving multiple fields such as energy, shipbuilding, pharmaceuticals, semiconductors, and equipment manufacturing. The M&A plans announced by listed companies cover various forms, including vertical and horizontal industry mergers, and cross-industry mergers. Experts have indicated that M&A and restructuring are important pathways to achieve industrial integration and transformational upgrading, optimize resource allocation, and assist listed companies in achieving high-quality development.

On October 18, Electric Power Investment and Finance announced that the company is planning a significant asset restructuring, intending to purchase the controlling stake of State Power Investment Nuclear Energy Co., Ltd. (referred to as "SPI Nuclear Energy") through the issuance of shares, while divesting the controlling stake of State Power Investment Group Capital Holdings Co., Ltd., and raising supporting funds as necessary.

According to the preliminary plan disclosed by Electric Power Investment and Finance, SPI Nuclear Energy's main business is the construction, operation, and management of nuclear power plants, the sale of electricity generated by these plants, and the organization and development of the design and scientific research work for nuclear power plants. This business is within the same industry or upstream and downstream of the listed company and has a synergistic effect with the main business of the listed company.

On October 17, Ribo Fashion announced that the company is planning to issue shares and pay cash to purchase the controlling stake of Sichuan Indelible Material Technology Group Co., Ltd. and raise supporting funds. Ribo Fashion's main business is the design and creativity of boutique clothing, material and process technology research and development, production and sales, and customer service. The business scope of Sichuan Indelible Material Technology Group includes lithium-ion batteries, polymer lithium-ion battery materials, separators, electrolytes, etc.

On October 11, Nanhua Instrument announced that it is planning to acquire 36%-45% of the shares of Guangdong Jiadeli Cleaning Technology Co., Ltd. by paying cash for assets. The company stated that after the completion of this transaction, the company's business will expand into the digital and intelligent cleaning equipment industry, which is expected to form a second growth curve.

Four types of mergers and acquisitions deserve attention. A research report from Guoxin Securities shows that after years of development, M&A and restructuring have become an important part of China's capital market. Currently, most industries have entered a stage of stock competition, where industry leaders can consolidate their industry status through horizontal mergers and enhance their market competitiveness through vertical mergers. For technology companies, M&A and restructuring can help enterprises achieve rapid growth and cross technological barriers. It is expected that M&A and restructuring in the technology field will become a market focus.The "Opinion" states that while the capital market supports the development of emerging industries, it will continue to help traditional industries to reasonably increase industrial concentration through restructuring, thereby improving the efficiency of resource allocation. "Compared to passively waiting for the market to clear, increasing industry concentration through industrial mergers and acquisitions is a better choice," said a research report from Guoxin Securities. For example, China Shipbuilding plans to reorganize and absorb China Shipbuilding Heavy Industry, which is expected to create a world-class shipbuilding enterprise.

From the perspective of the securities industry, market competition will become more intense. Against the backdrop of performance pressure, it is a general trend for securities firms to integrate industry resources through horizontal mergers and acquisitions to create comprehensive securities firms with international competitiveness. The research report from Guoxin Securities shows that under this background, the pace of mergers and acquisitions in the securities industry has accelerated. This year, multiple mergers and acquisitions have taken place one after another, most of which are mergers of securities firms under the same actual controller: Western Securities' acquisition of Guorong Securities, Zheshang Securities' acquisition of Guodu Securities, and Guolian Securities' acquisition of Minsheng Securities, among others. Among them, the merger of Guotai Junan and Haitong Securities is the largest A+H absorption merger in the history of China's capital market.

The mergers and acquisitions of technology companies have become the focus of this round of merger and acquisition boom. Wu Chao said that the "Opinion" clearly supports listed companies to transform and upgrade in the direction of new quality productive forces. At the same time, technology companies generally have a larger performance elasticity, and mergers and acquisitions help to improve the market value level of listed companies.

The "Opinion" points out that the China Securities Regulatory Commission (CSRC) will actively support listed companies to carry out mergers and acquisitions around strategic emerging industries and future industries, including cross-industry mergers and acquisitions based on transformation and upgrading goals, acquisitions of unprofitable assets that help to strengthen the chain and improve key technical levels, and support for "two innovation" board companies to acquire upstream and downstream assets in the industry chain.

According to a research report from Tianfeng Securities, the driving mode of economic development has changed, entering a key stage of quality-driven development from the past quantitative development. In the future, four important merger and acquisition trends are worth paying attention to: first, overseas mergers and acquisitions of manufacturing companies; second, mergers and acquisitions of small technology companies by technology companies; third, horizontal mergers and acquisitions of cyclical companies; and fourth, vertical mergers and acquisitions of consumer companies.

Wu Chao believes that listed companies should fully recognize the importance of mergers and acquisitions in helping enterprises improve quality and efficiency, seize the policy opportunities of the capital market, focus on the main business and the actual development of the company, give full play to the functions of mergers and acquisitions, and further consolidate the industry status through mergers and acquisitions, and develop new quality productive forces according to the company's situation.

"In the past, some cross-border merger and acquisition cases did not meet expectations, including overvaluation of merger and acquisition targets, inability to complete performance commitments, etc., causing losses to listed companies and investors," Wu Chao said. Regulatory authorities, out of protection for small and medium investors, pay more attention to the compliance and rationality of mergers and acquisitions, and the quality and valuation of target assets are the core concerns.

Xin Yue, a managing partner of Xinchen Capital, said that while increasing activity, it is also necessary to improve the quality and effectiveness of mergers and acquisitions, and encourage mergers and acquisitions that conform to industrial logic. In addition, it is hoped that policies will encourage more merger and acquisition funds to be patient capital, participate in the merger and integration of listed companies, and let merger and acquisition funds play a greater role in helping the development of industry leading companies.