Economic Observer reporter Huang Yifan Shen Wen is a member of Zijiang Enterprise (600210.HK). SH) and Wiltai (002058.SZ). Four years ago, Zijiang chose to spin off its subsidiary, Shanghai Zijiang New Material Technology Co., Ltd. (hereinafter referred to as "Zijiang New Materials"), to sprint for an IPO (initial public offering) on the Science and Technology Innovation Board. In September of the same year, Zijiang Materials moved to the Growth Enterprise Market (GEM).

This long wait finally ended with Zijiang Materials voluntarily withdrawing its IPO application in December 2023. After two failed attempts to sprint for IPO, Shen Wen decided to launch a new plan - to inject Zijiang New Materials, its lithium battery aluminum-plastic film asset, into the listed company Wiltai.

On December 18, 2024, Welltech disclosed that the company intends to purchase part of the equity of Zijiang New Materials by paying cash to obtain control of Zijiang New Materials.

Seeking the listing of assets on the "curve" through mergers and acquisitions is the "PlanB" (alternative) of the company planning to IPO.

Recently, there has been a gradual increase in the number of companies planning to IPO that choose to be acquired by listed companies. Gao Ling Information(688175. SH), Youa shares (002277. SZ), Fosu Technology (000973. SZ) and other companies have successively announced the restructuring news of the acquisition of companies planning to IPO.

Judging from the current situation, the shortest "window period" is Juncheng Herui Environmental Technology Group Co., Ltd. (hereinafter referred to as "Juncheng Herui"). Seven days after the company withdrew its IPO application, Wen's shares (300498. SZ) announced the acquisition of Juncheng and Rui.

This is part of the market impact of regulatory policies to encourage mergers and acquisitions. Since the beginning of this year, from the central to the local government, the introduction of mergers and acquisitions and restructuring policies has accelerated. The new "National Nine Articles" clearly put forward the need to increase the reform of mergers and acquisitions; The "Eight Articles of the Science and Technology Innovation Board" and "Six Articles of M&A" have been released one after another, further activating the M&A and restructuring market.

According to Wind data, since September 24, 2024, when the China Securities Regulatory Commission issued the "Opinions on Deepening the Market Reform of M&A and Restructuring of Listed Companies" (i.e., the "Six Articles on M&A"), as of December 20, 51 A-share companies have announced asset restructuring, while the number of A-share companies announcing asset restructuring since the beginning of the year is 106.

M&A and restructuring are active, providing another option for companies that have failed to sprint to IPO, and also allowing some listed companies to seek new business growth points. At present, is the regulatory approval of such operations lenient, and what is the probability of success of these mergers and acquisitions?

Through mergers and acquisitions

In September 2024, the China Securities Regulatory Commission (CSRC) issued the "Six Mergers and Acquisitions", which mainly include supporting the transformation and upgrading of listed companies in the direction of new quality productivity, encouraging listed companies to strengthen industrial integration, improving regulatory inclusiveness, improving the transaction efficiency of the restructuring market, improving the service level of intermediaries, and strengthening supervision in accordance with the law, aiming to further stimulate the vitality of the M&A and restructuring market and support economic transformation and upgrading and high-quality development.

This has set off a wave of restructuring in the A-share market. Statistics show that from January to September 2024, the average number of major restructurings of listed companies is 5.7 per month, and from October to November, the average number of major restructurings of listed companies is 16 per month.

Yin Zhongyu, assistant to the president of the Federal Reserve Securities and head of the M&A business department, told the Economic Observer that M&A and restructuring ushered in a rare policy window period.

In contrast, the IPO market is very deserted. Since 2024, a total of 401 companies in the A-share market have voluntarily withdrawn their IPO applications, far exceeding the level of 214 withdrawals in the whole of last year.

"If you can't go on the market, you should quickly let the actual controller of the enterprise arrange for the investment institution to withdraw." A local state-owned investment institution focusing on the primary market told the Economic Observer that after the two companies to IPO in which it participated in the investment withdrew their materials, the investment institution would immediately seek an exit path.

A person in charge of an investment bank of a brokerage firm in East China revealed that recently, more and more customers have consulted the brokerage for backdoor listings. But in his view, the likelihood of a successful backdoor listing is extremely low – the backdoor listing has not been liberalized unless the backdoor transaction meets special policy support. He said that this makes some pre-IPO companies choose to be acquired by listed companies.

Zijiang New Material's injection into Welltech is the latest case of this round of unsuccessful IPO acquisition by listed companies.

Welltech announced that the company initially expects to purchase a total of about 40% of the equity of Zijiang New Materials. Among them, the company intends to purchase 23% of the equity from Zijiang Enterprise, the largest shareholder of Zijiang New Materials.

At the same time, Wiltai intends to sell all assets related to the instrument business, and the counterparty is Shanghai Zizhu Technology Industry Investment Co., Ltd., and the transaction method is cash payment.

According to the disclosure, Zijiang New Materials focuses on the research and development, production and sales of aluminum-plastic film for pouch lithium batteries. In the first three quarters of 2024, Zijiang New Materials achieved an operating income of 435 million yuan and a net profit attributable to the parent company of 32.31 million yuan, accounting for 6.05% and 6.12% of the corresponding accounts of Zijiang enterprises, respectively.

Prior to this transaction, Wiltai was mainly engaged in automated instrumentation and automotive inspection fixtures. In recent years, Wiltai's performance has been under pressure, and the revenue has not increased profits. In the first three quarters of 2024, the company's operating income was 117 million yuan, a year-on-year increase of 16.48%; The net loss was 10.2974 million yuan, compared with a net loss of 10.1706 million yuan in the same period last year.

"There were many twists and turns in the road to the spin-off and listing of Zijiang New Materials, and it took several years, but in the end it was fruitless." A person close to Zijiang told the Economic Observer, "This transaction is the sale of a 23% stake in Zijiang New Materials." After the completion of the transaction, Zijiang Enterprise also holds a 35.94% stake in Zijiang New Materials. For Zijiang Enterprises, on the one hand, there will be cash in from the sale of equity; On the other hand, because Zijiang New Materials is no longer included in Zijiang's corporate statements, the subsequent residual equity can be calculated according to the fair value of the equity method. ”

The person said that when Zijiang New Materials is in Zijiang Enterprise, it is difficult to reflect the valuation. In addition, due to the small proportion of Zijiang's corporate revenue, Zijiang New Materials is not included in the main business of the listed company. In the future, Zijiang New Materials will be controlled by Wiltel, which will be beneficial to the development of Zijiang New Materials itself. The person said that the overall revenue of Wiltai is small, and after the asset injection, Zijiang New Materials will account for a higher proportion of the revenue of listed companies, which can better release its due valuation, and then there will be more opportunities to communicate and show to the market. The increase in the valuation of Zijiang New Materials will also drive the investment income of Zijiang enterprises.

Encouraged by a series of policies to support mergers and acquisitions, the number of cases of A-share listed companies acquiring IPO withdrawn enterprises is increasing.

On December 14, Wen's shares announced that they planned to acquire 91.38% of the shares of Juncheng and Rui at a price of 1.61 billion yuan. Upon completion of the transaction, Juncheng and Rui will become a wholly-owned subsidiary of Wen's shares.

Wen's shares told the Economic Observer that the target company has passed the review of the Listing Review Committee of the Shenzhen Stock Exchange on September 7, 2023, and its business standards and operational independence have been recognized by the regulators. The merger and acquisition of Juncheng and Rui by listed companies is mainly from the strategic planning considerations, and it is also a reflection of the positive response to the national policy guidance of mergers and acquisitions of listed companies.

In addition, Fosu Technology, Youa Shares, Yongan Xing (603776. SH), SmartGiant (688115. SH), Yongda Co., Ltd. (001239. SZ), Dengyun Co., Ltd. (002715. SZ), Wansheng Co., Ltd. (603010. SH) and many other listed companies have disclosed their planning for mergers and acquisitions, and the targets of mergers and acquisitions are all enterprises that have failed to sprint to IPO.

Cross-border attempts

Catalyzed by policy guidance and market demand, listed companies are making new attempts through mergers and acquisitions in the market.

Yu Tiecheng, president of Guanghui M&A Research Institute and chairman of Guanghui Investment, said that previously, some high-quality high-tech companies with annual profits of tens of millions of yuan or even hundreds of millions of yuan had been asked to help find suitable buyers for listed companies because of the obstacles to listing. Among the more than 5,000 listed companies, he matched buyers according to the logic of industrial chain mergers and acquisitions encouraged by the exchange, and often only found less than 10 potential buyers.

Yu Tiecheng said that after communication, half of the 10 potential buyers were unwilling or unable to do mergers and acquisitions for various reasons; The remaining four or five companies communicated with the high-tech company, but because of factors such as valuation, deal structure, integration model, etc., they also did not negotiate cooperation. To a certain extent, the "Six Mergers and Acquisitions" have given confidence to all participants in the market. The Opinions clearly state to actively support listed companies to carry out cross-industry mergers and acquisitions based on goals such as transformation and upgrading. Before the promulgation of the "Six Mergers and Acquisitions", cross-border mergers and acquisitions were basically not allowed.

A person from the securities department of a listed company who is engaged in cross-border mergers and acquisitions revealed that in the past, listed companies would be a little sensitive to cross-border mergers and acquisitions, but at present, the supervision has a more encouraging attitude. The person said that the reason why listed companies have failed to merge and acquire IPO companies across borders is because these targets have gone through part of the IPO application process and have been scrutinized by regulators, which is relatively standardized.

Youa is a listed company that is undergoing cross-border mergers and acquisitions.

On December 10, Youa disclosed the acquisition plan and planned to enter the semiconductor industry through mergers and acquisitions. According to the plan, the company intends to acquire 100% of the shares of Shenzhen Shangyangtong Technology Co., Ltd. (hereinafter referred to as "Shangyangtong") from 37 counterparties such as Jiang Rong, Jiang Feng and Xiao Shengan by issuing shares and paying cash, and raise matching funds.

Through the acquisition of Shangyangtong, Youa will enter the field of power semiconductors from the department store retail industry.

Youa shares said that the core logic of making semiconductor devices is from design to upstream supply chain production to terminal sales, including direct customers and suppliers to purchase goods, which is actually very close to the business model of upstream clothing manufacturers in the company's main business.

Chen Xuewen, secretary of the board of directors of Youa shares, told the Economic Observer that the company's president, Hu Shuo, graduated from the Department of Modern Applied Physics of Tsinghua University and has a doctorate in quantum physics materials from the University of Oxford. In addition, the company has long explored its own path of high-quality development, and has consulted the opinions of relevant industry experts in the process.

Chen Xuewen said that listed companies seizing policy opportunities for cross-border mergers and acquisitions can not only become an important case of cross-border mergers and acquisitions in the capital market, but also become a typical representative of traditional enterprises to turn around and open up new roads under the wave of the new era. "The company is currently facing a historic policy opportunity, but also facing an uncertain external environment. In this regard, the company will strive to achieve the steady development of its main business, and at the same time prudently and compliantly promote the process of major asset restructuring matters. Chen Xuewen said.

Compared with Youa shares, Yongan Bank's cross-border M&A transactions can be described as "non-stop".

After entering the hydrogen energy track with a high premium merger and acquisition last year, Yongan Xing entered the agricultural machinery autonomous driving track. According to the announcement, Yongan Bank intends to purchase 65% of the shares of Shanghai Lianshi Navigation Technology Co., Ltd. (hereinafter referred to as "Lianshi Technology") held by it in total from the counterparty by issuing shares and paying cash. At the same time, Yongan Bank plans to issue shares to raise matching funds.

According to the announcement, on June 30, 2023, the Shanghai Stock Exchange accepted the IPO application of Lianshi Technology on the Science and Technology Innovation Board.

According to the prospectus, in June 2021, Lianshi Technology signed the "Shareholders Agreement on Shanghai Lianshi Navigation Technology Co., Ltd." with SDIC Venture Fund, Shenzhen Venture Capital, Changzhou Hongtu, Fosun Chongqing Fund, Fuding Phase II Fund, Jiaxing Huayu and Ma Fei, Xu Jiyang, Li Xiaoyu, Li Ying, Shanghai Shiyi, Fujian Xinggong and Tianjin Yuanzhi, stipulating the special rights enjoyed by investors, including terms such as listing VAM.

According to the VAM clause, the repurchase will be triggered on the date when the IPO application accepted by Lianshi Technology is not approved/registered or terminated by the listing regulatory authorities (including but not limited to the China Securities Regulatory Commission and the stock exchange), and the investor has the right to choose at its own discretion to require the actual controller of the company to repurchase all or part of the shares of the company held by the investor at an annualized rate of 8%.

On July 1, 2024, Lianshi Technology withdrew its IPO application. On December 3, Yongan Bank disclosed the announcement of its intention to acquire 65% of the shares of Lianshi Technology.

Shuangcheng Pharmaceutical Co., Ltd. (002693. SZ) chose to acquire the equity of Ningbo Aura Semiconductor Co., Ltd., which is owned by the same actual controller. Shuangcheng Pharmaceutical said that it will take the opportunity to divest pharmaceutical-related assets in the future, so as to realize the transformation from medicine to semiconductors.

For cross-border mergers and acquisitions of listed companies, Yin Zhongyu believes that mergers and acquisitions have ushered in a rare policy window period. For industrial mergers and acquisitions, the policy window has always been there, especially focusing on industrial mergers and acquisitions in terms of new quality productivity, which has always been the direction encouraged by the regulator, and there will always be opportunities. However, for shell trading and cross-border restructuring, the relevant risks need to be vigilant, and cross-border mergers and acquisitions will not be supported on a large scale. He said that this round of restructuring mostly focuses on new quality productivity, and mergers and acquisitions from popular industries such as semiconductors, biomedicine, medical, automobiles, and electronics occupy the mainstream of the market.

mainstream

A number of investment bankers interviewed judged that cross-border mergers and acquisitions in the pure sense will not become the mainstream, and M&A activities in the A-share market still tend to be carried out within the same or related industrial chains to achieve industrial synergy and resource integration. The target assets encouraged by the supervision and acquisition are new quality productivity, that is, those assets that represent the new economy and new business forms.

On December 14, 2024, Wu Qing, chairman of the China Securities Regulatory Commission, presided over the (expanded) meeting of the Party Committee. The meeting mentioned that it is necessary to firmly grasp the focus of supporting the development of new quality productive forces, enhance the inclusiveness and adaptability of the issuance and listing system, and encourage mergers and acquisitions for the purpose of industrial integration and upgrading.

The person in charge of the investment bank of Guojin Securities said that after the release of the "Six Mergers and Acquisitions", the investment banking department of Guojin Securities visited a large number of customers and found that the willingness of listed companies to acquire has increased significantly. This improvement is the result of a combination of policies, markets, and improvements in the supply and demand pattern. These companies generally hope that the target company can bring business synergy to the listed company, or its own business has good growth, and there are not many listed companies that simply pursue cross-industry transformation.

The person said that first of all, it is necessary to objectively recognize the risks faced by the M&A transaction itself. Since it is a risk, it cannot be completely avoided beforehand. Therefore, in order to improve the success rate of M&A transactions, it is not necessary to eliminate 100% of risks, but to consider adequate risk prevention measures; Second, it is necessary to abandon the gambling thinking of performance VAM and consider M&A transactions more from the perspective of collaborative integration transactions.

According to the person, there are currently restrictions on the merger and acquisition business by industry and sector. For example, the STAR Market should conform to the attributes of science and technology innovation and be "in the same industry or upstream and downstream", and the ChiNext should be in line with the attributes of the ChiNext or "in the same industry or upstream and downstream".

The person said: "The so-called blind acquisition, following the trend, and flickering restructuring have no precise connotation. We understand that under the premise of the operation of listed companies, the target company should have at least one of the following two characteristics - or the target company has the new quality productivity attributes of 'hard card replacement' (hard technology, stuck neck, and domestic substitution), or has the characteristics of mature industry and good performance. ”