Source: M&A integration outpost

On February 8, Fumiao Technology (SH: 688350) announced that the company's major shareholder Feixiang Co., Ltd. transferred 29.98% of the company's shares to Yongzhuo Holdings by agreement, with a total consideration of 599.84 million yuan and a transfer price of 16.38 yuan per share, a premium of 12.19% over the previous trading day before the announcement.

After the closing, the shareholding of Feixiang shares decreased from 48.66% to 18.68%, the company's major shareholder was changed to Yongzhuo Holdings, and the actual controller will be changed from Shi Jiangang to Wu Yaofang, Wu Huifang, and Wu Huiying.

Founded in 2010 and located in Fenghuang Town, Zhangjiagang City, Fumiao Technology was listed on the Science and Technology Innovation Board in 2021, with a market value of 1.783 billion yuan the day before the announcement, providing water-soluble polymers, functional monomers, membrane separation products and related services for water-based industrial users at home and abroad, helping customers achieve energy saving, carbon reduction and emission reduction, resource recycling, and efficiency and effectiveness. In 2023, Fumiao Technology's revenue will be 1.640 billion yuan and its net profit will be 17.89 million yuan. Revenue in 2024 is expected to be 1.484-1.634 billion yuan. Before the transfer, the actual controller of Fumiao Technology was the Collective Asset Management Committee of Fenghuang Town, Zhangjiagang City, and Fumiao Technology was a listed company controlled by the collective economy.

Founded in 2021 and located in Nanfeng Town, Zhangjiagang City, Jiangsu Province, Yongzhuo Holdings, full name Yongzhuo Holdings, full name Yongzhuo Holdings, Changzhuo Holdings, Changzhuo Holdings, Yongzhuo Holdings, Yongzhuo Holdings

After the transfer of control, the transferor Feixiang recognized and promised to maintain Yongzhuo Holdings' control over Fumiao Technology and promised not to seek control. Feixiang also further promised that within three years after the completion of the share transfer, it should maintain the proportion of shares held by Fumiao Technology not less than 5% of the total share capital.

Yongzhuo Holdings' diversified industries and huge volume have brought greater imagination for business development and market value management to the latter after the acquisition of Fumiao Technology, a small-capitalization listed company. However, the specific business synergy can be seen in the results.

Feixiang shares are collective assets and collective economy, the fundraising committee holds 95.3333% of the equity, Yongzhuo Holdings also has 25% of the collective assets and collective economic shareholders. The transfer of the controlling stake of Fu Miao Technology by Feixiang Co., Ltd. is an asset revitalization of collective assets, and the return of cash can cultivate and drive new growth.

I. Trading Schemes

1. Target company: Fumiao Technology, founded in 2010 and listed on the Science and Technology Innovation Board in 2021, with a current market value of 1.783 billion yuan, is engaged in the field of hydrophilic functional polymers in the fine chemical industry, providing water-soluble polymers, functional monomers, membrane separation products and related services for water-based industrial users at home and abroad, helping customers achieve energy saving, carbon reduction, resource recycling, and efficiency and effectiveness.

2. Target: 29.98% shares of Fu Miao Technology.

3. Main business: Hydrophilic functional polymers in the fine chemical industry.

4. Main products: water-soluble polymers, functional monomers, membrane separation products and related services.

5. Parties to the transaction

——The transferor, Feixiang Co., Ltd., Jiangsu Feixiang Chemical Co., Ltd., was established in 1996, the controlling shareholder is Zhangjiagang Fenghuang Town Asset Management Company, and the actual controller is Zhangjiagang Fenghuang Town Collective Asset Management Committee.

——The transferee, Yongzhuo Holdings, Yongzhuo Holdings Co., Ltd., established in 2021 and located in Nanfeng Town, Zhangjiagang City, Jiangsu Province, is an industrial diversified enterprise with industries covering steel, new energy, new materials, logistics, construction, finance and trade, etc., with nearly 10,000 employees and an operating income of 160.8 billion yuan in 2023.

6. Pricing, Consideration and Valuation

29.97% of the shares, with a consideration of 599.84 million yuan. The total valuation of Fumiao Technology is 2 billion yuan, a premium of 12.19% over the trading day before the transaction was announced.

The transfer price meets the commitment made by Feixiang shares in the prospectus for the company's initial public offering of shares and listing on the Science and Technology Innovation Board: "If the company's pre-IPO shares are reduced within two years after the expiration of the lock-up period, the reduction price shall not be lower than the issue price", in 2021, the issue price of Fumiao Technology is 15.61 yuan / share, and the issue PE is 19.11 times.

In this transaction, Fu Miao Technology is valued at 112 times PE, but the secondary market premium rate is 12.19%.

7. Transaction method and payment method: cash

8. Transaction Impact

(1) Equity structure: After the completion of this equity change, the control of the company will be changed, the controlling shareholder of the company will be changed from Feixiang shares to Yongzhuo Holdings, and the actual controller of the company will be changed from Shi Jiangang to Wu Yaofang, Wu Huifang and Wu Huiying.

Before the change, Shi Jiangang only held 2.2476% of the shares of Feixiang Shares, and Feixiang Shares held 48.66% of the shares of Fumiao Technology, and Feixiang shares were held by Zhangjiagang Phoenix Town Asset Management Company 100% of the equity, and Zhangjiagang Phoenix Town Collective Asset Management Committee held 100% of the former's equity, so the original actual controller of Fumiao Technology should be the Zhangjiagang Phoenix Town Collective Asset Management Committee, that is, the Zhangjiagang Phoenix Town Fundraising Committee.

(2) Optimize the shareholder structure: introduce controlling shareholders with more advantages in procurement, R&D, production, sales, etc. Fu Miao Technology has signed a "strategic cooperation agreement" with Yongzhuo Holdings, through the establishment of a strategic cooperative relationship, make full use of the relevant resources and experience advantages of all parties, and further improve the company's business operation and management level.

(3) The market value of Fu Miao Technology is only 1.7 billion yuan, business development and market value management are imperative, if the transferee puts business and customer resources and high-quality assets into the listed company, the future market value is full of imagination.

II. Strategic Cooperation

1. Company Profile: Yongzhuo Holdings is a headquarters holding company with diversified industries and professional management, with more than 10,000 employees, ranking 71st among the top 500 private enterprises in China in 2024. The Group attaches great importance to R&D and technology investment, and has won 9 national/provincial science and technology awards, undertaken more than 20 national/provincial science and technology research and development projects, and has more than 1,000 authorized patents (including more than 300 invention patents).

In recent years, Yongzhuo Group has taken scientific and technological innovation as the driving force to accelerate the transformation and upgrading of enterprises, and the group's business has changed from the steel industry to new energy, new materials, construction logistics, finance and trade and other diversified industries, focusing on the layout of carbon fiber, aviation forgings, wind power large gear die forgings, high-end welding consumables, excellent steel and other high-end advanced composite materials and advanced steel materials, building intelligent factories, and cultivating a number of national strategic emerging industries and specialized and special new enterprises. Up to now, Yongzhuo Group's non-steel business segment accounts for more than 50% of its revenue, and has achieved remarkable results in promoting high-quality development and cultivating and developing new quality productivity. The water treatment and industrial water process chemicals of Fu Miao Technology are widely used in the field of water treatment, and if the holding and strategic cooperation of Fu Miao Technology can be completed, it will be of great significance for Yongzhuo Group to further realize energy saving, consumption reduction, carbon reduction and emission reduction, and resource recycling.

2. Cooperation background: Yongzhuo Group has actual demand for the main products of listed companies in promoting energy saving, consumption reduction, carbon reduction and resource recycling in its industries, especially the steel sector, and through the strategic cooperation reached by the two parties, on the one hand, it can meet the needs of Yongzhuo Group for water treatment and industrial water process chemicals, and explore and give full play to the application and promotion of listed companies' water treatment and industrial water process chemicals in the upstream and downstream of the steel industry; On the other hand, through Yongzhuo Group's industrial empowerment of listed companies in procurement, R&D, production, sales, etc., it can inject new development impetus into them and enhance their core competitiveness and sustainable development capabilities.

3. Principle of cooperation

(1) The principle of complementary advantages

Expand the upstream and downstream applications of listed companies' product water treatment and industrial water process chemicals in the steel industry.

Yongzhuo Group gives full play to its advantages in integrated platform, digital and intelligent upgrading, and deep cultivation of the steel industry, and the listed company gives full play to its advantages in technology, talent and water treatment, and the application of industrial water process chemicals.

(2) The principle of equal optimality

Priority is given to the purchase of similar products of listed companies.

Under the premise of complying with the China Securities Regulatory Commission, the stock exchange and various external supervision, Yongzhuo Group will give the best conditions, and under the same conditions in the market, give priority to the purchase of similar products of listed companies according to actual needs, so as to realize the business increment of listed companies.

4. Cooperation content

Focusing on the advantages of both parties in the industrial layout, in line with relevant laws and regulations, the requirements of the national industry authorities, and without affecting the actual operation and independence of Fu Miao Technology, strategic cooperation will be promoted in the following aspects:

(1) Develop the application and promotion of industrial water treatment and other products of listed companies in steel and other industries

As one of the key high-water industries, the steel industry strengthens water treatment and recycling is the trend of green steel in the future, and the products and services of listed companies, such as water treatment chemicals, water treatment membranes and membrane applications, can be applied in wastewater treatment and wastewater recycling in the steel industry, so as to achieve source water saving and emission reduction control, and improve the level of wastewater recycling.

Yongzhuo Group is deeply engaged in the main steel industry, with an annual output of about 10 million tons of steel products, a purchase amount of about 10 million yuan per year for water treatment chemicals in the water recycling link, an annual consumption of about 600 tons of chemicals in the sewage treatment process, and about 66,000 square meters of water treatment membranes.

As the target customer of industrial water treatment products of listed companies, Yongzhuo Group can assist the development and application of related products of listed companies in the steel industry, and can promote them to other customers in the steel industry through model cases, helping them to develop new product application fields and customer groups. The upstream iron ore beneficiation and coking production links of the iron and steel industry consume a large amount of water, and related industries have a large demand for industrial water treatment and mineral washing chemicals.

Yongzhuo Group purchases more than 13 million tons of iron ore and 3.5 million tons of coke annually, maintains close and stable cooperative relations with suppliers, and has invested in the construction of coke production enterprises.

In the future, Yongzhuo Group can assist listed companies to obtain new customers in the fields of industrial water treatment and mineral washing, and further expand the downstream application fields of related products. The new factory capacity of the listed company Anqing will develop new products for agricultural land, such as agricultural and forestry water retention agents, soil adhesives, etc., Yongzhuo Group has a comprehensive agricultural industry chain integrating planting, breeding, agricultural product processing and sales, which can provide strong support for the development of new products of listed companies in the future.

(2) Collaborative procurement of similar raw materials to assist listed companies in reducing costs and increasing efficiency

One of the upstream raw materials of Yongzhuo Group's established carbon fiber project is acrylonitrile, which is consistent with that of listed companies. The annual demand for acrylonitrile is expected to be no less than 30,000 tons for Yongzhuo Group's carbon fiber project, and the current annual demand for acrylonitrile is not less than 50,000 tons for listed companies. Yongzhuo Group's Zhangjiagang Haijinjiang LNG terminal project has a scale of 3 million tons/year, which can serve as a stable supply channel for natural gas resources of listed companies and help them reduce raw material procurement costs. At the same time, the hydrogen produced by listed companies can also provide clean energy for hydrogen smelting in the steel industry, promoting the green and low-carbon transformation of the industry.

(3) Assist listed companies to actively promote digital and intelligent transformation and upgrading

As a long-process industry, steel has high requirements for digital and intelligent transformation, Yongzhuo Group has rich experience in digital construction and sufficient talent team, and has achieved important results in the construction of smart factories, the development of digital twin systems, smart environmental protection testing, and the digital reform of operation and management in recent years.

In the future, Yongzhuo Group will be able to assist in digital and intelligent improvement in combination with the actual situation of listed companies, accelerate the promotion of intelligent transformation and digital transformation, optimize and improve business processes, improve the overall operation and management capabilities of the company, comply with the needs of the development trend of informatization, and promote the reduction of R&D and production costs and efficiency improvement.

(4) Assist in expanding the scale of export trade of listed companies

Yongzhuo Group's products have expanded to 115 countries and regions in the international market, including the United States, Italy, and Japan, and has a wide range of overseas business layout and customer resources, and has established a complete overseas business network and channels. With the advantages of Yongzhuo Group in overseas markets, it can empower the international export trade of listed companies' products, assist listed companies to expand overseas sales channels, explore international markets, accelerate product exports, and further enhance market competitiveness.

(5) Assist listed companies to connect with external R&D resources and enhance the level of R&D innovation

The

fine chemical and new material industries to which listed companies belong have high requirements for technology and technology, and have high requirements for the company's R&D strength and core technology in terms of chemical reaction, core catalyst selection, reaction device and process design. Yongzhuo Group has established long-term close cooperative relations with a number of scientific research institutes and universities, and has won a number of national awards, with relevant cooperative relations, it can assist listed companies to connect with external R&D resources, strengthen industry-university-research cooperation, deepen forward-looking research such as pilot technology research and key basic research, enrich product categories and application scenarios, and improve the level of scientific and technological innovation and market competitiveness.

(6) Use the logistics business layout to help reduce the transportation cost of listed companies

Relying on 7 10,000-ton Yangtze River berths and inland ports, Yongzhuo Group has built a highway and waterway transportation, port loading and unloading, warehousing, container loading and unloading, transportation, and cold chain logistics services, with an annual cargo throughput of about 34 million tons.

5. Duration of cooperation

The

term of strategic cooperation under this Agreement shall be from the effective date of this Agreement to February 28, 2030, and the two parties shall negotiate amicably on matters related to the renewal of strategic cooperation before the expiration of the cooperation.

III. Scope of Synergy and Integration

1. Business collaboration and empowerment

The strategic cooperation seems to be a lot, the cooperation mainly focuses on the business synergy of water treatment and industrial water process products, and the corresponding environmental protection business of Yongzhuo Holdings is transferred to Fu Miao Technology, which is not large; From the perspective of assisting Fu Miao Technology to expand similar customers, we should also see how many customers in the same industry can be expanded.

2. Supply chain and management empowerment

In 2023, Fu Miao Technology's net profit margin will be significantly reduced, to only 1.09%. But the gross profit margin did not change much. After Yongzhuo Holdings takes holding, in addition to bringing synergy in business volume, it is also necessary to improve gross profit margin from the perspective of supply chain and perspective, control expenses from the perspective of operation and management, improve the company's net profit margin, and make drastic integration.

3. Asset empowerment and market value management empowerment

If Fumiao Technology is used as an industrial capital platform, it can integrate high-quality environmental protection assets, expand the scale of assets, revenue and net profit, expand market value, do a good job in market value management, and form a virtuous circle of industrial capital at a higher starting point.

It can also open up the second curve and new growth points through mergers and acquisitions. Of course, this is all a direction that can be conceived, concretely planned and implemented.

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