“Since this year, our M & a business has only one order and three orders are under review. Even so, it is the first in the market.” Lao Zhiming, executive director of Huatai United Securities and head of M & a business, told China Securities News a few days ago. In recent years, with the steady progress of the reform of A-share registration system, high-quality assets have sought IPO. Under the “seesaw effect”, the once hot M & a market continued to cool.
At the same time, the valuation “scissors gap” between IPO and M & A of small market value companies continues to narrow, M & A with in-depth integration along the industrial chain is increasing, M & A between A-share listed companies “eat a” is gradually normalized, and a new change has emerged.
seesaw effect
Zhang Yang (a pseudonym) is the head of the investment department of a A-share listed biomedical company. “Extensive expansion” has always been the core growth logic of the company. What worries Zhang Yang is that the company has not recorded any projects for more than a year. “There are more and more projects that have been tracked for a long time. When we are ready to negotiate the acquisition, the other party suddenly plans to IPO.”
With the steady progress of the reform of the registration system, IPO remained normalized. According to the data, from 105 in 2018 to 524 in 2021, the compound annual growth rate of A-share IPOs reached 70.88%. The number of M & A projects decreased from 336 in 2015 to 47 in 2021.
“Compared with being acquired, IPO can not only finance, but also have its own listing platform to achieve independent development.” “IPO is the dream of many entrepreneurs, so with the continuous smooth flow of IPO channels, most of the high-quality targets in the M & a market are going for IPO,” Lao Zhiming told the China Securities Journal
The subject matter of M & A has decreased sharply, and the high-quality subject matter is rare. Yin Zhongyu, head of securities M & a business of the Federal Reserve, said in an interview with the reporter of China Securities Journal, “there were 47 projects at the meeting in 2021, but 6 did not. The main problems are reflected in the continuous profitability, the rationality of performance prediction, the proportion of goodwill and so on. In the final analysis, the continuous profitability of the subject matter of M & A is poor.”
“Several investment banks with cooperative relations have not introduced us to the project for a long time.” Zhang Yang told the China Securities Journal.
As a leading brokerage in the M & a market, Huatai United Securities also felt cool. “We are under great pressure to expand our business, and many investment banks have given up M & a business.” Lao said.
Some investment bankers thought that the M & a market had “fallen to the floor” in 2021, but they did not expect that the situation in 2022 was not optimistic – so far, only seven projects have been held. “From the buyer’s point of view, in the face of the complex environment in 2022, listed companies are more cautious about epitaxial expansion.” Wang Jiyue, a market person, told the China Securities Journal.
valuation difference reduced
“We are operating an M & a project. The target is a company with an annual profit of 80-90 million yuan. It is reasonable to say that it has reached the IPO standard, but the company still chooses to be acquired by a large industrial group.” Yin Zhongyu told the China Securities Journal that while the M & a market continues to be cold, positive factors are quietly brewing.
“The steady progress of the reform of the A-share registration system does not mean that IPO is easier. For small companies with average quality, it is more and more difficult to sell at a good price.” Lao Zhiming pointed out.
With the market becoming more mature and rational, it is not uncommon for new shares to break on the first day of listing. Data show that since this year, of the 95 new shares listed on a shares, 24 broke on the first day of listing, accounting for 25.26%.
Over time, the market value of small market value companies continued to shrink. According to the statistics of 105 listed companies (issued under the registration system in 2020 and deducted non net profit of RMB 50 million to RMB 150 million in 2020), from the first day of listing to the closing on March 15, 2022, the number of companies with a market value of less than RMB 4 billion increased from 8 to 67, and those with a market value of more than RMB 7 billion decreased from 55 to 17.
“There is no substantial difference in the valuation between IPO and M & A. assuming that an enterprise has a net profit of 100 million yuan and is valued at 20 times P / E ratio, the valuation of M & A can reach 2 billion yuan. If there is no need for performance gambling, shareholders can also exit directly with profits. Especially for institutional investors, choosing M & a not only saves the time cost of selling for one to three years after IPO, but also does not have to bear the risk of market value decline.” Yin Zhongyu said.
In fact, overvalued mergers and acquisitions are not uncommon. “For example, the patented technology of a technology company is of great value to the development of another company, so the company may buy it at a high price. Both apple and Google have made similar mergers and acquisitions in the process of core technology layout. It seems that the price is very high, but considering the value brought to the enterprise, the consideration paid is not high.”
Dong Dengxin, director of the Institute of Finance and securities of Wuhan University of science and technology, pointed out in an interview with the reporter of China Securities News: “in fact, from the perspective of long-term development of enterprises, many enterprises have been acquired by large enterprise groups, and new assistance has been obtained through resource grafting and business coordination, which is more conducive to enterprise growth than independent development through IPO.”
accelerate the metabolism of A-share market
M & A and IPO can only be the two ends of the seesaw? “The two are not simple binary opposites, but can work together in the capital market reform.” With the continuous improvement of the merger and reorganization mechanism of A-share, Zhiming will steadily accelerate the reform of registration and reorganization of A-share
In terms of improving the exit mechanism of listed companies, the opinions on further improving the quality of listed companies issued by the State Council stressed the need to broaden diversified exit channels, improve the systems of M & A and bankruptcy reorganization, optimize processes, improve efficiency, and unblock diversified exit channels of listed companies such as active delisting, M & A and bankruptcy reorganization.
It is worth noting that, as an important path of M & A, “a eats a” is quietly rising.
According to the data, there were 13 cases of A-share listed companies acquiring listed companies in 2021, a record high, and they generally belong to industrial mergers and acquisitions. The transaction methods are mainly agreement transfer, fixed increase, share exchange, absorption and merger, etc. Fed securities expects that as the valuation of listed companies continues to enter a reasonable range, “a eat a” will be normalized.
“Many small and medium-sized listed companies with core competitiveness have Pb multiples less than 1, so these listed companies can be the subject of M & A of industry leaders.” Yin Zhongyu pointed out.
Since 2022, along the logic of industrial M & A, “a eats a” has attracted more and more attention. For example, jd.com’s acquisition of deppon logistics focuses on the important position of deppon logistics in the large cargo transportation market, which has a significant industrial integration effect with jd.com logistics Zoomlion Heavy Industry Science And Technology Co.Ltd(000157) acquired Shenzhen Roadrover Technology Co.Ltd(002813) and focused on Shenzhen Roadrover Technology Co.Ltd(002813) technology accumulation in intelligent driving, which can effectively improve the market competitiveness of Zoomlion Heavy Industry Science And Technology Co.Ltd(000157) products.
At the same time, from the industrial dimension, with the mass listing of high-quality companies in the industry, the future industrial integration is expected to be carried out more among listed companies, listed companies and non listed companies.
If we jump out of the framework of listed companies, we can also find that new changes are sprouting in the M & a market.
“The extensive expansion of listed companies can not fully represent the direction of M & A in the future.” Lao Zhiming pointed out, “we are also paying attention to the M & A transactions of non listed companies, including the withdrawal of PE from the primary market and the in-depth integration of industry leaders.”
