A-Share Mergers Surge: Which Companies Reorganize First?

The M&A restructuring market is recovering at a肉眼可见的速度.

On the evening of October 27, Hailan Xun announced that the controlling shareholder intends to plan a major asset restructuring of the company and Hangzhou Steam Turbine, which involves Hailan Xun issuing A-shares to all shareholders of Hangzhou Steam Turbine. Through a share exchange, Hangzhou Steam Turbine, a B-share listed company, will be merged into Hailan Xun. At that time, all shares held by the shareholders of Hangzhou Steam Turbine will be converted into A-shares of Hailan Xun according to the share exchange ratio.

So far, this year's first disclosed M&A projects have exceeded 100 cases. After excluding duplicates (some transactions involve multiple listed companies, resulting in duplicate disclosures), transactions where listed companies act as "buyers" alone have reached 63 cases, surpassing the total for last year.

Through interviews, reporters have learned that despite the market's continued boom, "matchmaking transactions" on the market side are still difficult due to the complexity and uncertainty of restructuring deals.

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"There are many contacts and a lot of attention, but the success rate of orders is not high," said a senior M&A restructuring practitioner in South China in an interview.

So, which companies have taken the lead in promoting the "recovery" of the restructuring market?

Nearly half are related transactions

Sorting out this year's first disclosed competitive restructuring transactions, related transactions have reached 30 cases, accounting for 47.62%.

Among them, restructuring within the same actual controller or controlling shareholder system has reached 25 cases, especially central and state-owned enterprises, which have accelerated industry or asset integration under the promotion of state-owned shareholders. There are a total of 12 such cases. In addition, there are two cases that are not brokered by controlling shareholders, but because they may become shareholders holding more than 5% of the listed company's shares after the transaction, they also constitute related transactions.

For example, in Kairuide's acquisition of 29.0134% of the equity of State Grid Electric Power, the transaction counterparts of Kairuide include Hainan Qing Intelligent Energy Technology Center (Limited Partnership) (hereinafter referred to as "Qing Intelligent Energy"), Zhou Ziguan, and Beijing Qing Ying Wisdom Technology Center (Limited Partnership) (hereinafter referred to as "Qing Ying Wisdom").On the night of the disclosure of the restructuring transaction, Kerry also announced a piece of news — the company plans to transfer 53.35 million shares (accounting for 14.51% of the company's existing total share capital) of the reorganization plan to Qing Zhi Nengyuan, Zhou Ziguan, and Qing Ying Zhihui, the transaction counterparts of this major asset reorganization, through judicial transfer, with a transfer price of 155 million yuan. After the share transfer, Qing Zhi Nengyuan, Zhou Ziguan, and Qing Ying Zhihui will hold 5.05%, 9%, and 0.46% of Kerry's shares, respectively.

In addition, listed companies that have had "project reserves" in the early stage are also strengthening control over their participating/holding subsidiaries through this wave of "restructuring fever."

According to incomplete statistics, among the first-time disclosed competitive restructuring this year, there are 9 cases where listed companies continue to purchase shares of participating/holding companies or increase their capital.

For example, in the Haon Intelligent capital increase and expansion case disclosed on the evening of October 24, the listed company originally held 40% of Haon Intelligent's equity. After further capital increase, the company's shareholding ratio increased to 55%, and Haon Intelligent will become a holding subsidiary of Haon Automobile Electronics. Moreover, since the transaction also involves the controlling shareholder Haon Technology Group, this transaction also constitutes a related transaction.

Another example is that Unisplendour Corporation, through its wholly-owned subsidiary Unisplendour International, acquired 30% of New H3C's equity. Before the acquisition, the company already held 51% of New H3C's equity. After the acquisition is completed, the listed company will indirectly hold 81% of New H3C's equity, further leveraging synergistic effects.

In the first case of a non-profit asset merger on the Science and Technology Innovation Board, the target acquired by Xilian Integration — Xilian Yuezhou, is also a participating company of the listed company. By further acquiring minority equity, Xilian Yuezhou has become a wholly-owned subsidiary of Xilian Integration.

Of course, there are also some acquisition cases, such as Seres acquiring 10% of Longsheng New Energy and Shenzhen Yinwang, where the transaction parties do not have a direct relationship, but there has been long-term business contact, so they have also caught up with this wave of mergers and acquisitions "wind."

From the above cases, it is not difficult to see that the restructuring that had "negotiations" in the early stage is the main driving force for the "recovery" of this wave of mergers and acquisitions market, and the relaxation of relevant policies has also opened a "convenient door" for this batch of prepared integrations.

"The transaction process and chain of mergers and acquisitions are relatively long. Out of prudence, early research, negotiations between both parties, reaching intentions, and then landing on plans and implementing integration often require a relatively long time. If there is a relatively clear target or there is an expectation of asset injection under the same actual controller, it can carry out restructuring transactions more efficiently, and the success rate will also be higher." said the aforementioned mergers and acquisitions practitioner.

Proposed IPO companies switch to mergers and acquisitions.In addition to existing projects, the acquisition of companies planning for an initial public offering (IPO) is another significant source of targets for restructuring transactions. According to incomplete statistics, among the merger and acquisition (M&A) deals first disclosed this year, 12 involved restructuring targets that were companies planning for an IPO or had expectations of going public. Some typical cases include Keyuan Pharmaceutical's acquisition of Hongjitang, Guangzhi Technology's acquisition of Xiandao Electronics, Qinchuan IoT's acquisition of Powerwater, Fulude's acquisition of Fuluhua, Silinjie's acquisition of Kekai Electronics, Shuangcheng Pharmaceutical's acquisition of Aola Shares, and Yongda Shares' acquisition of Jinyuan Equipment, among others.

Furthermore, in recently disclosed cases, the restructuring target of Yinsai Group,智者品牌, although not having applied for an IPO, successfully listed on the New Third Board on September 13, 2022, and there is an expectation of applying for an IPO on the Beijing Stock Exchange through the selected layer of the New Third Board. Some securities investment banking professionals have stated that against the backdrop of a tightened IPO market, the policy for M&A and restructuring has been blowing warm winds, and this year some IPO-bound companies have flowed into the M&A target market, "some companies planning to go public are high-quality assets and are attractive to listed companies."

Yao Pei, the chief analyst of Huachuang Strategy Group, also pointed out: "M&A and restructuring can significantly solve the 'dam' problem of IPOs. Recently, due to the relatively slow pace of IPOs in the primary market, a large number of technology innovation companies urgently need financial support. Under this background, M&A and restructuring have become an important tool for integrating the primary and secondary markets."

It is worth mentioning that when companies planning for an IPO switch to being acquired, the related listed companies often experience a round of significant increases. However, judging from the current progress, this type of transaction faces considerable uncertainty. According to statistics, as of now, out of 12 transactions, 4 have ended in failure.

A more typical case is Xin Tian Pharmaceutical's non-public offering to acquire 85.12% of Huilun Pharmaceutical's equity. The transaction was first disclosed in March 2024. Huilun Pharmaceutical has undergone several rounds of financing since 2020, introducing multiple external institutional shareholders. In August 2022, Huilun Pharmaceutical initiated IPO tutoring with the intention of listing on the STAR Market. However, as the pharmaceutical industry's IPO cooled down, the above matters eventually came to nothing.

After the transaction was announced, Xin Tian Pharmaceutical's stock price hit the daily limit for three consecutive trading days. However, in July of this year, the acquisition had to be terminated.

Xin Tian Pharmaceutical stated that the reason for the termination was "due to the different expectations of the parties involved in the transaction, the company failed to reach a consensus with some of the transaction parties. The company is actively negotiating specific solutions with the aforementioned transaction parties, the target company, and other related parties, but the formation and implementation of the relevant plans still require some time. Considering the current market situation and the aforementioned reasons, it is expected that the transaction will not be able to complete the relevant matters according to the original plan within the prescribed time."Additionally, Mogao Shares' acquisition of Haotian Technology, Dengyun Shares' private placement to acquire Su Du Technology, and Yatong Precision's acquisition of Xingye Auto Parts have also been unsuccessful.

Beware of the "Phantom Fire" in Mergers and Acquisitions

As reorganization transactions become increasingly active, in addition to companies that are "well-prepared," there are also potential risks mixed in various cases, fueling the "phantom fire" in the M&A market.

For example, in the previous case of *ST Jinshi's cross-industry acquisition of a portion of Qingdao Zhancheng's shares, the latter's main business is backend design services for integrated circuits, which has no relation to *ST Jinshi's cigarette label printing business. Before the disclosure of the reorganization news, *ST Jinshi's stock price had soared consecutively, with a cumulative increase of 10.49% in the stock price range from March 20th to 22nd. As a result, after the disclosure of the reorganization transaction, the Shenzhen Stock Exchange inquired about the company's insider information management. Of course, this reorganization did not last long either, and it was terminated amidst doubts just one week after the disclosure.

Recently, there has been a noticeable increase in cross-industry transactions with high premiums, high valuations, and high performance commitments, known as the "three highs," which have raised the vigilance of market participants.

In September of this year, Huali Shares announced that the company plans to acquire 51% of the shares of Suzhou Shang Yuan Intelligent Technology Co., Ltd. (hereinafter referred to as "Shang Yuan Intelligence") in cash, with a transaction price of 358 million yuan. The evaluation for this acquisition uses the income method, with an evaluation appreciation rate of 188.83%, and there are performance commitments for the next three years - the net profits committed for the years 2024, 2025, and 2026 are 38 million yuan, 53 million yuan, and 65 million yuan, respectively.

However, from 2022 to May 2024, Shang Yuan Intelligence's net profit attributable to the parent company was -30.397 million yuan, 15.483 million yuan, and 1.6028 million yuan, respectively, and the net profit after deducting non-recurring gains and losses was -32.2549 million yuan, 12.2542 million yuan, and -0.3319 million yuan.

Furthermore, in the case of Baiao Chemical's acquisition of Suzhou Xinhui Lian Semiconductor Technology Co., Ltd. (hereinafter referred to as "Xinhui Lian") disclosed in October, Baiao Chemical's main business is concentrated in the isothiazolinone class of industrial biocides industry, while Xinhui Lian is a semiconductor equipment manufacturer.

Baiao Chemical used the income method to evaluate Xinhui Lian, with an evaluation result of 829 million yuan, an appreciation of 660 million yuan, and an appreciation rate as high as 391.25%. In terms of performance, Xinhui Lian had a net loss of 47.5026 million yuan in 2023, and the net profit soared to 85.9851 million yuan in the first half of 2024.

The transaction counterparty promised that Xinhui Lian's net profits for each year from 2024 to 2026 would not be less than 100 million yuan, 150 million yuan, and 250 million yuan, respectively, and the total net profit for the three years would not be less than 500 million yuan.Currently, both of these transactions have encountered market "speculation," with the stock price of Bestchem Co., Ltd. having accumulated an increase of 22.76% since October, and the stock price of Huali Shares having accumulated an increase of 188.43%.

"From historical experience, if listed companies blindly pursue market hotspots in cross-border mergers and acquisitions, or engage in 'snake swallowing an elephant' style major cross-border activities, it often ends up being a mess, with small and medium investors becoming the biggest victims," said a senior mergers and acquisitions business leader at a Shanghai-based securities firm.

It is worth noting that in the current context where "restructuring" transactions are clustered, whether a transaction is truly "cost-effective" or for "following the trend" not only concerns the future development of a listed company but also affects the "long-term bull" of the capital market. The ones that can truly succeed are still those companies that are "well-prepared" and have industrial logic.

Data shows that this year, there have been 15 completed restructuring deals involving listed companies as "bidders." Among them, 12 deals, accounting for 80%, were for horizontal integration or strategic cooperation, and 1 deal was for asset integration under the same control system, which can significantly reduce related party transactions.