New ideas of capital withdrawal "catalyze" A-share M&A transaction is expected to speed up

With the tightening of IPO channels and the promotion of relevant policies, M&A transactions in the A-share market are expected to speed up in 2024.

　　 Guojin Securities The research report pointed out that in the first quarter of 2024, the number of M&A transactions of A-share listed companies was 268, a year-on-year decrease of 10.07%, but the decline was significantly reduced. Among the disclosed M&As, the number of small and medium-sized M&As with a transaction amount of less than 10 million yuan increased by 25% year on year, indicating that the decrease in M&As in the first quarter of 2024 was mainly due to the decrease in large M&As.

Guojin Securities said, on the one hand, due to the changing geopolitical situation in 2024, M&A transaction participants are more cautious about large mergers and acquisitions; On the other hand, the activity of M&A transactions was affected by the lack of expectation and confidence in the capital market in the first quarter, but it is expected that the activity of M&A transactions will gradually release as the market recovers.

M&A and reorganization mainly include company M&A and asset reorganization, which often occur interactively. M&A focuses on the transfer of equity and corporate control, while asset restructuring focuses on the change of asset relationship.

Recently, Han Yuze, founding partner and chairman of Lianchuang Capital, said in an interview with the Economic Observer that in 2024, M&A will become the main way for venture capital institutions to exit their equity investments. GP (General Partner) should change the idea of exiting through IPO to exit through M&A. Venture capital institutions need to adjust the operation mode, team concept, management mode and other aspects of equity investment. At the same time, as managers, venture capital institutions should relax M&A standards, promote the landing of more transaction cases, form a demonstration effect, and create a good M&A exit environment.

Guojin Securities believes that in the context of the slow pace of IPO, mergers and acquisitions are of great significance for the high-quality development of the capital market and the benign development of the market ecology. On the one hand, M&A can accelerate the adjustment and optimization of market structure, promote industrial transformation and upgrading, and is expected to become an important way to cultivate new quality productivity; On the other hand, mergers and acquisitions can promote the integration of resources between companies. Listed companies can improve asset quality through mergers and acquisitions, quickly acquire advanced technology, expand market share, improve external competitiveness, and enhance the ability to repay investors.

　　 M&A transactions recovered

Since 2024, the A-share M&A market has shown signs of recovery.

Influenced by the macro-economy, A-share listed companies become more cautious in carrying out M&A activities. Looking back at the data of A-share M&A transactions in the past five years, Guojin Securities Research Journal found that in 2023, the number of domestic M&As with A-share listed companies as the acquirer was 1404, the lowest in the past five years, down 23.53% year on year. At the same time, with the regulatory authorities becoming more strict in the supervision of major asset restructuring and increasing attention to related party transactions, in the M&A events disclosed in 2023, the proportion of major asset restructuring and related party M&A transactions shows a downward trend, which is 15% and 8% lower than that in 2022 respectively.

From the perspective of M&A mode, M&A transactions in the A-share market are mainly negotiated. From 2019 to 2023, the number and amount of M&A events related to negotiated acquisition rank first, accounting for 60.77% and 34.97% of the overall scale respectively. In addition, the number of capital increase mergers and acquisitions and secondary market acquisitions ranked second and third respectively.

When IPO, an important channel, is restricted, the function of M&A will be "enlarged" and related transactions will be more active.

According to the data of Guojin Securities Research Report, from 2012 to 2015, the number of M&A and restructuring transactions involving A-share listed companies increased from 584 in 2012 to 2913 in 2015, an increase of nearly four times. In 2013, A-share IPO was basically suspended.

Since 2024, the pace of A-share IPO has slowed down significantly, and the prospect of M&A market is bright under the catalysis of both supply and demand. In the first quarter of 2024, the number of IPO enterprises will be 30, down 55.88% year on year, the lowest level since 2019.

In April 2024, the State Council issued the "Several Opinions of the State Council on Strengthening Supervision and Risk Prevention to Promote the High Quality Development of the Capital Market" (i.e. the new "National Ninth Article"), clearly proposing to strengthen the reform of mergers and acquisitions, and take multiple measures to activate the mergers and acquisitions market.

Guojin Securities said that, on the whole, A-share IPO standards are more stringent, delisting is easier, and gradually moving towards the direction of "good in and bad out". In this context, from the perspective of asset supply side, the channel for VC firms to achieve equity exit through IPO in the future is squeezed, and mergers and acquisitions will become an important way for VC firms to achieve equity exit; From the demand side, at the end of 2023, the CSRC and other regulatory authorities proposed to support the transformation and upgrading of listed companies, making them better and stronger. Industrial chain M&A and cross-border M&A are important ways for A-share listed companies to achieve industrial integration and market expansion. If A-share listed companies want to achieve transformation, upgrading and high-quality development, mergers and acquisitions are one of the main ways they can choose.

According to Guojin Securities, M&A and restructuring are conducive to the company's optimal allocation of resources, diversified development of its own business, and diversification of investment and operational risks to a certain extent. In recent years, with the deepening of the reform of the registration system, the efficiency and quality of the merger and reorganization system of listed companies have significantly improved. While strengthening the supervision of leveraged buyouts and backdoor listing, the regulatory authorities have simplified the simple merger and small-scale merger process in mergers and acquisitions, built a small quick review mechanism for the restructuring of the Science and Technology Innovation Board and the GEM, and improved the efficiency of small mergers and acquisitions. With the joint efforts of regulators and market parties, a fair and efficient M&A environment is gradually taking shape.

　　 The proportion of backdoor listing is reduced

With the gradual increase of supervision on backdoor listing by regulators, the proportion of backdoor listing of listed companies has significantly decreased.

In April 2024, the Federal Reserve Securities released the report "2023 A-share M&A Market Summary and 2024 Annual Outlook" (hereinafter referred to as "the report").

The report points out that half of the top 10 stocks with the highest price range in 2022 are listed on the list due to the speculation of "fake restructuring". Rumors of backdoor or restructuring continue to be heard in stock bars and investor interaction platforms, and the stock price rises first before restructuring. The Federal Reserve Securities further explored and found that in 2022, 25 stocks in the A-share market were hyped with rhythm by four "scandal" subjects, namely, "Xifeng Liquor Backdoor", "Xi Feng Liquor Backdoor", "Strong Liquor Backdoor" and "Glory Backdoor".

The report said that, by contrast, when analyzing the annual bull shares in 2023, the phenomenon of speculation in stocks through the false backdoor concept has basically disappeared. According to the data, none of the top 20 stocks in the 2023 range will be hyped by the market just because of the rumors of backdoor restructuring. Among them, only 4 stocks are involved in the concept of M&A and restructuring, and they all have real restructuring transactions.

Reviewing the history of A-share mergers and acquisitions, Guojin Securities Research Daily pointed out that from 2012 to 2015, A-share mergers and acquisitions were a wave, and listed companies were active in mergers and acquisitions, but the number of backdoor listed companies also rose. The proportion of backdoor listing was at a high level, which led to speculation and distorted valuation of shell companies. The failure rate of backdoor listing rose sharply from 11.76% in 2012 to 37.21% in 2015, seriously damaging the rights and interests of investors. In 2016, the CSRC revised the Administrative Measures for Major Asset Restructuring of Listed Companies, cracked down on backdoor listing, significantly raised the threshold for backdoor listing and shell selling costs, improved the quality of listed companies, and strictly supervised backdoor listing in the follow-up review process, which significantly reduced the proportion of backdoor listing.

Guojin Securities said that the new "National Nine Rules" issued in 2024 clearly proposed to further reduce the value of "shell" resources, strengthen the supervision of mergers and acquisitions, strictly control the quality of injected assets, strengthen the supervision of "backdoor listing", accurately crack down on all kinds of illegal "shell protection" behaviors, and better ensure the quality of reorganization listing.

　　 Industrial M&A has become the mainstream of the market

Since this year, one of the changes in the M&A market is that related M&A is under pressure, and industrial M&A has begun to increase significantly.

From the perspective of M&A buyers, small and medium-sized listed companies have a higher degree of participation, but the proportion of scale is often small.

The research report of Guojin Securities pointed out that in 2023, the number of companies involved in mergers and acquisitions with a market value of more than 20 billion yuan accounted for 17.02%, the lowest since 2019; The number of companies participating in mergers and acquisitions with a market value of less than 10 billion yuan has shown an upward trend since 2021, rising from 56.89% to 65.31% in 2023; There are more and more M&A transactions initiated by small and medium-sized enterprises with market capitalization, and their participation is getting higher and higher. However, from the perspective of M&A transactions with disclosed transaction amount, the proportion of M&A transactions of small and medium-sized enterprises has gradually declined, from 41.54% in 2019 to 25.63% in 2023, with an average annual decline of 3.98%.

From the perspective of the industry distribution of the M&A market, it can be seen from the screening of the industries where the acquirers are located in the M&A events that the computer, communication and other electronic equipment manufacturing industries are the most active in M&A, with both the number and scale of M&A rising. In the past five years, the top three industries in the number of mergers and acquisitions of A-share listed companies were computer, communications and other electronic equipment manufacturing, chemical raw materials and chemicals manufacturing, and pharmaceutical manufacturing, accounting for 9.32%, 7.24%, and 6.45% of the total number of mergers and acquisitions, respectively.

Guojin Securities said that in recent years, the M&A market has been driven by science and technology, with a high proportion of horizontal integration. In computer, communication, electronic equipment manufacturing and other fields, enterprises actively acquire key technologies or market channels through mergers and acquisitions to accelerate technology iteration and industrial upgrading.

Guojin Securities Research Daily pointed out that at present, the success rate of related party M&A is decreasing, and listed companies are more cautious in carrying out related party M&A, while the success rate of non related party M&A dominated by industrial M&A is relatively higher. From 2019 to 2023, the completion rate of related party mergers and acquisitions is always lower than that of non related party mergers and acquisitions dominated by industrial mergers and acquisitions. The unfinished rate of non related party mergers and acquisitions is basically maintained at 3% to 5%, while the unfinished rate of related party mergers and acquisitions in 2019 is as high as 11.62%.

Guojin Securities believes that from the perspective of M&A purpose, the proportion of industrial M&A has begun to rise in the past two years and has gradually become the mainstream of the market. Industrial mergers and acquisitions appear with the adjustment of industrial structure. They are generally divided into horizontal integration and vertical integration, sometimes including the integration of enterprises in new business areas. Enterprises integrate resources through industrial mergers and acquisitions, complement each other's advantages, and achieve leapfrog growth. While cracking down on backdoor listing, industrial mergers and acquisitions have become the direction encouraged by the regulatory authorities. Since 2021, the proportion of A-share listed companies carrying out industrial M&A has increased year by year, from 35.39% to 65.03%, reaching the highest value since 2019. The M&A activities of listed companies are more obviously characterized by industry dominance, and M&A and restructuring have further returned to the standard.

In the aforementioned report, the Federal Reserve Securities said that the A-share M&A market is moving towards a healthier and more rational direction, which is mainly reflected in the fact that the top large market listed companies continue to play a major role in M&A, the mainstream status of industrial M&A is becoming more stable, the degree of prosperity is high, and M&A in mature industries is generally active, and M&A in economically developed regions is significantly active.