Following the China Securities Regulatory Commission issued in September, “on deepening the mergers and acquisitions of listed companies and reorganization of market reform views” (“mergers and acquisitions six”), Shanghai, Jiangxi, Sichuan, Shenzhen and other places to follow up on the relevant support policies, to encourage listed companies through mergers and acquisitions and reorganization of better and stronger, so as to drive the high-quality development of the regional economy. At present, the A-share market for mergers and acquisitions and restructuring of the enthusiasm is obviously warming up, in addition to the industry chain upstream and downstream “strong joint”, cross-border mergers and acquisitions has become a new trend of transformation and upgrading of listed companies.

Recently, Professor RUAN Qingsong of the Department of Economics and Finance of the Institute was interviewed by Hong Kong Wen Wei Po, he believes that the relevant policies can help attract capital to the market in the short term and increase market activity, while in the medium term, they can help optimize the asset structure and industrial layout, make enterprises bigger and stronger, and improve the overall valuation of the A-share market, while listed companies need to rationally assess and avoid blindly following the trend. The following is the content of the interview.

A-share companies mergers and acquisitions and reorganization heating up

SFC Chairman WU Qing revealed last week, since this year the whole market mergers and acquisitions and reorganization of about 3,000, “mergers and acquisitions since the release of the six” more than 260 listed companies have disclosed the reorganization of assets. Among them, emerging industries have become the focus of mergers and acquisitions.

Enterprise profitability down urgently need to integrate resources.

Professor RUAN Qingsong said, “mergers and acquisitions six” as the core of the series of policies, the continuation of the previous new “nine” “eight” and other support for listed companies mergers and acquisitions and reorganization of the main line of policy. At present, China’s economy is in a critical period of transformation and upgrading, affected by the weak external demand, domestic demand structural changes and other factors, many listed companies are facing a decline in profitability, lack of core competitiveness and other issues. The implementation of mergers and acquisitions and restructuring can help enterprises integrate resources and optimize structure through market-based means.

He pointed out that, in the short term, the policy surface to increase support for mergers and acquisitions and reorganization of listed companies, naturally, to boost market activity is very beneficial. Investors or because of it to focus on mergers and acquisitions of stocks, foreign capital is expected to have international mergers and acquisitions of listed companies with the potential to favor, to attract incremental capital layout of A-share high-quality assets; in the medium term, the relevant mergers and acquisitions and restructuring of the support policy to help raise the overall valuation of the A-share market, high-quality listed companies through mergers and acquisitions and restructuring, in order to optimize the structure of the asset structure and industrial layout, and to enhance the profitability of the enterprise; and with the mergers and acquisitions and restructuring of audit mechanism More clear and transparent, “survival of the fittest” logic is more strengthened, “shell” resources enterprise speculative value further decline, the market will pay more attention to corporate fundamentals.

Semiconductor, pharmaceutical and biological fields frequent mergers and acquisitions

RUAN Qingsong believes that electronics, semiconductors, medicine and biology and other new quality productivity industry, or especially benefit from this round of policy promotion.

“The aforementioned industry mergers and acquisitions activities are frequent, the main driving force behind it can be attributed to policy support. The new policy clearly supports listed companies to transform and upgrade in the direction of new productivity, including cross-border mergers and acquisitions, upstream and downstream industry chain mergers and acquisitions, as well as the acquisition of high-quality and unprofitable ‘hard science and technology’ enterprises”, RUAN Qingsong also mentioned that traditional manufacturing enterprises through M&A and reorganization are also expected to obtain key technologies or realize the extension of the industry chain, which involves environmental protection and energy-saving and energy-saving industries. Industry chain extension, which involves environmental protection and energy-saving technology in the field of mergers and acquisitions, will help to enhance the green competitiveness of the traditional industry, you can pay attention to automotive parts, electrical equipment, industrial robots and other areas of the transformation and upgrading opportunities for the relevant enterprises.

Mergers and acquisitions and reorganization of the company’s one-month average earnings rose 13%

According to the CICC research department strategy analyst YI Zhenzhen statistics, since the CSRC issued “mergers and acquisitions six” since the A-share market for mergers and acquisitions and restructuring of the enthusiasm heated up significantly. Compared with the Vanguard All-A Index, listed companies in mergers and acquisitions and restructuring have realized significant excess returns in one month, with an average excess return of 12.9% and a median of 2.0%, which is 9.9 and 3.3 percentage points higher than the historical level, respectively, “This performance reflects the market’s more positive response to the new policy on mergers and acquisitions and restructuring.”

In the aforementioned report, CICC and collected data from January 1, 2010 to October 28, 2024 on A-share listed companies as bidders. From the industry distribution point of view, after the first disclosure date of M&A restructuring, industry performance divergence, long-term technology, manufacturing sector of the excess return is higher, cycle, real estate chain industry performance is weaker. From the nature of enterprises, after the disclosure date of M&A reorganization of central state-owned enterprises and non-central state-owned enterprises stock prices have been boosted, non-state-owned enterprises excess returns significantly higher than the central state-owned enterprises.

Need to rationally assess the must not blindly follow the wind

In the tide of mergers and acquisitions and reorganization, there are also many major reorganization matters announced termination. In this regard, Professor RUAN Qingsong believes that listed companies should avoid blindly following the trend, whether to carry out mergers and acquisitions and reorganization, should be based on their own rational assessment of the situation.

Mergers and acquisitions are not a “panacea” for improving quality and efficiency.

He analyzed that M&A restructuring is often affected by the market environment and industry trends, for example, the M&A restructuring of Keriande and State Grid Technology, on both sides of the current stage of the market environment and the core terms of the transaction after prudent research and discussion decided to terminate. In addition, if the two parties to the transaction have major differences in the valuation of the target assets, or disagree on the payment method, transaction structure, personnel resettlement and other issues, it may become a “stumbling block”, Shimao Energy decided to terminate the purchase of the equity of Zhan Ding Science and Technology, due to the huge amount of the transaction, the complexity of the transaction conditions and the high degree of uncertainty, resulting in the failure of the two parties to reach agreement. The two parties failed to reach an agreement.

As a matter of fact, mergers and acquisitions are not a “panacea” for every company to improve quality and efficiency. According to RUAN Qingsong, listed companies should make rational assessment based on their own situation to ensure that M&A is for realizing the long-term strategic goals of the enterprise, rather than short-term market value management or chasing hotspots. “Enterprises should clearly judge whether M&A restructuring can supplement core resources such as technology, market and brand, and evaluate whether they have the ability to integrate M&A targets in light of their own operating conditions. If the M&A may create huge management challenges or synergy difficulties, it is best to move forward cautiously. Financing mergers and acquisitions, on the other hand, need to fully assess the financial situation of the enterprise, to avoid excessive burden caused by high-leverage operations, and prioritize projects that are financially sound and have good cash flow support.” He believes that for enterprises that do not have the conditions, prudent wait-and-see, focusing resources on the core business or a more sensible choice.

Ji policy to further refine the conditions for access to the transaction

From a policy perspective, RUAN Qingsong also suggested that for listed companies to “follow the trend of mergers and acquisitions” phenomenon, the relevant policies also need to further refine the transaction access conditions. For example, the introduction of a graded audit mechanism, giving priority to support those who can truly achieve resource integration, technological upgrading and industrial upgrading of mergers and acquisitions restructuring projects, encouraging substantive restructuring, large-scale, industry-important mergers and acquisitions transactions, the implementation of a more stringent review process to ensure that resources are tilted to high-quality projects. At the same time, to regulate connected transactions and cross-industry mergers and acquisitions, there is no clear synergies or the existence of benefit transfer transactions suspected, need to focus on monitoring.

In addition, the relevant departments may also consider formulating more specific information disclosure guidelines, especially in terms of providing clearer guidance on the background of the transaction, pricing basis, financial status, potential risks, etc., so as to enhance transparency and urge listed companies to ensure that all important information is disclosed timely and accurately in the process of M&A and reorganization, so as to enable investors and other market participants to make rational decisions.