Mergers and acquisitions of head property enterprises accelerated Last year, the amount of mergers and acquisitions in the industry increased by 243% to 36.2 billion

Per reporter: Chen Li Per editor: Wei Wenyi

At the beginning of 2022, mergers and acquisitions in the property industry have been frequently staged. On the evening of January 5, China Resources Vientiane Life announced that it intends to acquire Yuzhou Property for no more than 1.06 billion yuan, which is also the first property merger and acquisition case after the beginning of the year; on the same day, Nandu Property announced that it would acquire 100% of the equity of Zhongda Property and 80% of the equity of Puhui Property for 132 million yuan; on January 10, KWG Youhuo announced that it intends to acquire 50% of the equity of Guangdong Trijie Environmental Engineering Co., Ltd. for 165 million yuan; on January 12, Yongsheng Property acquired 100% of the equity of Zhengzhou Zhiping Enterprise Management.

In fact, mergers and acquisitions in the property industry have been intensifying in recent years. According to data from the Middle Finger Research Institute, in 2021, there were 77 M&A transactions in the property management industry that disclosed relevant information, involving 36 property companies of the acquirers; the transaction amount was about 36.25 billion yuan, a significant increase of about 243% compared with the total transaction volume in 2020.

"Under the background of the era of 'scale is king', 'expanding scale' is still the strategic priority goal of head property service enterprises. In 2022, the M&A boom in the property industry will continue, the head property enterprises (especially listed enterprises) will still become the leading party in the M&A market, and state-owned property enterprises will gradually enter the M&A market, and the number, amount and business type of mergers and acquisitions will increase. ”

Niu Xiaojuan, deputy general manager of the property business department of the Middle Finger Research Institute, told the "Daily Economic News" reporter that in terms of the content of mergers and acquisitions, in addition to property management companies, enterprises involving community value-added services and smart technology will gradually increase; in terms of merger and acquisition decisions, pre-investment and post-investment management will become more important, and "quality" mergers and acquisitions will become one of the important trends.

Mergers and acquisitions of head property enterprises accelerated

In the context of the industry of "scale is king", improving the absolute strength of scale has become the consensus of head property enterprises. In fact, in recent years, the competition of head property enterprises has long been in a state of rushing. For example, at the beginning of 2021, a number of leading property companies have announced the future scale expansion target of the future expo at the performance meeting, which has also set the tone for the annual market expansion boom, and the large-scale merger and acquisition action has also shown the scale anxiety of the enterprise.

Taking Country Garden Service as an example, it launched three large-scale mergers and acquisitions in 2021, namely the acquisition of the equity of Blu-ray Gerber Service for 5.432 billion yuan, the acquisition of R&F Property for no more than 10 billion yuan, and the acquisition of the core asset of Color Life Service, Ryoli Holdings, for no more than 3.3 billion yuan. These three mergers and acquisitions cost Country Garden 18.7 billion yuan in services, accounting for about 47% of the total amount of mergers and acquisitions in the property management industry in 2021.

It should be noted that there are still many property companies that step on the annual pass and promote the landing of M&A projects one after another. On December 30, 2021, Shimao Services, Country Garden Services, Landsea Green Life and other property companies also sprinted a "New Year's Eve" order from the mergers and acquisitions market.

Entering 2022, the mergers and acquisitions of the property enterprise industry are still accelerating, and property companies such as China Resources Vientiane Life, Xuhui Yongsheng Service, Nandu Property, and Group Photo Youhuo have taken the lead in opening a new round of mergers and acquisitions.

According to data from the Middle Finger Research Institute, in 2021, there were 77 M&A transactions in the property management industry that disclosed relevant information, involving 36 property companies of the acquirers; the total transaction amount was about 36.25 billion yuan, a significant increase of about 243% compared with the total transaction volume in 2020. From the perspective of mergers and acquisitions, the average merger and acquisition scale of TOP10 enterprises in mergers and acquisitions area is 86.67 million square meters, and the M&A area of Country Garden Services, Evergrande Property, Hejing Youhuo and Wanwuyun will exceed 100 million square meters in 2021.

Affected by frequent mergers and acquisitions in the industry, the concentration of the property industry is also further improving. Kerry property management data system CPIC monitoring shows that in 2021, the TOP10 threshold value of property management enterprises will be greatly improved, and enterprises will enter the top 10 of industry development, and the value of area under management will reach more than 270 million square meters, which is an increase of 83 million square meters compared with the value in 2020, an increase of 44.39%.

"The transmission of the real estate liquidity crisis is the direct inducement for the frequent occurrence of large-scale M&A transactions in 2021; secondly, the expansion of enterprise scale and development are the endogenous driving force of the M&A frenzy; the sufficient M&A funds are sufficient, which is a supporting factor for the scale of M&A."

Wu Kuiyong, senior analyst of the Property Division of the Middle Finger Research Institute, believes that the phenomenon of "big fish eating big fish" in the property industry will still occur in 2022, and some small and medium-sized property companies will use mergers and acquisitions, market expansion, strategic cooperation and other means to quickly increase market share, and even achieve curve overtaking; the industry's future concentration will be further improved, while market differentiation will also intensify, the industry as a whole presents a "long tail effect", and the head enterprises win higher market recognition and expectations with outstanding scale advantages.

In addition, according to the analysis of guojin securities research report, although the recent real estate policy has improved marginally, it still takes a certain amount of time for the cash flow at the operating level to improve, and the debt repayment is rigid, and some real estate companies that have encountered cash flow difficulties may still sell their property companies in exchange for cash.

State-owned enterprise property mergers and acquisitions

It should be noted that in the context of the intensification of the property merger and acquisition war, the head property with a state-owned background has been quiet in the past year, but in the near future, it has suddenly become strong.

On December 29, 2021, China Merchants Jiyu announced that it and China Southern Airlines Group Co., Ltd. recently signed the Property Rights Transaction Contract to acquire 95% of the equity of China Southern Airlines Property under China Southern Airlines Group for 230 million yuan. Just a few days ago, China Merchants Accumulator also acquired 100% of the equity of Shanghai Aviation Property under Shanghai Aviation Industry (Group) Co., Ltd. for 53.62 million yuan.

China Merchants Jiyu said on its official website that the company grasped the asset window period for large state-owned enterprises to divest "non-main business, non-advantageous business" and gave full play to the advantages of the property flagship of central enterprises. The China Southern Airlines Property and Shanghai Airlines Property acquired by Nandu are both central enterprises.

China Resources Vientiane Life, which also has a state-owned background, also disclosed its first merger and acquisition case a year after its official announcement of its listing in 2022: it intends to spend 1.06 billion yuan to acquire Yuzhou Property.

"The beginning of 2022 ushered in high-premium mergers and acquisitions by state-owned enterprises, indicating the direction of the mergers and acquisitions market in the next year." Jiahe Family Business analysis pointed out that this also shows that the property industry merger and acquisition window period is far from over, when the head of the property enterprise gradually slows down the speed of mergers and acquisitions, state-owned property enterprises or will become an emerging force in the mergers and acquisitions market. In the future, more state-owned enterprises may change the relatively low-key merger and acquisition strategy in the past, take the initiative and seek more market opportunities.

CITIC Securities also pointed out in the research report that the pace of mergers and acquisitions in the industry has accelerated recently, and private enterprises have advantages in flexibility, but it is expected that the activity of state-owned enterprises will increase in the future.

According to the statistics of the Middle Finger Research Institute, from the book funds as of June 2021, the ammunition used by some property companies for mergers and acquisitions is sufficient, which is enough to continue to support future high-intensity mergers and acquisitions. Therefore, it is expected that in the next few years, the expansion of the scale through mergers and acquisitions will continue.

However, it is worth noting that while the market mergers and acquisitions are unprecedented, the acquisition attitude of some property companies is becoming more and more cautious, mainly reflected in the reduction of the acquisition premium in 2021, the cancellation of many acquisition events, and the formulation of more complex VAM regulations by the acquirer.

On the last day of the New Year's Day holiday this year, Sunac Services Holdings Limited issued an announcement announcing the termination of the acquisition of about 32.22% of the equity of First Service, due to the fact that "the seller suddenly overturned the previous consensus reached by the two parties on the transaction consideration and related transaction arrangements on December 31, 2021, which ultimately led to the inability to complete the signing of the formal agreement." ”

This is not the first acquisition to be terminated in the property industry. On October 20, 2021, Evergrande Property and Hopson Chuangzhan simultaneously issued an announcement announcing the termination of Hopson Chuangzhan's HK$20.04 billion acquisition of 50.1% of Evergrande Property. Earlier, on April 14, 2021, Xuhui Yongsheng Service announced the suspension of the acquisition of a 65% stake in Zhangtai Property.

"Judging from the current development needs of property companies and the current situation of the real estate sector, the activity of the mergers and acquisitions market in the property industry will remain at a high level in 2022." And in the case that the market is still facing high uncertainty, the acquirer will pay more attention to the realizability of the future performance of the target and the operation after the merger, strictly select the target, and view the merger and acquisition in a more cautious manner. ”

Jiahe Family Business Analysis pointed out that with the gradual settlement of the industry pattern, competition in the post-scale era is about to rise. As a current development hotspot, smart services and public services in the community will also be a strategic choice for property enterprises to break through boundaries and cross the trough.

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