Following the announcement of the acquisition of Yuzhou Property on January 5, 2022, CR Vientiane Life announced the acquisition of Zhongnan Service on the 20th, completing two large-scale mergers and acquisitions in less than a month. So why did CR Vientiane Life after acquiring two properties? What will be the current trend of the M&A market in the property management industry?
CR Vientiane Life embarked on a major merger and acquisition
Scale demands and adequate funding are the main reasons
On January 20, CR Vientiane Life, a property management platform under China Resources, announced the acquisition of all the equity of Nantong Changle Property and a 1% equity interest of Jiangsu Zhongnan Property Service for a total consideration of not more than 2.26 billion yuan. Since Zhongnan Property is 99% owned by Nantong Changle. Therefore, through this transaction, CR Vientiane Life actually absorbed Zhongnan Services, a property management platform under Zhongnan Construction, and added a total of 51.47 million square meters of area under management and 39.41 million square meters of contract area. Coupled with the 10.48 million square meters of management and contract construction area brought by the acquisition of Yuzhou Property, CR Vientiane Life expects to add about 100 million square meters of managed scale from these two acquisitions in the next five years.
At this time, CR Vientiane began to make a big move, partly because the company had sufficient cash reserves. Since completing its IPO at the end of 2020 and successfully raising HK$12 billion, CR Vientiane Life has not made large-scale investments, so as of mid-2021, it still has nearly 12.8 billion yuan of cash holdings, ranking third among the property management companies under the listed real estate enterprises.
It is more difficult for small and medium-sized property management enterprises to go public
Mergers and acquisitions opportunities in the industry have increased
In addition to the scale demand, China Resources has begun to acquire mergers and acquisitions at the current node, also because the merger and acquisition opportunities in the current property management market continue to emerge. The Hong Kong Stock Exchange will formally implement the new listing rules from 1 January 2022 (not less than HK$35 million in the most recent financial year; not less than HK$45 million in the first two financial years; and not less than HK$80 million in three years), which will increase the difficulty of listing smes and small and medium-sized property management enterprises, and the opportunities for mergers and acquisitions in the market in the future are likely to continue to increase.
The increase in the listing threshold has led some property companies to give up their attempts to continue listing after the prospectus expires, such as ZhongAn Smart Life under ZhongAn Group. Among the 28 property management companies that submitted new listing applications in 2021, 9 temporarily abandoned their applications for listing after the prospectus expired. Among the property management enterprises under the real estate enterprises that are still queuing on the Hong Kong Stock Exchange as of January 27, the profitability index of Mingyu Commercial Services is lower than the threshold of the Hong Kong Stock Exchange, and some enterprises have crossed the threshold after exchange rate conversion. Overall, most of the property management enterprises under the housing enterprises that are still waiting in line for IPO can meet the requirements.
In addition to the stricter listing threshold of the Hong Kong Stock Exchange, the recent liquidity crisis of real estate enterprises has led to an increasingly cautious attitude in the capital market, which has also had a certain impact on the listing of property management enterprises. Due to the increasing phenomenon of listing breaking and long-term stock price downturn, the attractiveness of listing for property management companies has also weakened, such as Xiangsheng Real Estate's Xiangsheng Life Service, which passed the listing hearing in November 2021, and announced the suspension of listing in December due to the distrust attitude of the capital market at that time.
In addition, due to the increasing difficulty of listing of its property management companies, coupled with the pressure on the group's funds, some housing enterprises began to sell their property sector equity to withdraw funds, in this context, large property management companies began to step up the pace of mergers and acquisitions and expansion, which led to the property management industry in 2021 Mergers and acquisitions involving an amount of up to 38.2 billion yuan, far more than in the past few years. In the future, there may be more and more incidents of "big fish eating small fish" or even "big fish eating big fish", accelerating the integration of the property management industry.
For some small and medium-sized property enterprises that are not eager to sell, in addition to continuing to stabilize operations and improve profitability and wait for listing opportunities, it may also be a good choice for large property companies like Sunshine Zhibo and Wanwuyun to exchange shares. This method can enhance the brand value of small and medium-sized property enterprises to a certain extent, enhance cooperation with large property enterprises, and thus ensure long-term revenue dividends. In addition, the equity of large property management enterprises obtained through share exchange can also be easily realized, so whether from the perspective of long-term operation or short-term realization, the exchange of shares with large property management enterprises is a new path that small and medium-sized property management enterprises can consider at present.
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Article Source: Kerry
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