With the tightening of the IPO (initial public offering) channel and the promotion of related policies, M&A transactions in the A-share market are expected to accelerate in 2024.
According to the research report of Guojin Securities, in the first quarter of 2024, the number of mergers and acquisitions of A-share listed companies will be 268, a year-on-year decrease of 10.07%, but the decline is significantly smaller. Among the M&A events with disclosed transaction value, the number of small and medium-sized M&A transactions below RMB10 million increased by 25% year-on-year, indicating that the decrease in M&A in the first quarter of 2024 was mainly due to the decrease in large-value M&A transactions.
Guojin Securities said that on the one hand, due to the changing geopolitical situation in 2024, M&A transaction participants are more cautious about large-scale mergers and acquisitions; On the other hand, the activity of M&A transactions was affected by the lack of expectations and confidence in the capital market in the first quarter, but it is expected that as the market recovers, the activity of M&A transactions will gradually be released.
M&A and restructuring mainly include corporate M&A and asset restructuring, which often occur interactively. M&A focuses on the transfer of equity and corporate control, while asset restructuring focuses on changes in asset relationships.
Recently, Han Yuze, founding partner and chairman of Lianchuang Capital, said in an interview with the Economic Observer that in 2024, mergers and acquisitions will become the main way for venture capital institutions to exit from equity investment, and GP (General Partner, general partner) should shift the concept of exit through IPO to exit through mergers and acquisitions. Venture capital institutions need to adjust the operation mode, team concept, and management mode of equity investment. At the same time, venture capital institutions, as managers, should relax the standards for mergers and acquisitions, promote the implementation of more transaction cases, form a demonstration effect, and create a good environment for mergers and acquisitions.
Guojin Securities believes that in the context of the slowdown in the pace of IPOs, mergers and acquisitions are of great significance to the high-quality development of the capital market and the benign development of the market ecology. On the one hand, mergers and acquisitions can accelerate the adjustment and optimization of market structure, promote industrial transformation and upgrading, and are 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. Through mergers and acquisitions, listed companies can improve asset quality, quickly acquire advanced technology, expand market share, improve external competitiveness, and enhance the ability to return investors.
M&A deals picked up
Since 2024, the A-share M&A market has shown signs of stopping its decline and recovering.
Due to the macroeconomic impact, A-share listed companies have become more cautious in carrying out M&A activities. In 2023, the number of domestic M&A transactions in which the acquirer is an A-share listed company will be 1,404, the lowest in the past five years, a year-on-year decrease of 23.53%. At the same time, with the tightening of the regulatory authorities' supervision of major asset restructuring and the increasing attention to related party transactions, among the M&A and restructuring events disclosed in 2023, the proportion of major asset restructuring and related party M&A transactions showed an overall downward trend, decreasing by 15% and 8% respectively compared with 2022.
From the perspective of mergers and acquisitions, M&A transactions in the A-share market are mainly acquisitions by agreement. From 2019 to 2023, the number and value of M&A events related to the acquisition of agreements ranked first, accounting for 60.77% and 34.97% of the total scale, respectively. In addition, the number of capital increase mergers and acquisitions and secondary market acquisitions ranked second and third, respectively.
When the important channel of IPO is restricted, the function of mergers and acquisitions is "amplified", and related transactions are more active.
According to the data of the research report of Guojin Securities, from 2012 to 2015, the number of mergers and acquisitions and restructuring transactions participated by A-share listed companies increased from 584 in 2012 to 2,913 in 2015, an increase of nearly four times. Among them, in 2013, A-share IPOs were basically suspended.
Since 2024, the pace of A-share IPOs has slowed down significantly, and the M&A market has bright prospects, catalyzed by both supply and demand. In the first quarter of 2024, the number of IPO companies will be 30, a year-on-year decrease of 55.88%, the lowest level since 2019.
In April 2024, the State Council issued the Several Opinions of the State Council on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market (i.e., the new "Nine Articles"), which clearly proposes to intensify the reform of mergers and acquisitions and restructuring, and take multiple measures to activate the merger and restructuring market.
Guojin Securities said that on the whole, the A-share IPO standards are more stringent, and the delisting is easier, and it is gradually developing in the direction of "good in and inferior out". In this context, from the perspective of asset supply, the channels for venture capital institutions to achieve equity exit through IPOs will be squeezed in the future, and mergers and acquisitions will become an important way for venture capital institutions to achieve equity exit. From the demand side, at the end of 2023, the China Securities Regulatory Commission and other regulatory authorities proposed to support the transformation and upgrading of listed companies, and to become better and stronger, and industrial chain mergers and acquisitions and cross-border mergers and acquisitions are important ways for A-share listed companies to achieve industrial integration and market expansion. If A-share listed companies want to achieve transformation and upgrading and high-quality development, mergers and acquisitions are one of the main ways they can choose.
Guojin Securities said that mergers and acquisitions are conducive to the company's optimal allocation of resources, the diversification of its own business, and the diversification of investment and operational risks to a certain extent. In recent years, with the deepening of the registration-based reform, the efficiency and quality of the M&A and restructuring system of listed companies have been significantly improved. With the joint efforts of regulators and market parties, a fair and efficient M&A environment is gradually taking shape.
The proportion of backdoor listings decreased
With the gradual increase in the supervision of backdoor listings by the regulators, the proportion of backdoor listings of listed companies has decreased significantly.
In April 2024, Fed Securities released the "2023 A-share M&A Market Summary and 2024 Annual Outlook" report (the "Report").
The report pointed out that half of the top 10 stocks in the stock price range in 2022 relied on "fake restructuring" speculation to get on the list. Further excavation by the Federal Reserve Securities found that in 2022, 25 stocks in the A-share market were hyped by the four major "scandals" of "Xifeng Liquor Backdoor", "Xijiu Backdoor", "Jinjiu Backdoor" and "Glory Backdoor".
In contrast, when analyzing the 2023 bull stocks of the year, the phenomenon of speculating stocks through false backdoor concepts has largely disappeared, the report said. The data shows that among the top 20 stocks in 2023, none of them have been speculated by the market because of rumors of backdoor restructuring. Among them, there are only 4 stocks involved in the concept of mergers and acquisitions, and all of them have real restructuring transactions.
Looking back on the history of A-share mergers and acquisitions, the research report of Guojin Securities pointed out that from 2012 to 2015, A-shares set off a round of mergers and acquisitions, and listed companies were active in mergers and acquisitions, but the number of backdoor listed companies also increased. The proportion of backdoor listings is at a high level, which has led to the problem of shell speculation, resulting in the distortion of the valuation of shell companies, and the failure rate of backdoor listings has risen sharply, from 11.76% in 2012 to 37.21% in 2015, seriously damaging the rights and interests of investors. In 2016, the China Securities Regulatory Commission (CSRC) revised the Measures for the Administration of Major Asset Restructuring of Listed Companies to crack down on backdoor listings, significantly raise the threshold and cost of backdoor listings, improve the quality of listed companies, and strictly supervise backdoor listings during the follow-up review process, significantly reducing the proportion of backdoor listings.
Guojin Securities said that the new "National Nine Articles" 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, increase the supervision of "backdoor listing", and accurately crack down on all kinds of illegal "shell" behaviors, so as to better ensure the quality of restructuring and listing.
Industrial mergers and acquisitions have become the mainstream of the market
Since the beginning of this year, a change in the M&A market is that related party M&A has come under pressure, and industrial M&A has begun to increase significantly.
From the perspective of M&A buyers, small and medium-capitalization listed companies are more involved, but the scale tends to be smaller.
According to the research report of Guojin Securities, in 2023, the number of companies participating in mergers and acquisitions with a market value of more than 20 billion yuan will account for 17.02%, the lowest since 2019; The proportion of companies participating in mergers and acquisitions with a market value of less than 10 billion yuan has shown an upward trend since 2021, from 56.89% to 65.31% in 2023; M&A deals initiated by small and medium-capitalization companies are increasing and participatory. However, from the perspective of M&A transactions with disclosed transaction amounts, the proportion of M&A transactions of small and medium-capitalization enterprises has gradually decreased, 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 that the computer, communication and other electronic equipment manufacturing industries are the most active in M&A, and the number and scale of M&A are both on the rise. In the past five years, the top three industries in terms of the number of mergers and acquisitions of A-share listed companies are computer, communication and other electronic equipment manufacturing, chemical raw materials and chemical products 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 technology, and horizontal integration accounts for a relatively high proportion. In the fields of computer, communication, electronic equipment manufacturing, etc., enterprises actively acquire key technologies or market channels through mergers and acquisitions, and accelerate technological iteration and industrial upgrading.
The research report of Guojin Securities pointed out that the success rate of related party mergers and acquisitions is decreasing, and listed companies are more cautious in carrying out related party mergers and acquisitions, while the success rate of non-related mergers and acquisitions based on industrial mergers and acquisitions is relatively higher. From 2019 to 2023, the completion rate of related-party mergers and acquisitions has always been lower than that of non-related-party mergers and acquisitions, which are mainly industrial mergers and acquisitions, and the uncompleted rate of non-related-party mergers and acquisitions has basically remained at 3% to 5%, while the non-completion rate of related-party mergers and acquisitions in 2019 was as high as 11.62%.
Guojin Securities believes that from the perspective of the purpose of mergers and acquisitions, the proportion of industrial mergers and acquisitions has begun to rise in the past two years and has gradually become the mainstream of the market. Industrial mergers and acquisitions are accompanied by industrial restructuring and are generally divided into horizontal integration and vertical integration, and sometimes include 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 listings, industrial mergers and acquisitions have become the direction encouraged by the regulatory authorities. Since 2021, the proportion of industrial mergers and acquisitions carried out by A-share listed companies has increased year by year, from 35.39% to 65.03%, reaching the highest value since 2019.
The Federal Reserve Securities said in the aforementioned report that the A-share M&A market is developing in a healthier and more rational direction, mainly manifested in the fact that the head large-capitalization listed companies continue to play the main role in M&A, the mainstream position of industrial M&A is becoming more and more stable, the prosperity is relatively high, and the M&A in mature industries is generally active, and the M&A in economically developed areas is significantly active.