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Big news on brokerage mergers and acquisitions!

On the evening of July 16, Zheshang Securities announced that its application for shareholder qualification of Guodu Securities had been accepted by the China Securities Regulatory Commission. This also means that Zheshang Securities has taken a substantial step towards acquiring Guodu Securities.

Boosted by the good news, many brokerage stocks have seen encouraging gains. As of press time, the share prices of Haitong Securities, Huaan Securities, and SDIC Capital have risen to varying degrees.

Securities industry mergers and acquisitions welcome a "big year"

On June 8, Tongfang Co., Ltd. announced that its subsidiary Tongfang Venture Capital received a notice from the Beijing Equity Exchange that Zhejiang Securities became the assignee of the public listing project of 5.9517% of Guodu Securities held by Tongfang Venture Capital, with the transaction price being 910.83 million yuan.

On the same day, Tongfang Venture Capital and Zheshang Securities signed the "Equity Transaction Contract". So far, Zheshang Securities has acquired 34.2546% of Guodu Securities' equity from 8 shareholders, spending a total of 5.128 billion yuan, becoming the largest shareholder.

On July 16, the China Securities Regulatory Commission officially accepted Guodu Securities' application to change its shareholders.

Public information shows that Guodu Securities was established in December 2001 with a registered capital of 5.83 billion yuan. The company is listed on the New Third Board. As of now, Guodu Securities has no controlling shareholder and no actual controller. As of the end of 2023, Guodu Securities' total assets were 33.879 billion yuan, net assets were 10.865 billion yuan, operating income was 1.381 billion yuan, and net profit was 714 million yuan.

Zheshang Securities was established on May 9, 2002 with a registered capital of 3.878 billion yuan. The actual controller of Zheshang Securities is the State-owned Assets Supervision and Administration Commission of the People's Government of Zhejiang Province. As of the end of 2023, Zheshang Securities had total assets of 145.528 billion yuan, net assets of 28.271 billion yuan, operating income of 17.638 billion yuan, and net profit of 1.824 billion yuan.

Industry insiders believe that Zheshang Securities' acquisition of Guodu Securities' equity will be conducive to the in-depth integration of both parties in terms of business, resources, technology, etc., and will help the company improve its market competitiveness.

2024 is considered to be a "big year" for mergers and acquisitions in the securities industry. The "Nine National Policies" clearly support leading institutions to enhance their core competitiveness through mergers and acquisitions, restructuring, organizational innovation, etc. Favorable policy support will further promote the concentration of China's securities industry.

At present, Guolian Securities' acquisition of Minsheng Securities and Western Securities' acquisition of GuoRong Securities are being advanced in accordance with the principles of marketization and rule of law.

On May 15, Guolian Securities disclosed the board's plan for a major asset restructuring, and the company plans to issue A shares to purchase 100% of Minsheng Securities, with a planned fundraising of no more than 2 billion yuan. The company, intermediaries and other relevant parties are actively promoting the relevant work of this transaction.

On June 21, Western Securities issued an announcement stating that based on its own development needs, it is planning to acquire the controlling stake in GuoRong Securities by paying cash. The specific proportion of shares to be acquired will be subject to the final signed share transfer agreement.

From "growing taller" to "strengthening muscles and bones"

At present, there are 43 A-share listed securities companies in my country. Their influence and status in the industry are crucial, but as a whole they still face the problem of being "big but not strong", especially in terms of comprehensive financial services, risk resistance, degree of internationalization, etc. There is still a certain gap between them and the standards and requirements of first-class investment banks.

According to the first quarter report of 2024, the 43 listed securities companies achieved a total operating income of 105.828 billion yuan, a year-on-year decline of 21.55%; and a total net profit of 29.351 billion yuan, a year-on-year decline of 31.69%. Only 5 companies achieved a year-on-year increase in both operating income and net profit. In terms of main business, the self-operated business income of listed securities companies in the first quarter totaled 33.378 billion yuan, which is still the largest source of income.

Industry insiders believe that if securities firms want to shift from "growing taller" to "strengthening their muscles and bones", mergers and acquisitions and restructuring are a "tonic" that can optimize resource allocation, improve operational efficiency, enhance risk resistance, and expand international influence.

Judging from the trend, the merger and reorganization of securities companies has entered a good time window. From the policy side, the regulatory authorities have clearly encouraged the cultivation of first-class investment banks and investment institutions, promoted institutional mergers and acquisitions, and the competitiveness of leading securities companies can be expected to increase. From the supply side, the Matthew effect has increased pressure, and small and medium-sized securities companies have actively sought change, and equity transfers have accelerated. From the demand side, the opening up of the capital market has been steadily advancing, and leading securities companies are facing overseas challenges.

The integration of securities companies has many benefits. It is not only conducive to optimizing the allocation of industry resources and improving the overall comprehensive strength of the securities industry, but also can enhance the effectiveness of market supervision and make the financial market more orderly. The merged large securities companies are more likely to stand out on the international stage, compete with international financial giants, and enhance the global influence of China's financial market.

Mergers and acquisitions are not a panacea for strengthening muscles and bones, and are not suitable for all securities firms. Securities firms should not use mergers and acquisitions as a means to support performance and increase market value in the short term, or blindly merge and reorganize to catch up with the trend. They should proceed from their own actual situation, and make prudent decisions and implement them scientifically based on whether it is conducive to refining their main business and strengthening their expertise.

Review of four waves of mergers and acquisitions

Public information shows that during the construction history of my country's securities industry, it has experienced four waves of mergers and acquisitions and restructuring, which have promoted the expansion of the scale and enhancement of strength of the securities industry.

The first wave of mergers and acquisitions (1995-2000): from "mixed operations" to "separate operations". Before 1993, my country's financial industry implemented mixed operations and supervision, and chaos arose. In order to govern the securities market, the Third Plenary Session of the 11th Central Committee clearly pointed out that "the banking industry and the securities industry should be managed separately". Many top securities companies seized the policy opportunities and grew stronger through mergers and acquisitions. For example, GF Securities became a comprehensive securities company through multiple mergers and acquisitions; Junan Securities merged with Guotai Securities to form Guotai Junan Securities.

The second wave of mergers and acquisitions (2004-2007): comprehensive governance and risk management. In response to the problems in China's securities market in 2003, the China Securities Regulatory Commission launched a comprehensive governance campaign. Many securities firms expanded their business scope and market influence through trusteeship, mergers and acquisitions, and improved their business capabilities. For example, Huaqin Securities and Cinda Securities acquired Asia Securities, United Securities, Han Tang Securities, and Liaoning Securities respectively; Everbright Securities acquired Tianyi Securities and Kunlun Securities.

The third wave of mergers and acquisitions (2008-2012): "One participation and one control". A large number of mergers and acquisitions during the comprehensive governance period resulted in the same shareholder holding shares or controlling shares in multiple securities companies, and new problems such as intra-industry competition and related transactions surfaced. In order to solve the problems brought about by mergers and acquisitions, the State Council introduced the "one participation and one control" policy, after which financial holding platforms such as the "Huijin Group", "CCB Group", "CITIC Group", and "Tomorrow Group" began large-scale integration.

The fourth wave of mergers and acquisitions (2019-present): Become better and stronger, and build a "first-class investment bank". As China's securities industry enters a new stage of development, the motivations for mergers and acquisitions have become more diverse. Some are to continue to meet the requirements of one participation and one control, and some are to achieve business synergy or diversification. For example, Founder Securities made up for its lack of customer resources in the northeast and southwest regions by absorbing and merging Minzu Securities.

Table List of historical important mergers and acquisitions cases between securities firms

Note: Based on public information