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cai yuekun, reporter of economic observer late at night on september 5, two large brokerage firms in shanghaiguotai junan(601211.sh) andhaitong securities(600837.sh) announced plans for merger and reorganization. it can be expected that the launch of this brokerage aircraft carrier with total assets of 1.68 trillion will bring new imagination to china's securities industry.

this is the latest case in a new round of securities industry mergers and acquisitions. at the same time, the integration of central enterprises is also entering the "deep water zone".china heavy industry(601989.sh) andchinese shipbuilding(600150.sh) to integrate assets, which are two listed companies with a market value of over 100 billion yuan. the integration of central enterprises began after the establishment of the state-owned assets supervision and administration commission of the state council in 2003. it was based on this integration that the number of central enterprises directly under the sasac was reduced from 198 to 98, and a group of super "national companies" rose up.

state-owned assets are undoubtedly the "trendsetters" in the new round of mergers and acquisitions. according to incomplete statistics, from the beginning of 2024 to date, the actual controllers of more than 20 listed companies have been changed to local state-owned assets.

while local state-owned assets are looking for new "prey" in the capital market, a group of venture capital firms are also waiting to exit. under the current macroeconomic situation, plunging into this wave of mergers and acquisitions seems to be the last chance. at the same time, some industrial capital is also eager to try and become stronger and bigger in the integration of the industrial chain.

the regulatory authorities also added fuel to the m&a fire. the new "nine national regulations" clearly stated that it would intensify the reform of m&a and restructuring, and take multiple measures to activate the m&a and restructuring market.

these different faces have gathered into an increasingly powerful force. from may to august 2024, the dynamics of major restructuring events disclosed by listed companies on the shanghai, shenzhen and beijing exchanges increased month by month, exceeding 80 in august, setting a new monthly high for the year. wind data shows that as of september 6, 151 listed companies have disclosed relevant dynamics of major restructuring events this year, while the number in the whole year of 2023 was only 131.

zheng qiang has felt this. zheng qiang is the head of the investment banking department of a securities firm in the eastern region. as of september 5, his investment banking department is promoting more than 100 m&a and restructuring projects. among them, there are more than 20 new projects in the second half of the year, involving industries such as hard technology, medicine, and logistics. in the m&a and restructuring projects that zheng qiang participated in, the client types mainly include local governments, listed companies, overseas funds, private equity (pe) and venture capital (vc).

zheng qiang believes that a new cycle of a-share mergers and acquisitions has arrived. his reason is that from the history of the capital market, ipos and mergers and acquisitions often show a "seesaw" effect. wind data shows that as of september 5, the number of ipos in 2024 was only 62, a year-on-year decrease of 74.80%; the total amount of funds raised was 43.936 billion yuan, a year-on-year decrease of 85.72%.

in fact, the last wave of mergers and acquisitions dates back to around 2015. according to statistics, based on the first disclosure date, the number of major asset reorganizations of a-share listed companies has dropped from 384 in 2016 to 109 in 2023, and the amount of major asset reorganizations has dropped from 1.35 trillion yuan in 2016 to 0.14 trillion yuan in 2023.

now, this downward curve has turned upward. the question is, is this a rebound or the advent of a new wave? some market participants believe that this is a new "first year of mergers and acquisitions."

warming up

the wave of mergers and acquisitions and restructuring in the a-share market first caused waves in the securities industry.

on september 5, guotai junan disclosed that the company is planning to issue a shares to all a-share exchange shareholders of haitong securities and h shares to all h-share exchange shareholders of haitong securities, in order to absorb and merge haitong securities and issue a shares to raise matching funds.

guotai junan said that this reorganization will help build a first-class investment bank and promote high-quality development of the industry.

after the merger of the two 100 billion-level securities companies, the asset scale will exceedcitic securities(600030.sh), and took the top spot in the securities industry.

the central financial work conference held at the end of october 2023 proposed to "accelerate the construction of a financial power", "cultivate first-class investment banks and investment institutions", and "support large state-owned financial institutions to become better and stronger". on march 15, 2024, the china securities regulatory commission issued the "opinions on strengthening the supervision of securities companies and public funds to accelerate the construction of first-class investment banks and investment institutions (trial)", which proposed two major goals. first, it is to strive to promote the formation of about 10 high-quality head institutions to lead the high-quality development of the industry within about 5 years; second, by 2035, 2-3 investment banks and investment institutions with international competitiveness and market leadership will be formed.

against this background, the curtain has slowly been raised on mergers and acquisitions and restructuring in the securities industry since june.founder securities(602901.sh) sold credit suisse securities,western securities(002673.sz) plans to acquire guorong securities,guolian securities(601456.sh) is promoting the acquisition of minsheng securities,zheshang securities(601878.sh) will become the major shareholder of guodu securities by acquiring equity.

the intensifying integration in the securities industry is just a small part of the surge in mergers and acquisitions in the a-share market.

since the beginning of this year, the policy of mergers and acquisitions of listed companies has been warm. the new "nine national regulations" clearly stated that "listed companies are encouraged to focus on their main businesses and use mergers and acquisitions, restructuring, equity incentives and other methods to improve the quality of development." the china securities regulatory commission also emphasized at the mid-year work meeting to study and implement the spirit of the third plenary session of the 20th cpc central committee: better play the role of mergers and acquisitions.

as a result, with the encouragement and support of policies, mergers and acquisitions of listed companies have entered an active period.

in august, tasly (600535.sh), a well-established chinese medicine company that had been listed for over 20 years, announced that its controlling shareholder would become china resources sanjiu (000999.sz)... on september 2, china shipbuilding industry corporation's two billion-dollar listed companies, china heavy industry (601989.sh) and china shipbuilding (600150.sh), carried out asset integration, with the actual controller behind them being the state-owned assets supervision and administration commission of the state council.

8, 8, 15, 83. from may to august 2024, the number of major restructuring events disclosed by listed companies on the shanghai, shenzhen and beijing stock exchanges increased month by month, and exceeded 80 in august, setting a new monthly high for the year. since september, the popularity of mergers and acquisitions has only increased.

in addition to the integration among leading listed companies, the economic observer also noticed that some listed companies are also actively looking for acquirers due to problems such as poor management.

the economic observer learned through incomplete statistics from wind data and announcements of relevant listed companies that from the beginning of 2024 to date, the actual controllers of more than 20 listed companies have been changed to local state-owned assets.

zheng qiang also clearly felt that with the release of a series of m&a and restructuring policies in 2024, since the second half of the year, in the sluggish market environment of the ipo market, more and more investors have sought to achieve industrial integration or capital exit through m&a and restructuring.

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 equity investments, and gps (general partners) should shift their mindset from ipo exits to exits through mergers and acquisitions. venture capital institutions need to adjust their equity investment operation model, team concept, management model, and other aspects.

motivation

driven by policy guidance and market demand, the m&a and restructuring market is undergoing new changes.

among the m&a and restructuring projects that zheng qiang participated in, the client types mainly include local governments, listed companies, overseas funds, private equity (pe) and venture capital (vc). he found that these projects are mainly concentrated on market-oriented transactions for the purpose of industrial integration. this year, all parties involved in the m&a and restructuring market have a strong demand for m&a, especially industrial integration projects.

take the merger of guotai junan securities and haitong securities as an example. both brokerages are controlled by shanghai state-owned assets. public information shows that the actual controller of guotai junan securities is shanghai international group co., ltd., and the largest shareholder of haitong securities is shanghai guosheng (group) co., ltd. it is the key factor of "state-owned" that makes the merger of the two brokerages with a market value of hundreds of billions a reality.

state-owned capital is becoming an important force driving mergers and acquisitions and restructuring activities in the a-share market.

wind data shows that as of september 6, among the 151 listed companies that disclosed major restructuring events, 66 were local state-owned enterprises or central state-owned enterprises.

in this regard, kaiyuan securities believes that there are three main reasons: first, in terms of policy support, the state-owned assets supervision and administration commission held a special meeting on improving the quality of listed companies and mergers and acquisitions and restructuring of central enterprises in june 2023, requiring central enterprises to use listed companies as a platform to carry out mergers and acquisitions and restructuring, helping to improve core competitiveness and enhance core functions. policy support helps reduce merger and acquisition costs and risks; second, capital and resource advantages, that is, state-owned enterprises usually have strong financial strength and resource advantages, which enables them to provide sufficient financial support and resource integration capabilities in the process of mergers and acquisitions; third, the advantage of high merger success rate. from 2019 to 2023, the failure rate of mergers and acquisitions of state-owned enterprises was 27.6%, far lower than the 43.5% of non-state-owned enterprise mergers and acquisitions, which shows that the implementation of mergers and acquisitions and restructuring of state-owned enterprises is more stable.

since the second half of the year, zheng qiang has also clearly felt that in the market environment of sluggish ipo market and shrinking valuations in the primary market, more and more investors are seeking to achieve industrial integration or capital exit through mergers and acquisitions and restructuring.

zheng qiang had previously been involved in an m&a project that illustrates the problem. the company was a conveyor belt manufacturer located in the eastern region, and its valuation was as high as rmb 1.2 billion in 2020. however, after an in-depth investigation, zheng qiang found that the company's core business did not have high technical content. in the long run, its depreciation cost was high and its gross profit margin was low, which seriously consumed the company's funds.

in the first half of this year, when zheng qiang's team intervened in the project, they found that the company's capital chain was very tight, and the actual profit of its core business was only about 20 million yuan. such a profit level was seriously inconsistent with the valuation of 1.2 billion yuan. for potential buyers, the investment value of this company was greatly reduced. therefore, when facing bankruptcy, the company has been looking for an acquisition party.

as for the reasons for the strong demand in the m&a and restructuring market, kaiyuan securities stated that for acquirers, against the backdrop of declining corporate profits and intensified industry competition, acquirers have a demand for m&a, and they hold over-subscribed funds to provide financial support for m&a and restructuring; for acquired parties, multiple pressures such as poor management, new regulations on share reduction, and intergenerational inheritance will increase the willingness of listed companies to sell assets.

the economic observer found that even from an investment perspective, after the tightening of ipos, investment institutions urgently need to rely on mergers and acquisitions and restructuring to expand exit channels.

kaiyuan securities pointed out that after the promulgation of the new "nine national regulations", the shanghai and shenzhen stock exchanges raised the listing standards, and ipos further cooled down. however, the exit method of china's equity investment market is still mainly ipo exit. in 2021, the proportion of exits through ipos was nearly 70%, and the proportion of exits through mergers and acquisitions was only 4.2%. compared with the 80%-90% m&a exit rate in the united states, china's capital market has a long way to go. therefore, against the backdrop of the continued shrinking of the ipo market, the uncertainty of ipo exits is high, and the rate of return continues to decline. exiting through mergers and acquisitions has become the first choice for many investment institutions.

however, although zheng qiang has been involved in many m&a and restructuring projects this year, his feelings are obviously different from those in previous years. he initially estimated that among the more than 100 m&a and restructuring projects being carried out by the company's investment banking department, only a single digit number of them can be successfully implemented, and the work is very challenging.

first, from the perspective of the buyer side of m&a, investment institutions, especially listed companies, have shown a more cautious attitude than before. this caution is mainly due to the following aspects:

first, the uncertainty of the macroeconomic situation has made companies more conservative in their expectations for the future, so they are more cautious in making m&a decisions, tending to wait and see rather than actively take action; second, the goodwill impairment problem that occurred after mergers and acquisitions in previous years has made listed companies cautious about mergers and acquisitions, fearing that they will repeat the same mistakes. in addition, changes in regulatory policies have also had an impact on the market. the regulatory authorities clearly do not encourage backdoor listings, which has restricted shell resource transactions that were originally easy to close.

from the seller's perspective, some companies are eager to sell assets because of ipo rejection or other reasons. although they are "urgent", they are also "asking for a high price". due to the existence of previous investment bubbles, the valuations of many projects far exceed their actual values. sellers are unwilling to sell at low prices, which makes buyers stay away from these projects.

future

in zheng qiang's eyes, in the long run, the acceleration of mergers and acquisitions and restructuring will definitely boost the long-term healthy development of the a-share market and the entire capital market.

taking the history of american industry as an example, the rise of modern large-scale industry and the improvement of industrial competitiveness in the united states first started with the completion of industrial integration. for example, jp morgan bank used its capital leverage to drive the large-scale integration of nearly a thousand steel manufacturers, and finally formed a largeu.s. steelthe company completely rectified the order of the u.s. steel industry and pushed u.s. steel companies towards economies of scale.

kaiyuan securities believes that cultivating a group of world-class large enterprises is the main theme of china's new stage of economic development, and through the integration of existing stocks, it is possible to activate the value of assets, realize resource reconfiguration, and help form a group of competitive industry leading enterprises. since 2024, there have been 10 major reorganizations in the a-share market for the purpose of horizontal integration, and industrial mergers and acquisitions have gradually become the mainstream.

in addition, a head of a state-owned venture capital institution also told the economic observer that hard technology has become one of the important directions for current head layout.

on june 19, the china securities regulatory commission issued the "eight measures on deepening the reform of the science and technology innovation board to serve technological innovation and the development of new productivity", which clearly proposed supporting science and technology innovation board listed companies to focus on enhancing their sustainable operating capabilities and acquire high-quality unprofitable "hard technology" companies.

kaiyuan securities said that with the further development of "new quality productivity", the technology-oriented m&a and restructuring market is expected to continue to be active. on the one hand, technology companies will acquire more cutting-edge or future technology start-ups to seek rapid growth opportunities; on the other hand, traditional companies will also acquire more technology companies that cannot meet the listing conditions to achieve transformation and upgrading.

looking ahead, kaiyuan securities pointed out that the a-share m&a and restructuring market will show three major trends:

the first is industrial mergers and acquisitions. since 2024, there have been 10 major restructurings in the a-share market for the purpose of horizontal integration, and industrial mergers and acquisitions have gradually become the mainstream; the second is technology mergers and acquisitions. as of july 30, 2024, four companies on the science and technology innovation board, including xinlian integration, nanochip, fuchuang precision, and xidiwei, have disclosed plans to acquire unprofitable assets; the third is state-owned asset mergers and acquisitions. state-owned asset mergers and acquisitions have multiple advantages such as policies, funds, resources, and high merger success rates. under the new round of state-owned enterprise reforms, state-owned assets are expected to become an important force driving the merger and acquisition and restructuring market.

qu fang, an investment consultant at wanlian securities, also believes that mergers and acquisitions will become an important part of the capital market in the future, and the number, scale and methods of restructuring will increase and change significantly. he reminded companies that it is not the end of the world once mergers and acquisitions are completed. the core of mergers and acquisitions lies in integration, and the goal is to achieve the effect of "1+1>2".