As the low-altitude economy is "about to take off," the tightening of IPO channels and the reopening of merger and acquisition (M&A) windows under the warm policy climate have led to frequent M&A and restructuring activities among listed companies in the A-share market, attempting to strengthen their core businesses or cross over into new tracks.
Recently, Shanghai Shengbei (600843.SH) stated on the investor interaction platform that the acquisition of assets from the American ICON company has been completed. In July, Zongheng Communication (603602.SH) announced the completion of the acquisition of 100% equity in Shiwei Intelligence; Green Energy Hui Charge (600212.SH) announced becoming the controlling shareholder of Zhongchuang Aviation; and Zhongzhi Shares (600038.SH) announced the completion of the issuance of shares to purchase 100% equity in Changfei Group and Haf Group...
In the view of Yang Jiani, an analyst at Guojin Securities, M&A and restructuring are mainly divided into company acquisitions and asset restructuring, but the two often occur interactively. Companies generally carry out M&A and restructuring based on strategic development, increasing market value, revitalizing assets, and investment profits. At the end of 2023, regulatory authorities such as the China Securities Regulatory Commission (CSRC) proposed to support the transformation and upgrading of listed companies to become better and stronger, and industry chain M&A and cross-border M&A are important ways for A-share listed companies to achieve industrial integration and market expansion.
Advertisement
However, the successful implementation of M&A and restructuring is not an easy task. The industry generally believes that the key elements for success include rational selection of M&A targets, efficient management integration, and ample cash flow. How to prevent "after-effects" of M&A and restructuring is a question that companies need to face. This involves many pain points, such as the difficulty of reaching a consensus among multiple stakeholders, weak business synergy effects, and poor integration results. Especially after blind cross-border M&A, if the integration effect is not good, the acquired assets may even drag down the performance of the listed company.
I. Entering the low-altitude economy industry, many listed companies promote M&A and restructuring.
The upstream of the low-altitude economy industry chain is the field of raw materials and core components, the midstream of the industry chain covers low-altitude manufacturing, low-altitude flight, low-altitude support, and comprehensive services, and the downstream of the industry chain is various application scenarios.
According to the analysis of the Forward Industry Research Institute, from 2016 to the end of 2023, in terms of the number of events, the horizontal integration of low-altitude economy enterprises is the most significant, followed by vertical integration and backward integration; in terms of event amounts, horizontal integration and diversified operations have larger M&A transaction amounts.
New media has noticed that since the second half of this year, some enterprises in the low-altitude economy industry chain have been "eaten up" by listed companies that want to expand their business fields and become M&A targets. For example, on July 20, Green Energy Hui Charge announced that the industrial and commercial change registration procedures for Zhongchuang Aviation have been completed, and Green Energy Hui Charge will hold 57% of the equity in Zhongchuang Aviation. Among them, Green Energy Hui Charge mainly engages in new energy charging and energy storage business, railway dedicated line transportation business, while Zhongchuang Aviation, which has become the target of acquisition, focuses on the research and development, production, and sales of industrial-grade unmanned helicopters.
Green Energy Hui Charge stated that this investment aims to expand the business field and improve the company's industrial layout in the field of high-end equipment manufacturing. After increasing capital and acquiring some equity with its own funds of 62.7 million yuan, it will form a complementary advantage through synergy with Zhongchuang Aviation in terms of technology research and development, production links, and upstream and downstream channels, thereby further enhancing the company's market competitiveness and profitability.
In the same month, Zongheng Communication completed the acquisition of 100% equity in Shiwei Intelligence. Public information shows that Zongheng Communication mainly provided 5G new infrastructure and other related services for the three major telecom operators and tower companies before, while Shiwei Intelligence mainly engaged in aviation technology research and development and services, involving the research and development of flight control systems in the fields of electric vertical take-off and landing aircraft (eVTOL) and medium and large unmanned aerial vehicles, as well as various applications of industrial drones in complex scenarios.In the view of industry insiders, the regulation and operation of the low-altitude economy require a communication network as the foundation. Drones need to maintain unobstructed communication with the ground during low-altitude operations to receive instructions in a timely manner. At the same time, the ground also needs to track and feedback the flight status of drones accurately to ensure the safety and stability of the flight. Against the backdrop of 5G-A integrated sensing technology aiding the development of the low-altitude economy, the two will be able to generate certain business synergies.
Compared to mergers and acquisitions that focus on the transfer of equity and corporate control, asset restructuring focuses more on changes in asset relationships. On July 23, AVIC Helicopter Co., Ltd. announced that a significant asset restructuring had been completed, with the purchase of assets valued at approximately 5.078 billion yuan and supporting financing of 3 billion yuan. Through the restructuring, AVIC Helicopter Co., Ltd. issued shares to AVIC Science and Technology Industry Group to purchase its 92.43% stake in Changfei Group and 80.79% stake in Harbin Aircraft Industry Group, and issued shares to Aviation Industry Corporation of China to purchase its 7.57% stake in Changfei Group and 19.21% stake in Harbin Aircraft Industry Group. After the transaction, AVIC Helicopter Co., Ltd. became the only main factory covering the entire helicopter business chain in the low-altitude economy concept A-shares.
At the same time, some overseas bankrupt companies have been "spotted". As an A-share company mainly selling sewing machines, Shanggong Shenbei's cross-border acquisition of bankrupt American aircraft assets has attracted inquiries from the Shanghai Stock Exchange. Shanggong Shenbei denied speculation on the low-altitude economy concept, stating that this investment is an important attempt for the company to deepen vertical integration of the industrial chain, with both challenges and risks coexisting.
II. Disclosure timing causes controversy, and merger and acquisition processes have concurrent benefits
Looking back on the aforementioned multiple mergers and reorganizations, a major factor causing market controversy is the timing of disclosure.
On March 4th of this year, Shanggong Shenbei stated on the investor interaction platform that the carbon fiber light sport aircraft project is one of the projects invested in by Shanghai Feiren Technology Co., Ltd., in which the company holds a stake. On March 11th, Shanggong Shenbei added the "low-altitude economy" concept. The next day, Shanggong Shenbei, whose stock price had soared for three consecutive trading days, refuted the rumors, stating that there was no significant information that should have been disclosed but was not, and that the company was not engaged in related businesses. This contradictory description has attracted investor doubts, believing that the company misled investors to suppress stock prices and increase holdings, which Shanggong Shenbei denied on April 29th.
On May 21st, Shanggong Shenbei officially announced its intention to participate in the bankruptcy reorganization of American ICON Company and its related parties through its newly established subsidiary SGIA in the United States, by purchasing effective assets, which mainly engage in the design, production, and sales of carbon fiber light two-seat sport aircraft. It was mentioned that as early as April 19th, the company had held a board meeting to discuss related proposals, but disclosure was postponed due to commercial secrets. During this month, Shanggong Shenbei's stock price had increased by more than 40%. On May 21st, Shanggong Shenbei closed at 8.17 yuan per share.
In response, the Shanghai Stock Exchange required Shanggong Shenbei on the evening of May 21st to provide a reasonable explanation for whether there was speculation to cater to market concepts, and the basis for the judgment to postpone disclosure. Faced with inquiries from the Shanghai Stock Exchange, Shanggong Shenbei denied speculation on the low-altitude economy concept and stated that there was no leakage of insider information. Regarding the reason for postponing disclosure, Shanggong Shenbei explained that since this transaction was conducted through auction, immediate disclosure would allow other bidders to learn the company's bottom price through the listed company's announcement, leading to improper competition.
New media noticed that on June 20th, Shanggong Shenbei disclosed that its subsidiary successfully bid for the relevant assets of American ICON Company for 15.79 million US dollars. On that day, Shanggong Shenbei closed at 8.7 yuan per share. As of the close on August 14th, Shanggong Shenbei's stock price fell back to 7.83 yuan per share.
Unlike Shanggong Shenbei, which postponed disclosure due to involvement in commercial secrets, Zongheng Communication's disclosure time is related to the amount of acquisition. Specifically, on July 19th, Zongheng Communication responded earlier on the investor interaction platform that the company had completed the acquisition of Shiwei Intelligence. Regarding why it was first announced on the interactive platform instead of disclosing an announcement, Zongheng Communication later explained: (the acquisition) had not yet reached the disclosure standard, with the specific acquisition amount being less than 10% of net assets, which is less than 80 million yuan, and therefore did not need to be announced.Behind the skepticism, the positive side is the optimization of the merger and acquisition (M&A) process and the enhancement of M&A efficiency.
Yang Jiani analyzes that, at the legal level, the newly revised "Company Law" simplifies the processes for simple and small-scale mergers in corporate M&A. Under the simple merger, the merged company does not need to go through a shareholders' meeting resolution; the merger can be completed solely through a board resolution. The acquiring party, when conducting a merger with a transaction amount lower than 10% of the net assets, can complete the merger solely through a board resolution, which will be conducive to further improving the efficiency of small-scale M&A. At the exchange level, the mechanism for the rapid review of small-scale reorganizations has been further improved to increase review efficiency. In addition, the clarification of pre-emptive rights has reduced the time cost of initial investment in M&A to a certain extent.
III. Cross-industry M&A, opportunities and challenges coexist
In the mergers and acquisitions of listed companies, the pressure of cross-border and cross-industry M&A cannot be ignored.
For example, ICON Corporation, which initiated voluntary bankruptcy proceedings in April this year, only has the ICON A5 aircraft for sale. Financial data shows that ICON Corporation has achieved a cumulative revenue of about $63.459 million in the past three years, with a net loss of $84.714 million. As of the end of 2023, the company's unaudited total assets amounted to $57.782 million, and the total net assets were -$159 million.
On August 5, when Shanggong Shenbei issued a stock trading risk warning, it stated directly that the company's main business is engaged in the research and development, production, and sales of industrial sewing equipment. Recently, the company completed the purchase of the effective assets of the American ICON Corporation through its subsidiary. There may be a risk that the integration measures may not achieve the expected progress and effectiveness in subsequent operations and management, leading to a disconnect in product delivery. Additionally, the industry involved in this asset purchase is different from the industry in which the company's current main business is located, and the industrialization process still has uncertainty, leading to the risk of business development not meeting expectations.
Drones are also an area that Green Energy HuiChong has not been involved in before. Prior to this, it had completed a new energy transformation through an acquisition. It is reported that the predecessor of Green Energy HuiChong was Jiangquan Industrial, mainly engaged in thermal power and railway special line transportation business. In 2022, it acquired 100% of the equity of Green Energy HuiChong Digital Technology Co., Ltd. for 83 million yuan and divested from the thermal power business that year.
Financial data shows that in 2023, Green Energy HuiChong achieved a revenue of 650 million yuan, with a net profit attributable to the parent company of 17.4116 million yuan; the net cash flow from operating activities was -52.6342 million yuan. In the first quarter of 2024, Green Energy HuiChong achieved a revenue of 153 million yuan, a year-on-year increase of 55.32%, and a net profit attributable to the parent company of -7.5257 million yuan, with a loss increase of 981.69% year-on-year. In 2023 and the first four months of 2024, Zhongchuang Aviation achieved a revenue of 19.9975 million yuan and 10.2804 million yuan, respectively, and a net profit of 5.3164 million yuan and 3.2278 million yuan, respectively.
It is worth noting that when the performance of the acquired target company does not meet expectations, goodwill impairment may be required, which will affect the financial status and profit performance of the listed company. For example, Wanfeng Auto Wheel (002085.SZ), which started from the production of steam turbines, has implemented a series of mergers and acquisitions after going public and has currently achieved dual-wheel drive of automotive lightweight and general aviation aircraft. However, in the first half of 2023, the goodwill impairment of the subsidiary Wuxi Xiongwei was 149 million yuan, which had a certain impact on net profit. In December of the same year, Wanfeng Auto Wheel announced that, in order to focus on core businesses and optimize financial structure, it would sell 100% of the equity of its wholly-owned subsidiary Wuxi Xiongwei, with a total transaction price of 1.1 billion yuan, while the purchase funds at that time were 1.32 billion yuan.
Some industry insiders also analyze that after the completion of mergers and acquisitions, there may be a certain negative impact on the company's consolidated financial statements in the short term. However, in the medium and long term, it is expected to further expand the company's product structure and cultivate new business growth points.
Leave a Comment