Mergers and acquisitions (M&A) are a major highlight in the development of the capital market, hiding investment opportunities. This year, the overall trend of M&A and restructuring in the capital market continues to heat up.

According to Wind statistics, in the first half of 2024, the Chinese M&A market (including cross-border M&A by Chinese companies) disclosed a total of 3,674 M&A events, with a transaction scale of approximately 709.9 billion yuan; there were 8 M&A events with a scale of over 10 billion yuan (among which: equity M&A accounted for 7).

Among them, by classifying the M&A methods, there were 1,811 agreement acquisitions (accounting for 49.3%), 1,213 secondary market acquisitions (accounting for 33%), and 8 tender offers.

M&A restructuring is an important means for companies to optimize resource allocation, realize value discovery, and value creation. The increase in the number of M&A events is mainly due to a series of supportive policies introduced by the regulatory authorities, which not only optimize the restructuring policy environment but also promote market-oriented reform of M&A restructuring, stimulating market vitality.

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Policy Support for M&A Restructuring

Since the beginning of 2024, securities regulatory authorities have introduced a number of new policies and measures to encourage and guide M&A restructuring. These new policies have two distinct characteristics: first, they encourage industrial M&A, especially supporting industry leaders to consolidate their industry status through M&A restructuring; second, they strictly regulate shell companies and blind cross-border M&A, and resolutely crack down on shell speculation.

As early as last October, according to the China Securities Regulatory Commission's (CSRC) "Decision on Amending the Content and Format Standards for Information Disclosure of Companies Issuing Securities Publicly No. 26 - Major Asset Restructuring of Listed Companies" released on October 27, it proposed to extend the validity period of financial materials for share issuance restructuring projects from "6+1" to "6+3", promoting listed companies to reduce restructuring costs and accelerate the restructuring process.

On March 15, 2024, the CSRC's "Opinions on Strengthening the Supervision of Listed Companies" clearly proposed, "Support listed companies to enhance investment value through M&A restructuring. Encourage listed companies to comprehensively use shares, cash, and other tools to implement M&A restructuring and inject high-quality assets."

On April 4, the new "Nine National Articles" released by the State Council, focusing on building a safe, standardized, transparent, open, vibrant, and resilient capital market, made comprehensive and systematic policy arrangements; among them, it clearly emphasized "to increase the intensity of M&A restructuring reform, take multiple measures to invigorate the M&A restructuring market" and "encourage listed companies to focus on their main business, and comprehensively use M&A restructuring, equity incentives, and other methods to improve development quality".On April 12th, the State Council issued the "Several Opinions on Strengthening Regulation, Guarding Against Risks, and Promoting High-Quality Development of the Capital Market," which emphasized the need to further reduce the value of "shell" resources, strengthen the supervision of mergers and acquisitions, enhance the relevance of the main business, strictly control the quality of the injected assets, increase the regulatory efforts against "shell listings," and precisely target various types of non-compliant "shell-keeping" behaviors.

Subsequently, related supporting policies have been continuously implemented. On June 15th, the General Office of the State Council issued the "Several Policy Measures for Promoting High-Quality Development of Venture Investment," proposing to further improve the policy environment and management system around the entire chain of venture investment "raising, investing, managing, and exiting."

On June 19th, the China Securities Regulatory Commission (CSRC) released the "Eight Measures for Deepening the Reform of the Science and Technology Innovation Board and Serving the Development of Scientific Innovation and New Quality Productive Forces," emphasizing "greater support for mergers and acquisitions."

Industry experts believe that with the continuous recovery and high-quality development of China's economy, as well as the continuous improvement of relevant institutional mechanisms, market mergers and acquisitions are expected to continue to heat up, further activating the resource optimization and allocation function of the A-share market, and optimizing the overall ecological environment of the domestic capital market.

A-share mergers and acquisitions are heating up. Mergers and acquisitions involve exploring high-quality resources and skillfully combining and allocating them, integrating originally independent entities into a more valuable "business entity" through the synergy of various forces.

Data disclosed by the CSRC shows that in the past three years, listed companies have disclosed an average of about 3,000 merger and acquisition transactions per year, with a transaction amount of about 1.7 trillion yuan. A number of exemplary and influential merger and acquisition projects have emerged, and mergers and acquisitions have played a positive role in optimizing resource allocation, supporting high-level scientific and technological independence and self-strengthening, and serving the construction of modern industrial systems.

According to Wind data statistics, in the first half of 2024, China's merger and acquisition market (including cross-border mergers and acquisitions of Chinese enterprises) disclosed a total of 3,674 merger and acquisition events, with a transaction scale of about 709.9 billion yuan. There were 8 merger and acquisition events with a scale of more than 10 billion yuan, of which 7 were equity mergers and acquisitions.

In terms of the distribution of merger and acquisition methods, agreement acquisition merger and acquisition events ranked first with a scale of 453.8 billion yuan, accounting for 63.64% of the total scale; capital increase merger and acquisition events ranked second with a scale of 150.9 billion yuan, accounting for 21.17% of the total scale; and secondary market acquisition events ranked third with 59.5 billion yuan, accounting for 8.35% of the total scale.

In terms of merger and acquisition scale, in the first half of this year, the event of Wanda's subsidiary Dalian Xinda Meng introducing new strategic investors ranked first with a transaction scale of 60 billion yuan.As policy-driven mergers and acquisitions (M&A) and restructuring heat up, local state-owned enterprises (SOEs) have played a significant role in M&A and restructuring, accelerating investment in strategic emerging industries through these activities. Data reveals that as of June 4th, local SOEs have been involved in 243 significant asset acquisition events, accounting for a high proportion of 74.3%.

In the meantime, the A-share market has shown a notably active trend in M&A and restructuring. Wind data indicates that, as of now, the A-share market has disclosed 130 significant restructuring events, marking a substantial year-on-year increase of 116.67%.

Looking at the purposes of the restructuring, this year's significant restructuring events in the A-share market are primarily focused on industry integration and collaborative development aimed at focusing on the main business and industrial cooperation. This includes horizontal integration, strategic cooperation, and vertical integration, which together account for nearly 70%.

Among these, the significant restructuring purposes of 52 events, such as AVIC Electronic's non-public issuance to acquire 100% equity of Chengdu Aircraft Industry Group, non-public issuance to acquire 100% equity of Changhe Aircraft Industry Group, and non-public issuance to acquire 100% equity of Harbin Aircraft Industry Group, are all horizontal integrations. Additionally, Tianshan Cement's proposed capital increase to obtain 51% equity of Ningxia Saima, and Seres' non-public issuance to acquire 100% equity of Longsheng New Energy, are among 18 significant restructuring purposes aimed at strategic cooperation.

M&A and restructuring have their ups and downs.

M&A and restructuring are crucial means to promote industry integration and strengthen the supply chain of listed companies, making them more competitive and robust.

Although most M&A and restructuring have been successful, some companies have failed due to unapproved plans. Data reveals that in 2023, 102 listed companies disclosed significant restructuring events. As of May 31, 2024, 36 have completed restructuring, 10 are ongoing, and 37 have failed.

The cross-industry restructuring of Gaoxin Development was announced as a failure in April 2024. The announcement showed that Gaoxin Development originally intended to purchase a combined 70.00% equity of Huakun Zhenyu held by Chengdu Gaotou Electronic Information Industry Group Co., Ltd. and two other companies through the issuance of shares and cash payment, and to raise supporting funds.

The independent financial advisor's inspection opinion issued by Huatai United Securities Co., Ltd. pointed out that the restructuring took a long time, the industry of the target company was greatly affected by internal and external environments, market expectations were high, and the audit and evaluation results involved were not yet determined, leading to the listed company and some transaction parties failing to reach an agreement. In addition, investors have raised strong doubts about the reasons for the failure of this transaction and have demanded a specific and clear explanation from the company.

Yueling Shares' plan to acquire Yuanyue Automobile failed due to issues discovered during the due diligence process that could not eliminate reasonable doubts, ultimately leading to the failure of this restructuring. Yuanyue Automobile had promised net profits of 25 million yuan, 30 million yuan, and 35 million yuan for the years 2024 to 2026, respectively, but failed to achieve the promised targets.At the same time, companies such as Shandong Huapeng, Botong Shares, Haiqi Group, Zhongyida, Nanjing Gaoke Advanced Materials and Meiliyun have also voluntarily terminated merger and reorganization matters this year.

However, there are still listed companies that have gone through twists and turns to "fulfill their dreams" of mergers and reorganizations. In June of this year, Junxin Shares' acquisition of 63% of the shares of Hunan Renhe Environmental Co., Ltd. (hereinafter referred to as "Renhe Environment") and the project to raise supporting funds were reviewed and approved by the Shenzhen Stock Exchange's Mergers and Acquisitions Committee, becoming the first reorganization project in the A-share market to pass the review since the new "Nine National Articles" were released. On July 15, the project was submitted for registration.

From application to approval, Junxin Shares' major asset reorganization took more than a year, going through three rounds of inquiries, and was even suspended at the end of last year. Although the fundraising was successful, the total amount raised was almost halved.

According to the initial announcement, Junxin Shares originally planned to raise supporting funds of no more than 1.5 billion yuan, of which 659 million yuan was used to pay for the cash consideration of the merger and acquisition, 441 million yuan was used for its own replenishment of funds, and 400 million yuan was used for the construction of two projects in Renhe Environment.

According to the registration draft announcement information, Junxin Shares plans to raise funds of no more than 768 million yuan, and the number of shares issued does not exceed 30% of the listed company's share capital after the completion of the share issuance for the purchase of assets. Among them, 659 million yuan is used to pay for the cash consideration of the merger and acquisition, and 109 million yuan is used to supplement working capital.

Junxin Shares is just a microcosm of the current active phenomenon of mergers and reorganizations in the A-share market. Over the years, the merger and reorganization policies of the A-share capital market have gone through from the initial exploration to market-oriented reform, and then to the current policy adjustment and market self-correction. The regulatory authorities have continuously introduced new policies to meet the needs of market development and promote healthy and orderly merger and reorganization activities.

The merger and reorganization activities in the A-share market continue to heat up under the promotion of policies and market demands, indicating that the merger and reorganization functions of the capital market will be further strengthened and optimized.