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M & a fund six operational types and core mode analysis
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In recent years, along with a group of PE with time forward-looking organization transformation to mergers and acquisitions funds, combined with the industrial chain of listed company merger and acquisition, speed up the pace of cross-border mergers and acquisitions, mergers and acquisitions funds in the capital market gradually emerged, staged a another wonderful drama, its dominant swallow nakae property, today can treasure group, vanke war you I spend for charming eyes. Then, as for the core type and operation mode of m&a fund, is there any common law that can be followed and grasped?
According to the theoretical research and actual experience, the following six types of m&a fund actual combat, to be briefly analyzed, in order to provide readers.

 

 

一、Traditional m&a fund

The operation mode of traditional m&a fund refers to the improvement of the value of the underlying enterprise through management improvement, integration, restructuring and other ways through holding or a large proportion of the underlying enterprise with equity shares, and finally the realization of investment income through withdrawal. The traditional m&a fund is similar to the international capital market in terms of its operation, focusing on long-term industrial investment. Typical cases include the merger of CDH investment and Goldman sachs shuanghui group; Hongyi investment integrated China glass listing, etc. The model can be illustrated as follows:

Advantages: strong control over the target company reduces risks and is highly controllable.
Disadvantages: in China, the limitation of this model is often reflected in the difficulty of obtaining the controlling interest of Chinese enterprises: (1) few financing channels; (2) restrictions on state-owned holding; (3) private entrepreneurs are usually reluctant to give up control.
Solutions: in order to break through these limitations, the following measures can be adopted: (1) give full play to the resource network advantages of m&a fund managers and investors to carry out m&a when industries and policies are faced with major changes; (2) cooperate with domestic and foreign industry leaders to make merger and acquisition investment of industry integration type.
 
 

二、"PE+ listed companies" m & a fund

 

The operational mode of "PE+ listed company" m & a fund is that PE (private equity investment institution) and listed companies (or related parties) jointly establish fund managers and initiate m & a fund. M & a direction focuses on the strategic development industrial chain of the listed company. When the fund is set up, it has clear investment direction and exit channels, and the investment cycle is relatively short. The listed company cooperates with PE institutions to form complementary advantages and jointly give play to the ability of capital operation integration. Typical cases include paradise silicon valley + dakang animal husbandry; Ding li sheng he + huaying agriculture and so on. The model can be illustrated as follows:
 


The core profit model of "PE+ listed company" m&a fund is shown as follows:

Advantages: advantages of "PE+ listed company" m&a fund mainly include: (1) clear investment direction and exit channels, and relatively short investment cycle; (2) the listed company shall cooperate with PE institutions to form complementary advantages and jointly give play to the ability of capital operation integration.
Disadvantages: if PE institutions lack core capabilities beyond capital, they are not strong in control, and more than half of "PE+ listed companies" m&a funds turn into "zombie funds". This requires the m&a fund managers to strengthen their core competitiveness beyond capital and strengthen their core capabilities in the stages of "raising, investing, managing and withdrawing".
 
 

三、Embedded m & a fund

 

 

Embedded m&a fund embeds its capital or assets into the m&a project operation of listed companies, and realizes the stock and asset appreciation sales of listed companies held by the main business of listed companies and the improvement of profits. The embedded m&a fund operates around listed companies, but does not become the controlling shareholder of listed companies. Instead, it helps listed companies to achieve industrial transformation or upgrading with its professional ability and the underlying assets under control. Typical cases include tianshan textile borrowed from jialin pharmaceutical; Cybele to buy into the meili paper industry and so on. The model can be illustrated as follows:

The outstanding advantages of the embedded m & a fund are mainly reflected in the operation of the embedded m & a project of the listed company. The withdrawal time is short and the exit channel is clear, which reduces the risk of m & a fund operation. At the same time, however, it also tests the ability of the fund managers to design the trading structure to meet the interests and needs of all parties and meet the regulatory requirements. This requires the m&a fund to have :(1) rich transaction structure design experience; (2) have certain capital strength or financing channels to ensure smooth capital arrangement in the transaction structure; (3) assets of listed companies interested (holding, equity participation, control).
 

 

 

四、PMA (a-share merger and acquisition fund)

 

PMA, A private investment fund that operates in the a-share market through mergers and acquisitions. The main way of operation is that the m&a fund controls the listed companies through concessions and secondary market transactions, replans the business strategic direction of the listed companies, injects the emerging industrial assets popular in the market, improves the listed companies, and thus improves the market value of the listed companies. By injecting new industry and new concept assets, the market value of listed companies can grow rapidly, and the goal of equity appreciation can be achieved. Representative cases include the acquisition of zhongjiang real estate by jiuding group; China branch investment holdings, such as hai lianxun. The model can be illustrated as follows:
 

The advantages of PMA m&a fund model are mainly reflected in that controlling listed companies are conducive to the implementation of industrial transformation, upgrading and integration, reducing the risks of m&a fund operation and building a capital operation platform. However, capital and operation of listed companies require higher requirements; Highly leveraged funds tend to attract regulatory attention: fund structured design, large percentage of stock pledge, high interest rate borrowing and other unstable factors.
Securities regulatory commission on highly leveraged acquisitions of listed companies are more cautious attitude: on July 27, 2016, li chao, vice President of the China securities regulatory commission said: comprehensive standardized asset management business, strengthening the investment banking controls, offer certain buffer period at present stage, gradual compression channel business scale, to strengthen the investment bank's internal control: (1) the new revised "securities company risk control index management method" raising channel business costs. (2) there are two new window guidance for the policy related to refinancing, which limits more than 5% of shareholders to participate in the private placement of listed companies with high leverage.
 

 

 

五、Overseas m&a fund

 

The main operation mode of overseas m & a fund is that the m & a fund first acquires the target companies outside China and brings the business into the Chinese market for integration. Subsequently, overseas listed companies were privatized and returned to a-share listing. The prominent feature of this model is that overseas technology and products are grafted into the Chinese market, realizing cross-market arbitrage. Typical cases include the acquisition of Lincoln industry by citic capital; Focus media returned to A shares and so on.
The model consists of two aspects. First, overseas technology and products are grafted to the Chinese market. The diagram is as follows:


Secondly, overseas listed companies return to a-share listing to realize cross-market arbitrage, as shown below:

The advantages of the overseas m & a fund model are as follows: compared with the domestic m & a, the valuation of overseas m & a is generally low, the corporate governance is good, and the transaction integrity is good. However, there are many restrictive factors :(1) due diligence is difficult, and m&a funds need to be familiar with local laws, industrial policies and business contacts; (2) involving foreign government approval procedures; (3) foreign exchange swap of domestic m&a fund is not supported by the supervision department at present. In order to avoid these restrictions, m&a funds usually need to :(1) hire the local intermediary of the target enterprise; (2) invite world-class institutions/investment Banks to participate in m&a projects, and use their resources and network to escort m&a; (3) make use of the foreign exchange policy of Shanghai free trade zone.

Overseas mergers and acquisitions are being closely watched by regulators, with safe saying: "companies are now going out and growing a bit faster, which certainly has an impact on foreign exchange supply and demand. We support real and reasonable overseas mergers and acquisitions, and we hope that those capable and qualified enterprises will do the m&a, rather than engage in large-scale mergers and acquisitions for the sake of face or performance.

 

六、Hostile buy-out funds

 

Hostile takeover refers to the acquisition activities conducted by the purchaser without the permission of the board of directors of the target company, regardless of the consent of the other party. Usually hostile takeover targets are listed companies, because of the large amount of capital, often accompanied by a large amount of external financing; At present, hostile takeover in China mainly aims at controlling strategic investment of listed companies. Typical cases include baoneng bidding for vanke; Fude life life controls gemdale, etc. The model can be illustrated as follows:

Advantages: the advantages of the "hostile takeover" m&a fund model are mainly reflected in the operations that can quickly control the target listed companies, and then carry out strategic cooperation, integration and reorganization to improve the value of listed companies.
Disadvantages: the disadvantages of this model are also obvious, mainly including:
(1) excessive leverage and negative impact of regulatory policies, similar to PMA; (2) target listed companies usually launch anti-takeover approaches to improve acquisition difficulty; (3) public opinion is unfriendly, and the recognition of the value of "barbarian" is inadequate. This requires the acquisition fund to have control over the following projects :(1) strong capital strength; (2) excellent and compliant financing capacity; (3) ability to collect information and design acquisition plans.
The above is a brief analysis of six typical m&a fund operational types and core models in China. At the end of this article, I would like to emphasize one more point: the essence of operating m & a fund, as well as the painstaking management in any field, requires sincerity and credit. Must face the investor sincerely, face the listed company sincerely, face the target enterprise sincerely, face each stakeholder sincerely... ; There must not be any hypocrisy out of the actual situation, otherwise, with a bad penny, the capital market may lose integrity and credibility such a foothold.
                                                                      "Finished"
 
 

 

 

 
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