In the past ten years, GEM has fully played its role as the main channel of the capital market and the market actively supported listed companies to make effective use of tools of merger, acquisition and reorganization. A large number of GEM companies successfully realized their industrial integration, transformation and upgrading through merger integration and stepped into a new stage of high-quality development.
According to the latest data, as of the end of September this year, a total of 364 listed companies on the GEM have disclosed 589 major asset restructuring plans, involving a trading volume of RMB 572.925 billion. Also, 289 companies have completed 409 asset restructuring projects, involving RMB 378.336 billion of transaction value. At the same time, those GEM enterprises also raised RMB 130.484 billion as the capital needed for M&A related projects.
Rational merger and acquisition (M&A) is the basis of policy relaxation
Since 2014, the popularity of GEM merger, acquisition and reorganization has been rising rapidly. However, with the adjustment of regulatory policies, the M&A of enterprises is gradually showing the trend of rationality in 2016. A growing number of GEM companies are now paying more attention to their actual development needs and implementing mergers and acquisitions more prudently, rather than using capital operations just for "market value management".
At present, among the 409 asset restructuring projects completed by GEM companies, the average premium rate of the underlying asset (the premium range of the merger price relative to the underlying net book value) is 786.63%. According to annual statistics, from 2012 to 2019 (January-September), the average premium rate of the reorganization projects implemented and completed by GEM companies in those year is 284.15% (2012), 487.71% (2013), 647.58% (2014), 703.27% (2015), 1126.51% (2016), 899.40% (2017), 520.18% (2018) and 466.43% (the first three quarters of 2019), respectively. Meanwhile, due to the increase of asset acquisition projects such as games, film and television, the restructuring premium rate of GEM companies has continued to rise since 2013, reaching a peak in 2016. However, in recent years, because of the revision of restructuring rules and the significant fluctuations of stock prices, the high-premium M&A plans have been significantly reduced.
From the perspective of industry distribution, at present, the target of GEM company reorganization focuses on the computer and communication equipment manufacturing industry, software and information technology industry, special equipment manufacturing industry, pharmaceutical manufacturing industry, professional technology service industry and so on. The projects from such five industries account for nearly 50% of the total number of restructuring cases.
A broker who has been engaged in investment banking business of GEM for many years said that the transformation of M & A from virtual economy to real economy is a major trend. M & A of GEM is becoming more reasonable and orderly. With the increase of the demand of enterprise merger and reorganization, the management of listed companies has become increasingly professional. At the same time, it is necessary for regulators to relax the restrictions on GEM reorganization and listing. In fact, regulators have already acted, such as introducing "Small amount quick audit " and revising restructuring measures.
Focus on industrial integration and boost the development of private enterprises
At present, the major asset restructuring programs implemented by GEM listed companies are mainly industrial integration and upgrading as well as mergers and acquisitions of upstream and downstream industries, accounting for about 70% of the total programs.
In the past ten years, GEM private enterprises have performed well in M & A market. According to the data, by the end of September this year, private enterprises on the GEM had carried out 400 M & A cases, accounting for 98% of the total deals, with a volume of RMB 354.445 billion. At the same time, GEM private enterprises also raised RMB 127.721 billion as the capital needed for M&A related projects.
A large number of GEM private enterprises have made use of mergers and acquisitions to improve their efficiency of capital allocation, break through industry barriers, enhance innovation capacity, enhance business performance, and achieve leapfrog development. For example, Quantum Hi-Tech (China) Biological Co.,Ltd. (now known as "Quantum Biology") acquired 90% of the equity of leader of CRO— Shanghai ChemPartner, in 2018. Then, Quantum Biology transformed from the traditional probiotics business to the pre-clinical CRO and CDMO business. Such M & A project has greatly enhanced the Quantum Biology's profitability.
M & A is not only a means to accelerate the development and transformation of enterprises, but also an important way for listed companies to improve their business performance. Data shows that the average operating revenue of 289 GEM companies that have completed restructuring in 2018 reached RMB 2.219 billion, an increase of 23.79% over the same period of the last year. The average operating revenue of other companies in 2018 was 1.524 billion yuan, a year-on-year increase of 18.20%
Make use of market-oriented reform to optimize restructuring supporting mechanism
Continuously optimized policies have played an important role in supporting GEM enterprises to achieve high-quality development through M&A.
On October 18, China Securities Regulatory Commission (CSRC) formally issued the <Decision on Amending the measures for the management of major assets reorganization of listed companies>(hereinafter referred to as the reorganization measures). The revised restructuring measures delete the "net profit" index in the recognition standard, shorten the calculation period of "cumulative first principle" to 36 months, and allow strategic emerging industries and high-tech enterprises to enter the GEM through restructuring and listing.
Lao Zhiming, managing director of HUATAI SECURITIES CO.,LTD, said that allowing companies to use "Backdoor Listing" method on GEM, to some extent, complements the platform function positioning for GEM listed companies. "Backdoor Listing" means that a private company can get a certain degree of control of a listed company with a lower market value by investing its assets in this listed company. Then,the private company uses the role of the listed company to list its assets.
Besides, Shenzhen Stock Exchange officials said that, Shenzhen Stock Exchange is guiding the standardized development of the market and stimulating the internal vitality of the market, under the principle of marketization and relevant law. Firstly, the exchange is carrying out the reform of the regulation of suspension and resumption , so as to shorten the suspension period, and strengthen information disclosure. This ensures the continuity of transactions and the fairness of information disclosure and improves companies’ restructuring efficiency. Secondly, the exchange is improving its self-regulatory rules, such as revising and improving information disclosure memos and business processes, so as to ensure the smooth implementation of the new policy. Finally, the exchange is optimizing the post-audit mechanism and focusing on the risks and uncertainties of trading. The exchange promised it would strictly observe the bottom line of regulation so as to promote business development.