Regulatory & Market Synergy Boosts Sci-Tech Board M&A Vitality

【Introduction】Regulation and Market Work Together to Boost the Vitality of Science and Technology Innovation Board M&A and Restructuring

Recently, the Political Bureau of the CPC Central Committee held a meeting to explicitly propose supporting the mergers and acquisitions (M&A) and restructuring of listed companies, along with the consecutive introduction of significant policies such as the "M&A Six Articles" and the "Science and Technology Innovation Board Eight Articles". The heat surrounding M&A and restructuring on the Science and Technology Innovation Board continues to rise.

"Hot Term" M&A of Science and Technology Innovation Companies is Busy with New Additions

Since the beginning of this year, M&A transactions on the Science and Technology Innovation Board have been active, especially after the release of the "Science and Technology Innovation Board Eight Articles", with newly disclosed M&A transactions reaching 31, more than double the number from the same period last year, and four M&A transactions have made substantial progress after the release of the "Science and Technology Innovation Board Eight Articles". The total scale of the aforementioned M&A transactions is nearly 15 billion yuan.

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Since the release of the "M&A Six Articles" on September 24, seven transactions have been disclosed. The reporter has noticed that in the recent M&A plans disclosed on the Science and Technology Innovation Board, ten involve the acquisition of unprofitable assets, and six involve the acquisition of foreign assets.

On September 25, Silinjie, a manufacturer of industrial automation testing instruments, announced its intention to acquire 71% of the shares of Ke Kai Electronics through the issuance of shares and cash payment, constituting a significant asset restructuring. Ke Kai Electronics is a national-level specialized and innovative "little giant" enterprise, having won the first and third prizes of the National Defense Science and Technology Progress Award.

On the same day, Qinchuan IoT disclosed an announcement stating that the company is planning to acquire 60% of the shares of Chengdu Power Water Technology Co., Ltd. in cash, which is expected to constitute a significant asset restructuring. The official website shows that the programs and products of Chengdu Power Water Technology Co., Ltd. mainly serve the fields of digital government, digital society, and digital economy.

On September 19, Nan Wei Medical announced that the company intends to use its wholly-owned subsidiary Micro-Tech (NL) International B.V. (Nan Wei Netherlands) to purchase up to 36.72 million euros of 51% of the shares of Creo Medical S.L.U. (CME) held by Creo Medical Group plc. The target company CME is a channel company for the sale of medical device products, with its main business concentrated in Western Europe.

On October 11, Zhong Juxin, an integrated circuit material manufacturer, disclosed that its subsidiary plans to purchase 100% of the shares of Heraeus Conamic UK Limited, a global leading semiconductor high-purity quartz material manufacturer, in cash.

Innovative and Inclusive Typical Cases are Gradually ImplementedRecently, the Shanghai Stock Exchange (SSE) held another securities firm symposium, where participants unanimously expressed that the recently introduced "M&A Six Articles" and "Sci-Tech Innovation Board Eight Articles" have targeted and responded to the difficulties and bottlenecks in mergers and acquisitions that the market has been focusing on. These policies have made a series of innovative arrangements to support listed companies in upgrading to new quality productive forces, encouraging listed companies to strengthen industrial integration, further increasing regulatory tolerance, and improving the efficiency of reorganization market transactions. The number of measures and the intensity are rare in recent years, effectively stimulating the confidence and vitality of the M&A market.

Since the release of the new policy regulations, a batch of cases that respond to the market's widespread concerns and demonstrate innovation, demonstration, and guidance have been successively implemented, including the first case on the Shanghai market using directed convertible bonds as a payment tool, cases reflecting the increase in valuation tolerance, and cases of acquiring unprofitable assets.

Taking the example of Sirui Pu's issuance of convertible bonds and payment in cash to purchase 100% of Chuangxin Micro's equity, the plan not only uses the innovative payment tool of directed convertible bonds but also the innovative and flexible transaction plan design has become a highlight.

Sirui Pu's transaction this time adopted a differentiated valuation plan to balance the interests of all shareholders. On the basis of the unchanged total transaction price of 1.06 billion yuan, the transaction price between Chuangxin Micro's shareholders was adjusted.

The market believes that differentiated valuation not only protects the interests of listed company shareholders but also meets the needs of strategic investors for M&A exit, helping the transaction to proceed smoothly.

The targeted improvement of valuation tolerance is also considered an important breakthrough in the support policy for this merger and reorganization. In the case of Puyuan Precision Electronics issuing shares to purchase 67.74% of Naishu Electronics' equity, the target asset appreciation rate exceeded 900%.

In addition, Xin'an Century issued shares and paid cash to purchase 80% of the equity of Pushi Technology, choosing the income method result as the appraisal conclusion, and the appreciation rate also reached 790%.

The reporter noticed that after the policy clearly focused on the "sustainable operating ability" of the target asset, the practice of acquiring unprofitable assets has gradually increased.

Since the "Sci-Tech Innovation Board Eight Articles" were released, the Sci-Tech Innovation Board has disclosed 10 M&A plans for acquiring unprofitable targets. For example, on June 21, Xinlian Integration took the lead in disclosing the first M&A plan for acquiring unprofitable assets, intending to acquire the remaining 72.33% equity of Xinlian Yuezhou through the issuance of shares and payment in cash.

On July 15, Xidawei and Fuchuang Precision both disclosed plans to acquire unprofitable assets. Xidawei plans to acquire a total of 30.91% of the equity of the South Korean listed company Zinitix Co., Ltd. for about 109 million yuan; Fuchuang Precision plans to acquire 100% of the equity of Yisheng Precision, held by its actual controller and other parties, for no more than 800 million yuan in cash.On September 21st, China Electronics Research Institute disclosed its plan to use its own funds of 28.77 million yuan to acquire a combined 49% equity held by two non-state shareholders in Kunming High Altitude Electrical Appliance Testing Co., Ltd., a holding subsidiary of Kunming Electrical Science Research Institute, and to increase its capital investment in the company.

The layout of international business by STAR Market companies is accelerating, and there has been a significant increase in cross-border M&A cases. On July 2nd, Cardiovascular Medical announced that its wholly-owned subsidiary MICROPORT ENDOVASTEC B.V. plans to use its own funds of $65 million to acquire a combined 72.37% equity in OMD, a joint venture of Cardiovascular Medical, held by Earl Intellect Limited and Turbo Heart Limited.

On July 13th, Zejing Pharmaceutical disclosed its plan to acquire 2,327,700 shares of its holding subsidiary GENSUN for $32.887 million. On October 1st, Aisen Shares disclosed its plan to acquire 80% equity in Malaysian INOFINE company through its wholly-owned subsidiary with its own funds. Mergers and acquisitions cases involving Zhongju Xin, Nanwei Medical, and Xidi Micro also involve the acquisition of overseas assets.

Some market insiders have indicated that the emergence of cases such as Silinjie's acquisition of IPO withdrawal company Kekai Electronics and Qinchuan IoT's acquisition of IPO tutoring company Power Water provides new ideas for listed companies to find M&A targets and for unlisted companies to connect with the capital market.

Regulatory efforts to promote research services and improve efficiency through multiple channels

This year, the Shanghai Stock Exchange has actively responded to the M&A重组 needs of market entities, interacted intensively with all market parties, and focused on stimulating the vitality of the M&A market.

In June this year, the Shanghai Stock Exchange has conducted one-on-one exchanges with securities firms such as "Three Middle Ones and Hua" to promote the implementation of STAR Market M&A cases.

Shortly after the release of the "Eight Articles of Science and Technology Innovation Board," the Shanghai Stock Exchange held 10 special symposiums on the "Eight Articles of Science and Technology Innovation Board" in conjunction with 10 local securities regulatory bureaus. How to better support the M&A of scientific and technological innovation enterprises is an important content of the symposium.

Earlier, the Shanghai Stock Exchange also carried out special research on M&A in places such as Anhui, Shanghai, Hunan, Hubei, and Xinjiang, actively promoted the innovation and practical cases of M&A systems, and extensively listened to market opinions and suggestions.

On October 10th, the Shanghai Stock Exchange held another symposium for securities firms, preached the latest policy spirit of M&A on the spot, and listened to opinions and suggestions on further activating the M&A market and opening up the "last mile" of policy implementation. The market response was enthusiastic.At the same time, the Shanghai Stock Exchange (SSE) has successively issued "A Comprehensive Guide to Sci-Tech Innovation Board's Innovative Systems," "Direct Regulatory Express for the Sci-Tech Innovation Board — Special Issue on Mergers and Acquisitions," and "A Comprehensive Guide to Listed Companies' Mergers and Acquisitions Rules, Policies, and Cases." These publications help listed companies and related market entities understand the rules, grasp the latest regulatory directions, and facilitate the planning and implementation of mergers and acquisitions.

Moreover, the improvement in review efficiency also clearly demonstrates the regulatory attitude, giving the market more confidence. On July 16th, the China Securities Regulatory Commission (CSRC) registered the issuance of shares by Rigol Technologies to purchase 67.74% of the equity of Naishu Electronics, becoming the first merger and acquisition registration after the "Sci-Tech Innovation Board Eight Articles." From the SSE's acceptance to the CSRC's registration taking effect, it took less than two months.

The person in charge of the SSE has repeatedly stated in recent occasions that they will further improve the communication mechanism, welcome market entities to actively communicate with the SSE, innovate boldly, support and serve listed companies to fully utilize merger and acquisition policy tools, and continue to promote the implementation of landmark, high-quality industrial merger and acquisition cases, converting innovative policy measures into tangible results of high-quality development for listed companies. At the same time, it emphasizes that intermediary institutions, led by securities firms, must effectively assume the "gatekeeper" responsibility, strengthen value judgment while meeting compliance requirements, and ensure the quality of mergers and acquisitions.

Under the influence of multiple favorable factors such as the improvement of policy friendliness and the continuous introduction of successful cases, the mergers and acquisitions of the Sci-Tech Innovation Board are continuously heating up. It is believed that this wave of merger and acquisition warmth will also bring vitality to the capital market.