Some companies have already started to take action after the release of the "Eight Measures for the Science and Technology Innovation Board"
The reform effects after the launch of the "Eight Measures for the Science and Technology Innovation Board" have begun to emerge, and recently two companies on the Science and Technology Innovation Board have taken the lead in mergers and acquisitions.
On June 19, the China Securities Regulatory Commission issued the "Eight Measures on Deepening the Reform of the Science and Technology Innovation Board to Serve Technological Innovation and the Development of New Productivity", which mentioned that greater efforts will be made to support mergers and acquisitions. Support the Science and Technology Innovation Board listed companies to carry out mergers and acquisitions of upstream and downstream of the industrial chain. Improve the valuation inclusiveness of mergers and acquisitions, and support the Science and Technology Innovation Board listed companies to acquire high-quality unprofitable "hard technology" companies. Enrich the payment tools for mergers and acquisitions, and conduct research on installment payments of share consideration. Support the Science and Technology Innovation Board listed companies to focus on improving and strengthening their main businesses and carry out absorption mergers.
Companies on the Science and Technology Innovation Board took action. On the evening of June 21, Xinlian Integrated Circuit disclosed a restructuring plan, intending to acquire 72.33% of the equity of its holding subsidiary Xinlian Yuezhou Integrated Circuit Manufacturing Co., Ltd. After the completion of this transaction, Xinlian Yuezhou will become a wholly-owned subsidiary of the listed company. It is worth noting that the target asset of this acquisition is an unprofitable enterprise, which has a certain demonstration effect on the market.
Xinlian Integration and the target company are domestic high-end power semiconductor and MEMS manufacturers, with more than 70% of their products used in new energy vehicles, wind and solar storage, power grids, smart driving and other fields. Xinlian Integration believes that the target company's emerging business layout has developed rapidly and has achieved remarkable results. However, due to being a non-wholly owned entity, the subsequent development of the business is restricted to a certain extent. After this transaction, the listed company's control over it has been further strengthened, and it will subsequently concentrate its superior resources to focus on supporting the further development of businesses such as silicon carbide.
Then, Naxinwei announced on the evening of June 23 that the company intends to acquire 62.68% of the shares of Shanghai Magntron Microelectronics Co., Ltd. directly held by Sirui Technology in cash, and intends to acquire 5.6% of the shares of Magntron indirectly held by Shanghai Lairui in cash, a total of 68.28% of the shares of Magntron, and the total purchase price is 683 million yuan. In addition, Naxinwei invested 110 million yuan to acquire part of the shares of Magntron held by Shanghai Lairui and Shanghai Liuci. After the completion of this transaction, Naxinwei will directly and indirectly hold 79.31% of the shares of Magntron. Magntron will become a holding subsidiary of the company and be included in the scope of the company's consolidated financial statements.
Nanochip is an analog and mixed signal chip design company, focusing on sensors, signal chains, and power management. Magtron has been focusing on the research and development, production, and sales of chips based on magnetoelectric induction technology and intelligent motion control. Nanochip said that through this transaction, in terms of products, it will help enrich the company's magnetic encoding, magnetic switches and other magnetic sensor product categories, complement the company's existing magnetic sensor products, and improve the company's magnetic sensor product solutions.
"Previously, valuation was the biggest difficulty for Sci-Tech Innovation Board companies in mergers and acquisitions." Tang Zhehui, co-managing partner of the audit services market in Greater China at EY, pointed out that, especially for unprofitable companies in the early stages of growth, their market prospects, business models, technological maturity and feasibility, and related risks are highly uncertain. This uncertainty provides investors with huge profit potential, but also brings corresponding risks. How to reasonably identify the value of intangible assets and goodwill has always been a pain point.
He said that traditional financial valuation methods, such as the discounted cash flow method, make it difficult to determine the valuation of unprofitable "hard technology" companies when making valuation models because there is no effective profit data. Buyers are unwilling to pay high prices, and sellers also believe that the technology and team value are underestimated.
Some investment bankers also pointed out that even if the buyer and seller reach an agreement, the transaction may not be completed during the subsequent regulatory review because it is difficult for the regulatory authorities to verify the rationality of the transaction pricing. Since it is not easy to pass the review, many listed companies are unwilling to take risks.
Now the market generally believes that the "Eight Measures for Science and Technology Innovation Board" will improve the valuation inclusiveness of mergers and acquisitions and support the acquisition of high-quality unprofitable "hard technology" enterprises by listed companies on the Science and Technology Innovation Board. This is a positive and powerful signal, which means that the policy will be more tolerant of the valuation methods and valuation ceilings of "hard technology" companies. I believe that in the future, mergers and acquisitions on the Science and Technology Innovation Board will be more active.
"Mergers and acquisitions are an important means for the capital market to optimize resource allocation." Tang Zhehui said that for listed companies that are industrial buyers, chain-leading listed companies can expand their product layout through acquisitions, acquire younger technical teams, integrate upstream and downstream industries, and consolidate their own competitiveness; for the targets of mergers and acquisitions, by utilizing the buyer's resources and platform and overcoming the original limitations of scale and financial strength, they can accelerate research and development and expansion and achieve greater development.
