[Ride the Tide] Embrace Opportunities in the M&A Era

2016-05-25

[Ride the Tide] Focusing on major macro-economic development trends at home and abroad, sharing JD Capital’s insights from its participation in China’s economy.qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

[Sharer] Research Institute of JD Capital: Focusing on studies of corporate strategies and macro strategies, and continuously following the development trends of macro-economic policies and the capital market.qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

This is the third report on Chinese Economy and JD Capital’s Strategy in the New Normal: Embrace Opportunities in the M&A EraqHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

China’s equity investment institutions are now faced with two transformations. For the institutions themselves, after over 10 years of development, those with a large scale need to shift their investment focus from small- to large-amount projects. As for the macro environment, PE institutions have to adapt to the economic transition from super-high growth to a mid-high one. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Driven by the PE sector’s internal demand and the new changes in China’s macro-economy, M&A has become a new theme in China’s equity investment market. Amid economic transition and capacity digestion, M&A and restructuring is a necessary step for PE institutions to head towards strategic transformation as well a key part of the supply-side structural reform. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Unlike those focusing on the secondary market, PE institutions embrace the economic adjustment as a natural investment opportunity. In times of economic downturn, loads of quality asset targets would be undervalued due to temporary fund shortage or poor operation, thus unleashing the potential for industrial M&As. Moreover, the supply-side reform featuring de-capacity, de-stocking and de-leveraging usually comes along with corporate restructuring. Currently, companies plagued with overcapacity in China are mostly SOEs in resource or manufacturing industries. They seek to consolidate the sector or expand the value chain so as to strengthen their competitiveness via M&As. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

China’s M&A boom in 2015qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As the Chinese economy slowed down in 2015, M&A has recorded a new high. The de-capacity effort in traditional industries, new economic consolidation based on high-tech and the Internet, the strong alliance between domestic and overseas companies as well as the financial service upgrading -- all this backed the growth of China’s M&A market. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According the “2015 Review on China’s M&A Market and 2016 Outlook” released by PWC in January 2016, the number/amount of M&A cases in China totaled 9,420/USD $733.7 billion (RMB 4.57 trillion) in 2015, registering a year-on-year growth of 36.6%/84.4%. The sharp increase proves the fact that Chinese economy and its investment sector have entered a new stage in the new normal. Against the background of economic slowdown and the ongoing supply-side reform, economic restructuring and transformation will be focusing on resource consolidation and efficiency improvement over the next few years. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Source: Thomson Reuters, ChinaVenture, PWCqHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Also, equity investment institutions (PE/VC) are playing an increasingly prominent role in the M&A market. In 2015, PE/VC institutions participated in 3,797 M&A deals worth USD $196.5 billion; 40%/26% of total volume/amount (both a new high). From 2011 to 2015, they took up 20~30%/~20% of total M&A deals in terms of volume/amount. It seems that 2015 has also become THE year of equity investment institutions in China’s M&A market. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In response to the boom of M&A market, JD Capital strengthened its M&A investment in 2015 by initiating multiple major shareholding takeovers and domestic/overseas M&A consolidation. It also played a significant role in Baihe.com’s merger with Jiayuan.com. As it turned out, JD Capital’s strategic shift to M&A investment has paid off. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Outlook: M&A investment in full swingqHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

China’s M&A market witnessed breakthroughs in 2015 and will continue its expansion over the next few years. We see high chance for the size of China’s M&A market to hit a new high in 2016 and PE institutions will have a stronger voice in this process. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Year to date, the central government has repeatedly stressed the significance of the supply-side structural reform and the irreplaceable role of M&A and restructuring. For sectors plagued by overcapacity, the elimination of outdated capacity also requires corporate merging. The restructuring, widely adopted during last century’s SOE reform to cut capacity and deal with layoffs, is expected to play its role again in this round of economic transition. In some strategic industries, the government will further drive the consolidation among qualified companies to better respond to global competition, improve technology and products, and provide higher-end supply to society. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The economic adjustment also calls for industrial transformation. Companies previously engaged in traditional industries made the leap from “old” to “new” economy by expanding their business scope through M&As and restructuring. From 2014 onward, sectors suffering visible decline in core revenue (e.g. transportation, textile & apparel, chemicals, auto making and light manufacturing) played a large part in the cross-border M&As. As for the acquired targets, emerging industries (especially new information, energy conservation &environmental protection and medical biology) have become the key focus. This trend will further stretch into 2016. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Looking ahead into 2016, Chinese companies will continue their efforts in overseas M&As and the size of which might surpass that in 2015. YTD, the market has witnessed multiple M&A deals including Haier/ChemChina’s buying GE’ s household appliance business/Syngenta AG and Midea’s potential acquisition of Toshiba’s household appliance business. Except for large central SOEs, more private groups and financial institutions will participate in overseas M&As.qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Looking back, PE institutions have come to play a greater part in China’s M&A market over the past few years. In 2015, the funds raised and investment by China’s PE market both set a new record. As their focus shifted from Pre-IPO to M&A investment, PE institutions now keep a closer eye on all types of M&As both home and abroad. It is reasonable to assume that PE institutions would play a more significant role in M&As and restructuring in years to come.qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2016, JD Capital will seize the opportunity amid the leapfrog growth of M&A market and push forward its strategic transformation through M&A investment. On the back of supply-side reform, traditional industries burdened with overcapacity are to be consolidated profoundly, thus creating opportunities for PE capital. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

By providing different solutions to different sectors/companies, JD Capital will help companies improve operation efficiency, reduce outdated capacity and promote transformation from traditional to emerging industries through M&As and consolidation, injecting new vigor to China’s economy at the transition stage. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the meantime, JD Capital will also seize opportunities arising from the overseas market and focus more on overseas M&As. We will introduce more excellent domestic players to the overseas M&As and conduct effective integration of domestic & overseas resources to cultivate a group of internationally competitive bellwethers. qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


qHS九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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