JD Capital: “Bellwether Plan” Leads Entity Companies Pioneering into the Blue Ocean via M&A
Source: The Economic Observer
In recent years, the M&A transaction volume in China has been breaking records. In the first half of this year, the aggregate transaction volume of domestic and international M&As conducted by Chinese enterprises hit an all-time high of USD 412.5 billion, a year-on-year increase of 27%.
As M&A becomes increasingly common, JD Capital as an active market player surely won’t miss the opportunities. It has embarked on the road of shifting its strategic focus to M&A investment.
Not long ago, JD Capital launched the “Bellwether Plan” with an aim to, as an institutional investor, become the strategic stockholder of leading companies in various market segments. By adopting M&A to integrate its advantages in industry investment and capital operation, and industry bellwethers’ strong suit of business operation, JD Capital constantly enhances their market share and value.
At the end of this August, several senior administrators from JD Capital talked about the establishment of the “Bellwether Plan” in an interview.
Bottlenecks of traditional bellwethers
“With a population of 1.3 billion, China boasts a very potential market, not to mention the still relatively low securitization level among Chinese enterprises. The more and more mature industries and financial market will provide opportunities for local enterprises to achieve significant development,” said KANG Qingshan, General Manager of JD Capital.
Statistics reveal that among over 1,600 private enterprises that go listed as A-shares, seldom achieves a market value of USD 10 billion, compared to 477 out of 7,391 listed companies in the US, a ratio of 8.9%.
KANG pointed out: “As the concentration ratio edges upwards in various industries, the market shares will flow into well-performing companies. In the next round of economic expansion, a stream of Chinese companies with a market value of over USD 10 billion will continuously emerge in the upcoming years.”
However, different form large enterprises in the US, Chinese bellwether companies rose from a time short of resources. Therefore, their leading positions are attributed to, besides competence development, the dividends from demands exceeding supply. The current market makes bottlenecks for common market leaders more prominent.
According to KANG, these companies are now faced with the following dilemmas:
Confusion in strategic plans: Many enterprises are challenged by the continuously upgrading market competition due to the fact that new business models constantly emerge along the rise of internet and mobile internet.
Lack of M&A-related resources and professional investment experience: Most market leaders have gone listed and pursued extensive development via trial M&As based on the capital market. However, most of them are still inexperienced in terms of investment.
Short of capital market operation experience: Capital market operation calls for all-round and multi-dimensional capabilities. That, in essence, involves economical and rapid wholesale funding, efficient external investments, incisive understanding of capital market rules, adept usage of various financial tools, etc. Enterprises should understand the market thoroughly and act flexibly.
Why do market bellwethers cooperate with PE firms?
“Private equity (PE) institutions are a vital component of capital market. They are dedicated to research on various financial products in the capital market and strongly capable of innovation and implementation, which are the key elements of the cooperation between PE institutions and industry leaders,” said KANG Qingshan.
HUANG Zhen, Secretary of President of JD Capital introduced: “We have a professional research team to track real-time industrial changes, and to propose strategy suggestions and implementation plans for enterprises.”
“Additionally, we enjoy obvious advantages in M&A resources and investment experience. For one, we have conducted research on over 20,000 companies and accumulated abundant investment experience and effective methods, which can help bellwether enterprises with efficient M&A and investments. For another, with its business R&D system worldwide, JD Capital is able to accurately locate high-quality companies suitable for leading companies’ M&A projects in the entire industry chain across the world.”
When asked about the goals of the “Bellwether Plan”, KANG Qingshan replied: “We hope that in the following three to five years, JD Capital can give a full play with its systemized capital increment service to enhance partners’ market value from USD 10 billion to 100 billion, and upgrade them from outstanding players to unshakable leaders in corresponding market segments.
As for the specific service, JD Capital brother companies such as JZ Securities, JT Asset Management, Ageas Insurance, and JX Asset Management with rich financial resources can assist enterprises to utilize an array of financial tools, and to undertake various kinds of capital operation.”
Growth of leading enterprises contributes to a new industrial structure
Currently, JD Capital has completed the industrial integration of leading enterprises, M&A of upstream and downstream enterprises along the industry chain, and overseas M&A across multiple industries.
Investing Luolai Lifestyle (002293) highlighted the 2016 “Bellwether Plan” of JD Capital.
JD Capital and Luolai Lifestyle agreed on the systematic strategic partnership plan of “participation in private placement and sustained cooperation.” With rich investment experience in sub-section industries, JD capital provided Luolai with future core strategies including offering deep segmentation of consumer groups with different demands, offering targeted multi-brands products and implementing a new M&A structure.
Luolai Lifestyle launched private placement of 104 million shares and JD Capital purchased over 40% of it. The proceeds from the placement shall be used to fund the “All-channel Home Life O2O Operation System Project” (the Project) and the “Supply Chain Optimization Program” (the Program).
JD Capital holds a clear plan of how to assist Luolai in strengthening its leadership in China’s home textile industry. The project leader said, “As the Internet rapidly penetrates into every corner of people’s life and revolutionizes the consumption habits, the competition landscape of the home textiles industry experiences gradual changes. It also helps unleash the huge potential of e-commerce market. With its diverse resources and on the back of China’s economic structural adjustment and consumption upgrading, JD Capital will assist Luolai in optimizing its business model and strengthening its leadership in the industry.”
JD Capital has been exploring other innovative projects through long-term practice.
As one of China’s eight earliest companies listed on the Shenzhen Stock Exchange, Bao Li Lai International Hotel, the predecessor of Cathay High-Speed Railway Technology Co., Ltd. (CHSR, 000008), was a five-star hotel, the prime assets of which were a 100,000-square-meter five-star hotel and property for rent. After experiencing changes of name and main business, it finally became the so-called “shell company”.
JD Capital helped Sheenline successfully merge into CHSR, strategically transforming its main business into rail transit industry, a more rapidly developing industry.
From 2014 to now, JD Capital has participated in two material reorganization of CHSR and helped it complete the acquisition of Beijing Jiaoda Microunion Tech Co., Ltd., increasing its market capitalization to more than five-fold within nine months.
The reorganization contributes to the perfection of signal system and line system of CHSR and implementation of the industrial structure of five major systems, gradually offering the service of designing Big Data and Cloud Processing and transforming from high-tech company to “Internet plus high-tech” company.
Overseas M&A is much favored by industrial bellwethers
JD Capital is confident about the overseas M&A of leading enterprises.
Overseas M&A has been booming since 2016. In the first half of this year, the transaction amount of overseas M&A has increased by nearly three-fold to $134 billion, surpassing the sum of previous two years.
“Part of the transactions were strategic and industrial structure related. And this is what we are doing now.” KANG Qingshan said.
JD Capital invested in U-Tour (002707) as the second largest shareholder on October 2010. U-Tour went to the public in 2014. Then U-Tour cooperated with JD Capital to formulate the domestic-overseas and offline-online development strategy.
On September 2014, U-Tour, JD Capital and FOSUN jointly set up a fund for the acquisition of Club Med, the world’s largest holiday chain group. The investment from U-Tour facilitated the expansion of Club Med in China. Then, the travel agency purchased 70% of the shares of China Bamboo Garden International Travel Service Co., Ltd to hold the company. In the fourth quarter of 2014, U-Tour purchased 15% of the shares of Uzai, officially marching into online travel market.
The market capitalization of U-Tour has increased from RMB 1.34 billion to RMB 8.55 billion before its withdrawal. As a return, the fund managed by JD Capital has acquired more than 24-fold paper gain.
According to HUANG Zhen, JD Capital also utilizes established domestic channels and developing overseas channels to conduct overseas M&A. JD Capital has established channels for exploring M&A target in Europe, America and Japan, facilitating Chinese leading enterprises in their seeking for overseas M&A opportunities.
Currently, JD Capital is implementing large-scale industrial integration and overseas M&A. It has conducted a benchmark project of a European automobile lightweight die-casting aluminum company. The company is the release supplier and synchronous supplier of global automakers including Porsche, Mercedes-Benz, BMW, Volkswagen, Bentley, Ferrari and so on.
According to the project leader, the reason for JD Capital’s becoming the potential acquiring firm could be attributed to its strategic layout in automobile lightweight field and its extensive and in-deep research on it. As early as in late 2014, JD Capital had brought forward the idea of integrating automobile industry and implementing global M&A. It chose automobile lightweight die-casting aluminum industry as preferred sub-sector industry in 2015, with an aim to implement serial industrial M&A globally and integrate overseas companies with leading technology, utilizing domestic cost advantage and market size, thus establishing a domestically and globally leading automobile lightweight die-casting aluminum company.
M&A brings about the era of “Post-investment Service” 2.0
“Assets delivery is not the end of a M&A transaction but a beginning,” at put by KANG.
JD Capital holds that corporate culture and team integration are the core of a M&A. Based on the demands of leading enterprises and the advantages of JD Capital, the post-investment services of JD are to focus on solving issues on four aspects, namely strategy, project, capital and management.
On strategy: Formulating a strategic roadmap for companies’ intensive and extensive development on the basis of in-depth industrial study, in an effort to guide capital utilization and project acquisition.
On project: Taking advantage of JD Capital and its partners to seek for targets home and broad based on the M&A demands of leading enterprises and then implement such M&A procedures as due diligence, risk management and negotiation.
On capital: Capital is the key element of post-investment service. Fully utilizing different capital products including but not limited to bank capital, insurance capital, ABS and ITFIN to support development and overseas M&A. Moreover, JD Capital will further invest in leading enterprises to implement long-term value investment according to the fluctuation of market capitalization.
On management: Under the “Bellwether Plan”, JD Capital will dispatch at least one manager to follow projects up on site. Moreover, it will arrange regular meetings to learn about project schedule and set up a joint investment decision-making committee for the discussion of M&A issue with leading enterprises. Finally, it will arrange regular strategy committer for top-level managers to optimize M&A strategy and implement the M&A.
China is experiencing industrial upgrading, during which period numerous companies and outdated industrial capacity will be eliminated. Listed companies or groups should implement cross-border and cross-industry M&As to fuel the development of them.
KANG commented, “JD Capital has long been dedicated itself to the integration of available resources to fuel the development of listed companies. Under the ‘Bellwether Plan’, it will continue to invest in sub-sector leading enterprises. By dint of its professional experiences, capital market innovations, and global network of business resources, JD Capital will be able to help leading enterprises in domestic and overseas M&A to further improve their core competitiveness.”
“In this process, the allocation of market resources will be further optimized. Meanwhile, investors and sponsors will acquire relatively high and reasonable returns.”