The M&A Wave Rises!

In December 2023, Haier Group, which exceeded 370 billion yuan in revenue, found itself at the center of significant newsOn the afternoon of December 22, the company's controlling entity, Haier Biomedical, announced plans to conduct a stock swap to absorb and merge with Shanghai Laishi through an issuance of A-shares to all shareholders of Shanghai Laishi, as well as raise additional funds via the issuance of A-shares.

Notably, just one year prior, on December 29, 2022, Shanghai Laishi announced that its shareholder, Grifols, S.A., had signed an agreement with Haier Group, making Haier the controlling shareholder of Shanghai Laishi.

As of now, Shanghai Laishi's market value stands at 47.93 billion yuan, whereas Haier Biomedical is at only 11.19 billion yuan

This merger clearly represents a "snake swallowing an elephant" scenarioSo, how should investors seize the opportunities presented by this acquisition?

The Big Merger

On a Sunday afternoon, major news broke in the A-shares market: Haier Group's two hundred billion-level publicly listed companies are mergingHaier Biomedical officially announced its plan to absorb and merge with Shanghai Laishi by issuing A-shares to all of Shanghai Laishi's shareholdersDue to the transaction currently being in its planning stage with inherent uncertainties, to ensure fair disclosure of information and protect investor interests, the company's securities are expected to halt trading on December 23, 2024, for no more than 10 trading days

This deal hinges on signing a definitive agreement and fulfilling necessary procedures and obtaining approvals from relevant regulatory authorities.

Haier Biomedical stated that on December 20, the company signed an agreement with Shanghai Laishi for the exchange and merger through the issuance of A-sharesThe specifics regarding the exchange price, debt resolution, employee placement, and mechanisms to protect dissenting shareholders will be determined through discussions and negotiations to be included in the finalized agreement.

It's worth noting that it has been less than a year since Haier Group acquired Shanghai LaishiOn December 29, 2022, Shanghai Laishi stated that its shareholder, Grifols, S.A., had entered into an agreement with Haier Group for the latter to acquire 1.329 billion shares, equivalent to 20% of the total shares, for 12.5 billion yuan

Simultaneously, Grifols entrusted the voting rights of its remaining 437 million shares (6.58% of total share equity) to Haier Group or its designated affiliatesThus, the transfer price for each share was calculated at 9.4 yuan, valuing Shanghai Laishi at around 62.5 billion yuan.

Industry Integration

In recent years, Haier has focused on expanding in the health sector, and prior to acquiring Shanghai Laishi, it owned two publicly listed companies: Haier Biomedical and Yinkang Life, dedicated to developing, manufacturing, and applying high-end research instruments, medical devices, and healthcare solutions

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Their products and services have reached nearly 160 countries and regions globally.

Last year's acquisition was viewed positively in the industryDongwu Securities pointed out that Haier would support Laishi in increasing research and development investment, leveraging its long-term advantages in smart manufacturing, lean management, and corporate governance to empower Laishi, thus continuously enhancing product technology and innovation capabilities and helping Laishi to become a competitive company on both national and global stages.

Additionally, as a leading enterprise from Shandong, Haier is poised to further enhance blood plasma stations in the province

Shandong, with a high population density as a major province in blood products, has only about 20 plasma collection stations across its 52 counties as of 2023. Key players like Taibang Biological and Tiantan Biological operate plasma stations, and Haier's strong position in Shandong could facilitate the establishment of new stations.

Since Haier's involvement, Shanghai Laishi's performance has shown notable improvementsIn the past three quarters, net profit increased by 2.8%, and revenue rose by 6.38%, alongside a notable decrease in leverage ratio.

Meanwhile, Haier Biomedical specializes in the development, production, and sales of biomedical low-temperature storage devices, evolving into a service provider for digital scenarios in life sciences and medical innovation based on IoT transformation

Aiming for optimal user experience, the company's primary business encompasses life sciences and medical innovation, catering to a broad user base including hospitals, biopharmaceutical companies, universities, disease control centers, and blood stations, providing comprehensive digital scene solutions that include smart laboratories, digital hospitals, and intelligent blood management systemsThe intersection of business between Haier Biomedical and Shanghai Laishi reflects significant synergy.

Opportunities Amidst the M&A Wave

With regulatory support, merger and acquisition activities have surged this year

Data indicates that from January to October 2024, the A-shares market witnessed 100 major restructuring announcements, showing a marked increase compared to 2023. Particularly following the release of "Six Points for M&A" at the end of September 2024, the A-shares market saw a spike to 20 restructuring announcements in October, setting a multi-month record.

Cases like the merger between Haier Biomedical and Shanghai Laishi are particularly noteworthyThis merger showcases three prominent characteristics: first, it is an acquisition involving the same ultimate controlling party; second, there is a considerable synergy between the industries that assures a high probability of success; and third, companies undergoing major shareholder changes have a noticeable likelihood of merger activity

In contrast, companies attempting asset acquisitions may face prolonged negotiation chains, making facilitation difficult, which increases the risk of deals collapsing due to insider trading and other issues.

From the merger data of central, state-owned, and private enterprises, many acquisitions have arisen under the same controlling individualsAccording to Zheshang Securities, since 2010, central enterprises have completed a total of 251 M&A events largely in aerospace, national defense, and chemical industries, primarily executing horizontal and strategic integrationsFor instance, China Maritime Defense integrated assets focused on underwater electronic technologies from China Shipbuilding Industry Group, while China Shipbuilding merged with China Heavy Industry through horizontal asset integration.

Local state-owned enterprises, since 2010, have completed 387 M&A activities, mainly in fundamental chemicals, metals, and mining sectors with a focus on strategic integration, horizontal consolidation, and reverse mergers