FEITIAN Sets up M&A Fund Associating with JD Capital

2014-12-31

Merger and acquisition (M&A) has become the main means of investment, and more and more relevant funds been set up.

On December 31st, FEITIAN (300386) announced that Shanghai Wending Investment Center (Limited Partner; hereinafter referred to as “Fund”), as a M&A platform, would be set up together with JD Capital. 

The first Funds totaled 300 million yuan, with an equal contribution of 150 million yuan from FEITIAN and JD Capital respectively, which would be used to merge and acquire the targeted companies in the security industrial chain and achieve layouts in relevant sectors like information security, internet, mobile internet, cloud-computing, information industry and neighboring ecosystems.

PE gained because of reopening IPO

After China reopened IPO markets, nearly hundreds of enterprises landed capital markets. Meanwhile, National Equities Exchange and Quotations (the NEEQ) ushered explosive growth and were welcomed by outstanding companies. There were more than 1,500 enterprises listed on the NEEQ. As one of the most important participants among the capital market, PE firms would bring out and become the top 10 shareholders of many listed companies. 

We knew from an interview that 18 companies invested by JD Capital were listed on the NEEQ in 2014, including 7 landing the A-share market through IPO, back door listing and restructuring, which accounted for 5% of the market share of IPO. PEs behind them earned a lot, too. For example, among the 7 listed enterprises invested by JD Capital, there were 2 with stocks priced over one hundred dollars.

In terms of profit, JD Capital invested in FEITIAN in 2010 through its three funds, holding a share of 6%. Four years later, FEITIAN was listed on Shenzhen GEM, with a first-day stock price increasing 44.01% and exceeding one hundreds yuan with 11 daily limits. By the end of the closing day, its price was 116.86 yuan/share, with 10-fold book returns.

  As internet’s high-speed development, information and payment security has arose people’s attention. Information safety industry (IS) has achieved a high-speech increase. As a IS leader, FEITIAN has powerful technologies and strong ability in business expansion. JD Capital aimed to help FEITIAN become the industrial leader. The M&A Fund is the first step.

Listing and M&A- PE Market Value Management

The first mission of PE capital is to push investees to land capital markets. However, the strength of a company cannot only be presented from its stock price. As Chinese industry structure is being adjusted and upgraded, integration is imperative. In mature overseas capital markets, M&A investment is one of the main investment directions. Through it, PE can play its capital role and help enterprises merge internationally to enrich its product line, lower cost and increase sales. 

Wind Information shows that 32 listed companies announced to be established or invest in merger funds by the end of November in medicine, energy, wearable, culture and environmental protection sectors. Besides the listed companies, other institutions were stepping up to enter into PE markets.

Since July 2014, a total of 1,239 M&A transactions have been reported, witnessing the coming M&A of Chinese capital markets. Among them, PE-involved listed companies have attracted more attention. UTour Travel (002707), JD Capital’s another one-hundred-dollar-priced stock, is a typical representative. Since it was listed on Shenzhen Stock Exchange, it has achieved three MAs with a high stock price. Its returns rose more than 18 times and it began to enter into global premium tourism markets as China’s biggest outbound tourism service provider. 

Insiders said the mode of industrial integration after pushing an enterprise to be listed can achieve all-win. For PE firms, it can bring new cooperative chances after enterprises were listed; for enterprises, it can enhance competiveness by capital operation and achieve market value management.

Head of JD Capital said that among its 7 listed companies, 5 obtained 10-fold book value. Besides two one-hundred stocks, IDEAR HANYU obtained a 10-fold book value after being listed on Shenzhen GEM on October 30th. So does Liuzhou Pharmaceutical and Fangfeng Pharmaceutical. M&A Department has been set up. In future, JD Capital will display its capital advantage to help more invested companies be listed.