Man Wei: Mergers And Acquisitions In Textile Industry

PWC accounting and acquisition director

Mr. Wei: Good afternoon, everyone. I am Mr. Wei, PWC accountant. I am very honored to be the first to make a keynote speech. Here we share with you some experiences and some of our experience gained by our customers in the textile and garment industry.

First of all, let's summarize briefly what we observed in the textile and garment industry in the past two years. We noticed that in the recent two years, the M & A cases showed an explosive growth trend. From 2001 to 2009, 8 mergers and acquisitions were completed, and the transaction amount exceeded 850 million yuan. In 2010, the merger and acquisition reached 8, amounting to 600 million yuan. 2011 has not yet ended. 9 mergers and acquisitions have been completed, amounting to more than 1 billion 670 million yuan. Such a high transaction volume, excluding 1 billion 200 million of the transactions, 470 million of the transactions in the first half of the volume is also very large. This is a phenomenon we observed, that is, the speed of growth is very fast in the past two years. One of the important reasons is that after the economic crisis began to spread in 08 or 09 years, the clothing and textile industry as a basic industry has a certain stability. Its stable return once again attracted the attention of the investment community, so its trading volume showed such a large growth trend.

Second observations, we found that these transactions, the scale of transactions will not be too large, most of the one or two hundred million yuan, or five to seventy million or so. Secondly, from the point of view of transaction, the investment of VCPI is quite high no matter from the number of cases or the amount of transaction. If we look at this cumulative transaction volume, if we figure out 1 billion 200 million transactions, the investment of VCPI will exceed 75%. This is some of our observations, and the market is very active now.

PWC has also served some of these transactions. I myself have served a leading garment enterprise in China, not long ago, overseas. Buy A clothing company that operates mainly in the face of European and American markets is now in the process of trading, so there is no way to disclose more information to you now. Next, we want to take the trading process as a platform to share with you some experiences we summed up during the M & a transaction.

We are looking at the transaction process separately from the buyers and sellers. I think you may be familiar with the usual trading process. For buyers, it is usually Formulate Strategy, screening of M & A targets, initial contact, investigation, valuation, negotiation, summarization, signing of transaction documents and completion of acquisition are such processes. The seller also has one-to-one process. It is from internal analysis, but also to develop a financing strategy, from the recommendation, the determination of intentions, reception, investigation, negotiations between the two sides and so on, we do not elaborate, the following emphasis on these links, to share with you.

One link is the formulation of strategic objectives and the choice of acquisition targets. We have noticed that some companies, especially some strategic investors, find it difficult to make decisions when making investment decisions, because there are no one hundred percent perfect Target Corp in the world, there must be such problems, or there are attractions, they must pay a higher price for them. If there is a very clear investment strategy, when we make investment decisions, we can know what we need and how much we need to pay for those things. If the investment strategy is not clear, then it is difficult to choose when we make investment decisions.

Our proposal to the company is to build a strategy based on a perfect enterprise development strategy. If the enterprise wants to achieve the strategic development goal, how much can it achieve through its own growth, how much of the remaining part needs to be acquired through mergers and acquisitions, where it is going to be acquired, what kind of company it is acquiring, the other is the size of the acquisition, and how long it will take to complete the acquisition. With such enterprise development strategy, the merger strategy is formulated, and the merger strategy is adopted to formulate the standards for screening and screening Target Corp and conduct Target Corp screening. In fact, many investment advisors can be employed in the market to help enterprises formulate M & A strategies, and even help companies select companies. PWC can also provide similar services.

Second, how to solve the problems found in due diligence? Buy The party is undoubtedly very important. Buying the same commodity, buying a garment, buying a dress must have a clear price tag, or three goods, but there are more factors to consider when buying an enterprise. You need to understand that the internal problems of the enterprise may not be as simple as buying a commercial product. There is a lot of professional due diligence to do to modify your investment decision and your valuation model. {page_break}

What are the due diligence? What problems can be found? How to solve these problems? This is something I want to share with you in detail. Similarly, for sellers, it is also a matter for sellers to think about, how to deal with, how to cooperate with them, how to solve them ahead of time, or avoid unnecessary misunderstanding and difficult communication. Secondly, after the due diligence investigation, we can know more about the enterprises as far as possible. After communication, we find that buyers and sellers have more understanding of each other. At this time, a major decision will be made. That is, what kind of way to complete the transaction is to conduct an asset transaction or to carry out an equity transaction. I will do some more in-depth discussion on this issue.

First, let's take a look at the results of the due diligence and the analysis of the countermeasures. In this picture, the above line is in the process of mergers and acquisitions, some objectives that buyers and sellers need to accomplish, such as strategy formulation, project risk assessment, negotiation, structural design, program and so on. The light green boxes are all due diligence, and how to solve problems one by one, including finance, tax rate and law, including human resources and environment. Here, I would like to share with you our experience in our first experience, which is what problems we usually notice and how to solve these problems in the process of finishing the textile and garment industry.

When I was discussing with the distinguished guests before the meeting today, we all mentioned the importance of the channel. For a garment enterprise or a textile enterprise's due diligence investigation, the importance of the channel is self-evident. In fact, we have found some problems in the channel, whether there is stock in the channel, whether the goods have not been sold, the enterprise may formulate some incentive policies, the dealer takes more goods, gets more rebates, discounts, or second years have better terms, does he mention a lot of goods for sale temporarily? From the contract point of view, the sales revenue seems to be realized, but not the risk is really transferred from the seller. If the dealer gets the goods, if he can't sell it, he has the right to withdraw. If it can not be returned, will it affect the future growth trend? This is a problem that any retailer should pay attention to. Then I don't think it is an exception in the clothing industry.

Similarly, how much money do you need to pay for the related problems, so that the channels can run effectively? If you want to implement a new product or a new service, how much this channel fits, what kind of financial costs do you need to pay? How can we solve this problem after finding it? If it is a buyer with us, if we are a buyer, how can we solve it? Where is it related to my M & A? I think the most direct one is to influence our judgement on the development of this enterprise. Because the value of an enterprise affects its factors, there are several points: one is growth, the other is business capability, and the other is the ability to generate cash. If there is a problem in the channel, just now that the stock in the channel is in stock, the growth of future revenue may be greatly affected. Similarly, if we do not have enough control over the channel, if we want to achieve a more effective channel management, we may pay more cost. In this way, as a buyer, we need to know that in the future, it may need to invest more money in the channel, and also affect its profitability. So these are important issues to consider when we consider the valuation model.

Similarly, as a strategic investor, if the purpose of your M & A is to get the channel of the company, maybe the brand is to make your own brand, and the production also has its own production base, but I need to sell it to my target market through this channel. At this time, the channel itself puts aside the financial factors, and the enterprise has the ability to control the channel, which will not only affect your financial model, but also affect the investment decision. This is a problem in the channel.

Just now I also mentioned that the factors that affect the value of enterprises are the control of profit capital. As a clothing enterprise, how to control its profit fund? Whether the accounts receivable can be collected. If I want to promote a new product, I hope that the new product can get a good performance on the first listing, so this time is not to sacrifice some money back to achieve the growth of performance, it is not the first thing to shop, but this money will not come back at one thirty, and it will be returned to you. This may bring the risk of future repayment. Similarly, inventory control is also the same. This often happens in transition enterprises. When it enters a new market or introduces a series of new products, it may be that inventory control is not as good as it used to be familiar with business, and may be more paving shops. After many production, there is a lot of inventory that needs to be written off, which is also the buyer's need to pay attention to. For these reasons, we can amend the company's ability to control working capital under such circumstances, and adjust the working capital level in our model.

Secondly, for the clothing industry, we know that many garment industries are actually labor-intensive, especially in terminal sales or clothing industry. Labor cost is an important component of the company's cost. We often see a question whether welfare is enough or not. At present, the target company has been running smoothly, but the workers have not mentioned any strikes or protests. However, as an acquirer, if I am a large state-owned enterprise, after I acquired this company, the staff realized that I am now a state-owned large central enterprise employee. I ask whether there will be any change. Or you are a foreign brand, as employees of foreign invested enterprises, do you mean that the benefits of foreign companies are very good, and all social security are normal. Why do we not expect their expectations to change? So we just saw that VC and PE have invested heavily in the clothing industry. If we make these companies listed, will they be able to withstand the requirements of gentlemen's auditors? Do we need to add some reserves from the financial point of view?

For textile industry printing and dyeing enterprises related, such as environmental protection costs, there is a great deal of waste water emissions. Not long ago, there was a case. After the completion of the transaction, foreign investment enterprises came to find that the problem of groundwater pollution is very serious. I am not sure whether the local environmental protection department has known the situation before. Anyway, after the investor came, he put forward a lot of compensation requirements for environmental protection, so that the enterprises also concentrated some losses. For overseas sales, many garment enterprises are export-oriented, we should consider whether our cost is more in the mainland, that is, you are the cost of the renminbi, and your sales are sold to the US market, you are the sales revenue of the US dollar, in this case, the fluctuation of the exchange rate, the erosion of the company's profits is very huge.

For those, we mentioned just now, such as manpower cost or environmental risk, these are actually a consideration of the cost level of enterprises. We think that these problems should be considered reasonably in the valuation model. For those potential risks, such as environmental risks, we may ask the seller to make some warranties in the transaction agreement. Here I would like to remind you that we can ask the seller to make a guarantee, but at the same time we have to consider the question whether the seller has the ability to give such a guarantee. Later on, we will also mention that the clothing and textile industry is actually a lot of private enterprises. Their operational standardization is slightly inferior to that of the state-owned enterprises. Many companies have financial and tax problems in history. These problems are a potential risk that has not been exposed now. That potential risk, giving it a price, may not agree with the other party. It may require the seller to make a guarantee to ensure that if there is any tax bureau to speak later or what the environmental protection department says or what other social security departments say, then the old shareholders are willing to undertake a responsibility, which is sure that we need each other to make it in the transaction agreement. But at the same time, we need to consider very carefully whether the other party is able to give this guarantee. If the risk is very large, is it true that there is no such thing as the other party, there is no way for the other party to make substantial compensation. The loss is still the acquisition enterprise itself, which needs the buyer to evaluate.

Now, I would like to give a brief introduction. After a thorough understanding of the enterprises, we will be faced with a decision, whether we are going to carry out equity trading or asset transactions. First, we should clarify a concept. Whether it is asset trading or equity trading, its essence is all the same. It is you who want to buy this business. It is different in form and form. In the case of asset transactions, you usually need to set up a new company, to acquire the assets of the old shareholders by the new company or to invest the assets and business of old shareholders into the new company. Equity trading is the investment side, buying new shares in the form of additional shares, and increasing investment by investment enterprises. What I have just said is actually the difference between whether there is a new company. Then we can see that because of this difference, there will be advantages and disadvantages. {page_break}

In terms of asset trading, I think his advantage is most important because of the emergence of a new company which does not have to bear the historical risk of Target Corp. For example, we just said that the tax is good, environmental protection is good, if the risk volatility is particularly large, we may have to take the way of asset transactions cut off and the past historical risk, I am a shareholder of the new company, what problems the new company has, I assume responsibility, and I have nothing to do with it. When a new company is registered, the assets transaction will generate a lot of transaction taxes and fees, because the assets need to be transferred, and the assets transaction tax is a relatively large transaction cost between buyers and sellers. On the other hand, because of a lower company, it is necessary to re sign agreements with employees, suppliers and customers. There is also another point. If an asset transaction has a new company, the new shareholder will partly benefit from the accumulated losses of the original enterprise. The advantages and disadvantages of equity trading basically reversed the asset transaction just now.

Time is limited. We can only share so much with you. Thank you very much for your time.