Under The "New Normal", China'S PE Is Turning To Mergers And Acquisitions.

Opportunities for growth investment are declining under the new normal, but the value of M & A investment has begun to highlight.

As a capital with both industrial and financial amphibious attributes, China's PE has strong resource allocation capability and can lead to industrial development through mergers and acquisitions.

PE agencies can build leading enterprises and promote industrial upgrading by promoting mature industries of mergers and acquisitions, and integrate potential emerging industries to optimize industrial layout.

In addition, because of the relatively low economic environment, a large number of high-quality investment targets may be underestimated due to temporary operational difficulties, which will provide more room for industrial mergers and acquisitions.

International experience also shows that slowing economic growth may be an important opportunity for the PE industry.

The first prosperity of the US PE industry came from the mid 1970s to 80s after the end of the golden period of growth.

At that time, the PE organization acquired a large number of enterprises through the application of leveraged buy-out, junk bonds and other tools, and improved the efficiency of enterprises through restructuring assets and restructuring management, so that a large number of enterprises in the United States could regain their vitality.

KKR and other famous American PE institutions themselves are also growing rapidly in the short term.

Of course, there are differences between China and the United States in the era of mergers and acquisitions. The most striking difference is that in 1970s the United States was basically a "stable economy" and the overall growth rate of the economy was relatively low.

And now

Although growth has slowed down, the growth rate of GDP has never fallen below 6%, much higher than that of developed countries.

At this stage, although the momentum brought by growth factors and listing factors has weakened, it has not disappeared completely.

At present, China has not yet entered the typical era of operation based M & A investment. It is a PE3.0 era driven by three factors: growth, listing and merger.

The three factor model in the PE3.0 era can be called the "three 1.5 models", that is, "1.5 x 1.5 x 1.5".

Among them, the endogenous growth rate of enterprises has slowed down, and the investment period has dropped from "1 changes to 2" to "1 changes to 1.5". The difference between the one or two tier market has narrowed down, and the conservative estimate of the valuation multiplier has also been reduced to 1.5.

However, M & A factors become a new driving force for the growth of return on investment (310328). PE institutions can reorganize enterprises and even industry resources through mergers and acquisitions, and achieve enterprise growth by increasing efficiency.

Under this model, through the joint action of three factors, investment institutions can still achieve 3~4 times returns in 3~5 years.

For example, Jiuding investment invested in Zhongxin tourism in 2010 (002707). At that time, it was small in scale and low in valuation. Its business was mainly based on outbound travel services in the Beijing region.

After investment, Jiuding promotes enterprises on the one hand.

On the one hand, to promote the merger and integration of enterprises in the industry, the purchase of Bamboo Garden State brigade, the online platform leisurely, the Mediterranean club and the China long country brigade have basically determined the leading position of the domestic outbound travel market, and the valuation has also increased by nearly 100 times in 5 years.

Jiuding investment has also won a lot of rewards in participating in the enterprise's integration and operation.

It can be found that this stage of market alignment

The demand for PE has been further improved, and the profit model has changed from easy "picking up money" to "earning money" for doing homework well.

From the perspective of investment, mergers and acquisitions often involve integration among multiple enterprises and even industries, so the scale of investment to individual targets will expand correspondingly.

In 2015, there were 30 cases of investment in China's PE institutions with a scale of more than 2 billion yuan, accounting for only 1.1% of the total market share, but the amount involved accounted for 32.5% of the total investment of the year, which was close to 1/3.

On the capital side, to support large volume investments, PE institutions need more powerful fund-raising capabilities. Therefore, PE institutions will pay more attention to the role of institutional investors and overseas investors, and enhance the management capacity of large funds.