Introduction: Merger and acquisition integration of two companies in the same industry

Four more companies announced new developments in mergers and acquisitions.

Last night (November 4), Xidiwei issued an announcement stating that it is planning to purchase 100% of Chengxinwei's shares, and that trading of the company's shares will be suspended from November 5.

Additionally, three companies, Tiandi Online, Hexin Instruments, and Jingfeng Mingyuan, disclosed their restructuring plans:

Tiandi Online plans to acquire 100% of the shares of Shanghai Jiatou Internet Technology Group Co., Ltd.; Hexin Instruments plans to acquire a controlling interest in Shanghai Liangxi Technology Co., Ltd.; and Jingfeng Mingyuan plans to acquire 100% of the shares of Sichuan Yichong Technology Co., Ltd.

Several companies went up and down after resuming trading, driving the Wind restructuring index up 3.66%.

Unlike the few cross-border acquisitions that Fago has previously focused on, Jingfeng Mingyuan (688368.SH)'s acquisition is an industrial merger with high synergy effects.

According to the acquisition plan, Jingfeng Mingyuan plans to purchase 100% of the shares of Sichuan Yichong Technology Co., Ltd. (“Yichong Technology” for short) from 50 counterparties including Guangzhou Wei Junsi, Zhihe Juxin, Jinju Lihe, Zhihe Jude, and to raise supporting capital by issuing shares, convertible bonds, and paying cash.

The target company, Yichong Technology, and the listed company Jingfeng Mingyuan belong to the same companies in the field of analog and mixed signal chip design, and the two sides have a high level of business collaboration.

According to the acquisition plan, this transaction constitutes a related transaction and major asset restructuring, but it does not constitute a restructuring and listing.

1

Jingfeng Mingyuan lost a lot in performance after 2022

Prior to this transaction, the listed company Jingfeng Mingyuan's business focused on the two major sectors of power management chips and control driver chips. The product matrix covered four categories of LED lighting power chips, motor control driver chips, AC/DC power chips, and DC/DC power chips, all of which fall into the category of power management and control driver chips in the analog chip industry.

In 2021, 2022, 2023, and January-September 2024, Jingfeng Mingyuan's revenue was 2.302 billion yuan, 1.079 billion yuan, 1.303 billion yuan, and 1,088 billion yuan, respectively, and net profit to mother was 0.677 billion yuan, -0.206 billion yuan, -91.26 million yuan, and -54.3011 million yuan, respectively.

In 2022, the downstream market where the company is located was affected by the overall economy, and demand declined. In addition, after the semiconductor industry experienced a cyclical shortage of production capacity in 2021, upstream production capacity constraints gradually eased, and supply exceeded demand, leading to a sharp increase in inventory pressure within the industry. The company adopted a price reduction strategy to clean up high-ranking inventory, causing current results to change from profit to loss.

Jingfeng Mingyuan's key financial indicators, source: acquisition plan

The controlling shareholder of Jingfeng Mingyuan is Hu Liqiang. The actual controllers are Hu Liqiang and Liu Jieqian. There will be no change in control of the listed company before or after the acquisition of Yichong Technology is completed.

2

Yichong Technology and Jingfeng Mingyuan belong to the same industry

The actual controller of Yichong Technology, the target of this acquisition, is Mr. Pan Siming. Prior to the acquisition, there was no relationship between the counterparty and the listed company.

According to preliminary estimates, after the acquisition is successful, Pan Siming will hold a total of 5% of the total share capital of the listed company. According to the provisions of the “Stock Listing Rules”, after the transaction is completed, the entity actually controlled by Pan Siming will become a related party of the listed company, so it is initially anticipated that this transaction will constitute a related transaction.

Yichong Technology is a high-tech enterprise specializing in R&D, design and sales of high-performance analog chips and digital-analog mixed signal chips such as wireless charging chips, general charging chips, automotive power management chips, AC/DC power supply chips, and protocol chips.

From an industry perspective, Yichong Technology and Jingfeng Mingyuan belong to the same companies in the field of analog and mixed signal chip design, and the two sides have high business collaboration.

Yichong Technology's products are widely recognized by downstream customers and are eventually used in Samsung, Honor, Lenovo, Xiaomi, and Mercedes-Benz brand products.

In terms of financial data, Yichong Technology's revenue for 2022, 2023, and January-July 2024 was 0.446 billion yuan, 0.651 billion yuan, and 0.59 billion yuan, respectively, and net profit was -0.257 billion yuan, -0.485 billion yuan, and -77 billion yuan, respectively.

Key financial data of the target company, source: acquisition plan

According to the acquisition plan, Yichong Technology has not yet achieved profit in the last year. There are two specific reasons:

1. The semiconductor industry in which Yichong Technology is located is a technology-intensive industry, requiring large R&D capital investment. During the reporting period, the company actively expanded its R&D team and actively expanded and upgraded its product line, and its investment in the field of automotive electronics increased dramatically;

2. In order to further establish and improve the company's long-term incentive mechanism to attract and retain outstanding talents, the target company implemented strong and extensive equity incentives for employees, resulting in higher share payment costs.

However, after excluding share payment fees, Yichong Technology still lost money during the reporting period. Net profit was -0.102 billion yuan, -0.094 billion yuan, and -0.31 billion yuan, respectively.

3

Epilogue

According to the acquisition announcement, Jingfeng Mingyuan will form a positive complementary relationship with the target company Yichong Technology in terms of product categories, customer resources, technology accumulation, supply chain, etc., and use their existing R&D achievements and industry positions to achieve effective business and technology integration.

Compared with A-share power management and signal chain chip listed companies, based on the sales scale from January to June 2024, Yichong Technology is already in the top ten.

After the acquisition is completed, Jingfeng Mingyuan's consolidated sales scale is expected to enter the top three. Among them, in the field of wireless charging chips, Yichong Technology ranked in the top three in the world in terms of overall sales scale, and ranked first in the world in the sales scale of the wireless charging chip market for non-IOS mobile phones.

The top ten A-share power management and signal chain chip listed companies by revenue. Source: Acquisition Plan

Furthermore, Jingfeng Mingyuan believes that this transaction will enhance the “hard technology” attributes and level of internationalization of listed companies, consolidate the market position and technical capabilities in the consumer sector, further strengthen the layout and breakthroughs of automotive-grade products, and at the same time expand the overall sales scale of listed companies, help listed companies grow bigger and stronger, and enhance the international competitiveness of listed companies.

As of the signing date of this plan, the audit and evaluation work related to this transaction has not been completed. The parties confirmed that the counterparty intended to make performance promises and compensation arrangements for the profit situation of the target company in the coming year in this transaction.