Mergers and Acquisitions---The Road to the Rise of LED Display Companies

When it comes to mergers and acquisitions, I believe everyone is familiar with it. According to relevant statistics, mergers, acquisitions and reorganizations through the capital market have become one of the important features of the transitional economy. In a sense, the LED display industry is also in a period of transformation. The use of capital leverage to leverage industrial development is becoming more and more common. Listed companies are "coveting" unlisted companies, and small and medium-sized enterprises are "competing" for listed companies. It is a lively scene.

2015 is coming to an end, and the mergers and acquisitions and reorganizations in the LED display industry are still continuing to ferment. So far, the amount of mergers and acquisitions and reorganizations of LED display companies has exceeded 4.869 billion, with as many as 19 acquisitions, with an average of 1.5 cases per month. In fact, there are mergers and acquisitions every year, but there are so many this year. There are two main reasons:

1. Policies to support the LED industry

Currently, the global financial crisis is giving birth to an era of complete reshuffling. The "low-cost era" of Chinese enterprises has completely ended. The competition among Chinese enterprises will irreversibly enter the competition between the "business model" and "capital" levels, and those who win the "business model and capital" will win the world.

In order to cultivate a group of large-scale capital enterprise groups with high technical level, strong service capabilities, independent intellectual property rights and brand advantages, and international competitiveness, promote the accelerated development of small, medium and micro enterprises with distinctive characteristics and strong innovation capabilities, and form a leading enterprise-led and coordinated development of large, medium and small enterprises. On March 24, 2014, the State Council announced the "Opinions on Further Optimizing the Market Environment for Enterprise Mergers and Reorganizations" to sort out and innovate in aspects such as administrative approval, transaction mechanisms, financial support, payment methods, and industrial guidance, and comprehensively promote the market-oriented reform of mergers, acquisitions, and reorganizations. On July 11 of the same year, the China Securities Regulatory Commission issued the "Measures for the Administration of Major Asset Reorganizations of Listed Companies" and the "Measures for the Administration of Acquisitions of Listed Companies" based on the previous market-oriented reforms to cancel the administrative approval of major asset reorganizations except for backdoor listings. These large-scale "undressing" has greatly reduced the cost of corporate mergers and acquisitions, and provided a policy basis for LED display mergers and acquisitions.

2. The LED display industry is moving towards an era of low profits

As a major strategic emerging industry in China, LED display screens have low entry barriers and considerable market profits, causing many companies to flock to it. These enterprises are numerous but scattered, large but not strong, have low technical content, and have uneven products. As the number of companies entering the industry increases, price wars caused by product homogeneity, overcapacity, and low prices intensify. The once glorious 30%-50% profit margin no longer exists, and the LED display industry is gradually transforming from the era of huge profits to the era of meager profits.

In order to survive and develop, small and medium-sized enterprises have reached a crossroads where they need to make a choice. For them, they must either close down or transform and upgrade. Of course, transformation and upgrading is undoubtedly the first choice. But without the support of funds and technology, there is little hope for transformation and upgrading. However, through mergers, acquisitions and reorganization of listed companies, the capital and technology of listed companies can be used to make the company stronger and bigger. There is no doubt that seeking mergers and acquisitions from listed companies is a wise choice for small and medium-sized enterprises to actively save themselves.

For large companies, the smoke-filled LED display industry has reduced gross profit margins, seriously affecting the profitability of LED companies and the healthy and sustainable development of the entire industry. As Han Yun of the Semiconductor Industry Research Center of CCID Consulting said, in order to strengthen advantages, reduce competitors, expand market share, consolidate existing market positions, or target market segments to tap larger market space, mergers and acquisitions can be described as one of the most convenient and fastest-effective ways to "rise". "Leveraging the momentum of capital to develop the LED industry ambitions" has become an important way for the development of LED display companies, especially LED display listed companies.

At the same time, the prevalence of rational consumption and energy conservation and emission reduction has made the market demand for LED displays weak. Compared with the previous boom, the overall market situation is now much cooler, and large companies are also facing the pressure to survive through transformation and upgrading. Extensive growth, mainly through mergers and acquisitions, can alleviate the pressure of transformation, allowing companies with capital, technology, and resource advantages to improve the industrial chain, develop new industries and profit growth points, and achieve diversified development.

Four major characteristics of mergers and acquisitions

Looking at the corporate mergers and acquisitions this year, whether it is horizontal integration, vertical extension, or cross-border mergers and acquisitions, the waves of mergers and acquisitions are one after another, and mergers and acquisitions integration has undoubtedly become the development trend of the industry. Whether it is technology or channel integration between enterprises, they will further integrate the advantages of the industrial chain and form a more mature business structure. So, what are the characteristics of this year’s mergers and acquisitions? Below, the author sorts out the characteristics of this year’s mergers and acquisitions through known data!

Feature 1: The amount of a single M&A case is gradually increasing

After several years of development, LED display companies have become wealthy. At the same time, as the acquisition threshold increases, M&A companies often make hundreds of millions in one transaction, and the scale of a single acquisition case is getting larger and larger. For example, Leyard acquired 100% of the shares of American Planar Electronics for RMB 1 billion, Lehman acquired 100% of the shares of Tuoheng Technology for RMB 230 million, Lianjian Optoelectronics acquired 88.88% of the shares of Shenzhen Lima for RMB 799 million, and Unilumin Technology acquired the remaining 40% of the shares of Radioo for RMB 215 million... It is not difficult to see from the above table that acquisitions worth more than RMB 100 million account for one-half of all acquisitions.

Characteristic 2: Dominance by listed companies

Affected by price wars, product homogeneity, and overcapacity, the mergers and acquisitions and reorganization of LED display companies are extremely active. In 2014, Lianjian, Leyard, Unilumin, and Lehman all participated in mergers and acquisitions. This year, the enthusiasm of these listed companies has not diminished, and six listed companies have issued merger and acquisition announcements. At the beginning of the year, Leyard spent 890 million to acquire 100% shares of Guangzhou Lifeng Culture Technology Co., Ltd. and Beijing Gionee Xiangyicai Technology Co., Ltd.; in the middle of the year, Lehman acquired 100% shares of Tuoheng Technology and Swiss Infront 3.5 for 230 million and 169 million respectively. % of the shares; on November 23, Lianjian "not to be outdone", "purchased" four companies with 1.96 billion, and the "LED + media" dual-drive strategy was fully launched... It is obvious that most of the mergers and acquisitions in the LED display industry this year are dominated by listed companies.

Feature 3: Horizontal mergers and acquisitions help industry agglomeration

Horizontal mergers and acquisitions are a shortcut for companies to acquire advantageous assets they do not possess, cut costs, expand market share, and enter new market areas. From the perspective of LED display companies, mergers and acquisitions among peers cannot be neglected at all. In 2015, horizontal mergers and acquisitions were very intensive. In these cases of horizontal mergers and acquisitions, listed LED display companies are mainly interested in distinctive second-tier brands and take the initiative to integrate brand advantages in order to extend their business scope and expand their industrial layout. For example, Absen acquired a 60% stake in Westek in order to gain a greater say in stage rental and creative display screens, improve the company's product line to better meet customer needs, further enhance the brand effect, and enhance the company's core competitiveness and risk resistance; Unilumin plans to acquire the remaining 40% stake in Radioo for 215 million in order to enhance its competitiveness in market segments... From the current point of view, this market trend will continue, in other words, the concentration of the industry will be greatly increased.

Feature 4: Cross-border integration is surging

The cake will always be divided one day. As capital integration becomes more mature, LED display companies are no longer content to just focus on the LED display market. They are also crossing over into e-commerce, advertising media, sports industry, lighting and other fields through mergers and acquisitions to seize a piece of gold in new markets.

In terms of advertising media, LED display manufacturing companies such as Lianjian Optoelectronics and Leyard are one step ahead and are the first to set their sights on outdoor media. On April 7, Lianjian Optoelectronics spent 76.68 million to "marriage" with Precision Focus Media, targeting the mobile Internet. After Double Eleven, Lianjian Optoelectronics spent 1.96 billion to purchase Shenzhen Lima, Litang Marketing, Huahan Culture and Ocean Media. This acquisition further improved the industrial chain layout of Lianjian Digital Outdoor Media Group on the basis of expanding the LED industry. For another acquisition of "frequent customers", Leyard spent a huge sum of 890 million to acquire 100% of the shares of Lifeng Culture and Jinlixiang, thereby expanding its business into the research and development and sales of high-end cultural and performing arts equipment, forming a synergy with its own LED display R&D and production business, and realizing the extension of downstream channels.

In terms of LED lighting, since 2012, LED display companies have been cross-border LED lighting. Nowadays, it is increasingly common for LED display companies to enter LED lighting through mergers and acquisitions. For example, Ledman Optoelectronics acquired 100% of the shares of Tuoxiang Technology for 230 million yuan, Leyard invested 27.5 million yuan to acquire 55% of the shares of Pinneng Optoelectronics, and Unilumin Technology acquired 10% of the shares of Century Dingyuan for 2.7778 million yuan... It can be seen that LED display companies have never wanted to give up the big cake of LED lighting.

As for the sports industry, as the originator of cross-border sports, Li Mantie, the actual controller of Ledman Optoelectronics, invested 170 million in Swiss Infront Sports, aiming to occupy the international sports market, strengthen cooperation with various international sports organizations, and provide reference and experience for Ledman Optoelectronics' football sports media business.

Mergers and acquisitions have become the norm. View mergers and acquisitions rationally

It is undeniable that through mergers and acquisitions, LED display companies can occupy the commanding heights of the industry, increase market share and profit margins, and at the same time improve the entry barriers and differentiated advantages of the company in the field. It can also enable companies to achieve diversified development at a lower cost and bid farewell to the past survival mode of simply selling large screens. However, mergers and acquisitions are risky. M&A and reorganization are not just about mergers and acquisitions, but also about "time, location, and harmony." Not every merger and acquisition case is smooth sailing, and not every merger and acquisition can be successful. For example, Lianjian Optoelectronics terminated its acquisition of the equity of Hangmei Media. The reason for the termination was that Lianjian Optoelectronics, as a listed company, has stricter requirements than other buyers in terms of procedures, share payment and lock-in for acquiring the target. Coincidentally, because the company's stock price was lower than the original price of issuing shares to purchase assets and raising supporting funds for the restructuring, and the two parties still had certain differences and could not reach an agreement on the personnel integration after the restructuring, Alto Electronics also withdrew its application to acquire Qianbaihui.

Therefore, LED display companies cannot make mergers and acquisitions for the sake of mergers and acquisitions. M&A needs to be rational. Before making a decision on mergers and acquisitions, it is necessary to carefully review the other party's business operating conditions, internal management conditions, product quality and technical processes, etc., adopt scientific methods to do corporate mergers and acquisitions integration planning work, and think twice before making a move, in order to truly realize the final synergistic benefits of corporate mergers and acquisitions. At the same time, sufficient funds must be reserved and technical content must be improved. If there is no financial, technological and other advantages to support frequent mergers and acquisitions, then there will be even more tragic setbacks after crazy mergers and acquisitions.

Author’s opinion

For mergers and acquisitions, the first thing worth affirming is that being acquired is not a bad thing. Through mergers and acquisitions, small and medium-sized enterprises can strengthen their subdivisions and gradually mature. As for the companies that have not been acquired, Ding Yanhui, chairman of Absen, once said that "differentiated development in subdivided areas may allow small and medium-sized enterprises to gain greater living space." Therefore, if companies want to survive, they must focus on increasing their market share and increase investment in technological transformation and scientific research and development to seek long-term and sustainable development.

We hope that the LED display industry, under siege of product homogeneity, overcapacity, and fierce competition, can use the sharp tool of "mergers and acquisitions" to allow the entire industry to use the power of capital to accelerate industrial integration and the survival of the fittest among enterprises. Let major enterprises take advantage of the trend to establish and improve the integration of upstream and downstream industrial chains, continuously improve their competitive strength and advantages in R&D technology, production and manufacturing, market channels, marketing, brand promotion, etc., form an LED display enterprise group with super scale and strength, and promote the continuous prosperity of the entire LED display industry.

Competition in my country's LED display industry will continue to intensify in the future. The future market will be dominated by big brands with more advantages in technology, capital, scale, etc. In other words, mergers and acquisitions will still take place in 2016.

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