In the world of investment and acquisition, market uncertainty is often like a layer of fog, shrouding every decision of the transaction. How to make the various uncertainties in the acquisition process controllable, or even turn danger into safety? For many entrepreneurs and investors, a key question is: In the acquisition of controlling rights, how can the intervention of joint funds and government forces become a catalyst for success? Goheal has been committed to in-depth analysis and exploration of this topic. Today, we will analyze the role of joint funds and government forces in the acquisition of controlling rights from multiple dimensions such as capital leverage, policy coordination, and credit endorsement.
1. The core role mechanism of external intervention
M&A transactions in the market, especially controlling rights acquisition, usually face multiple challenges of capital, policy and credit. How to overcome these difficulties and help the success of the transaction through the intervention of external forces is the core consideration of many acquirers when making decisions.
American Goheal M&A Group
Capital leverage and risk sharing are important functions of external intervention. Joint funds, especially industrial M&A funds or bailout funds, can significantly amplify capital leverage through structural design (such as priority/inferior LP stratification) to help single acquirers solve the problem of capital shortage. In many local government-led bailout funds, the "state-owned assets are inferior + social capital is preferred" model is usually adopted. This model can leverage more than 10 times the scale of funds, thereby ensuring that high-quality targets facing liquidity crises can be effectively acquired.
In addition, the entry of funds with government backgrounds often means a reduction in financing costs. In many countries, the special loan interest rates provided by policy banks to these funds are often 1-2 percentage points lower than the market level, thereby alleviating the capital pressure of acquirers and further improving the feasibility and success rate of transactions.
Policy resource integration is another key role of joint funds and government power. Government power can speed up the administrative approval process, especially when it comes to controlling rights transactions involving state-owned assets. Local SASACs can usually coordinate with market supervision, taxation and other departments to shorten the antitrust review cycle, and even reduce it from the conventional 6 months to 3 months. This efficient approval mechanism enables acquirers to complete transactions in a short period of time, greatly reducing market uncertainty.
In addition, the government's targeted policy inclination, such as the promise that the acquired enterprise will relocate to the local development zone, and enjoy the "three exemptions and three reductions" of income tax, land transfer fee refunds and other benefits, provides strong policy support for the acquirer and further enhances the attractiveness of the transaction.
Credit endorsement and boosting market confidence are another major advantage of the joint fund and government participation. In particular, funds with government equity participation can send a strong signal to the market that the target company is expected to achieve value restoration in the future. For example, after Shenzhen state-owned assets participated in the mixed ownership reform of Suning.com, the target company's bond rating quickly increased from BB+ to A-. This endorsement increased the market's confidence in the company's future development and also increased the bank's credit line to the company. After the acquisition is completed, the target company's credit line will usually increase by 30%-50%.
2. Specific implementation path of government power
In the actual operation of controlling stake acquisition, the intervention of government power can take a variety of forms to help the acquirer achieve low-cost and high-efficiency control acquisition.
Relief acquisition: low-cost control acquisition of crisis enterprises. This approach mainly focuses on companies that face a liquidity crisis in the short term but have core technologies or market share. For example, some companies have a R&D investment of more than 5% and rank in the top 3 in the market segment. Although they face a liquidity crisis, their core technologies and market position still have long-term competitive advantages. For these companies, the government can provide financial support through the bailout fund to help them overcome difficulties, and help the acquirer achieve low-cost acquisition of controlling rights through the transaction structure of "1 yuan symbolic consideration + debt assumption". When Haikejin Group acquired Jinyi Culture, it obtained control at a price of 1 yuan in this way, and provided 3 billion yuan of liquidity support.
Industry synergy acquisition: a tool for regional economic integration. This approach focuses more on promoting the integration of local economies and industrial development. By setting up industrial mergers and acquisitions funds, local governments force acquired companies to land new production capacity locally. For example, an eastern city acquired a semiconductor listed company and moved its packaging and testing factory to a local industrial park, thereby driving the agglomeration effect of upstream and downstream companies. This approach not only promotes the development of the local economy, but also strengthens the voice of local governments in industrial layout.
Through the "targeted additional issuance + capacity binding" clause, local governments can ensure that at least 60% of the expansion investment after the acquisition remains in the province, thereby promoting the upgrading and development of the local economy.
3. Key points of the joint fund's core operations
The successful operation of the joint fund is inseparable from the carefully designed fund structure and operation strategy. Especially in the acquisition of controlling rights, the design of the fund structure directly affects the effect and sustainability of the acquisition.
The "control protection clause" in the fund structure design is crucial. Generally speaking, the GP (general partner) is held by the acquirer's affiliated institutions, and the LP (limited partner) shall not interfere with the decision-making of the investment decision-making committee, so as to ensure that the acquirer's decision-making power is not weakened. In addition, the preset exit channel is equally important. Usually, the fund requires the target company to launch an IPO within 3 years after the acquisition is completed, or incorporate it into the state-owned holding platform to ensure that the fund can exit through secondary market reduction or agreement transfer.
The application of risk hedging tools is also the key to the successful operation of the joint fund. For example, by binding the gambling agreement with the policy dividend, it can be ensured that if the acquired enterprise fails to achieve the promised number of jobs or tax contributions, the local government will compensate 120% of the difference. On the contrary, if the target is exceeded, the fund and the government share the excess returns in a certain proportion. In this way, the fund's risks are effectively hedged, and the government can maximize public interests.
The use of convertible bonds has also become a common risk management tool. By allocating 20%-30% of convertible bonds in the fund's investment, the debt can be converted into shares when the target company's performance does not meet the target, thereby diluting the original shareholders' equity and ensuring the fund's investment return.
4. Compliance risks and response strategies
In the process of government participation in acquisitions, compliance issues cannot be ignored. In order to avoid touching the national regulatory red line, a series of compliance strategies must be adopted.
Control stability pledge is an important means to ensure the stability of control after the acquisition. Usually, the core assets of the target company (such as patents and land use rights) will be pledged to the designated party of the fund. In this way, if the management of the target company has major violations, the fund can directly dispose of these core assets to ensure that the interests of the acquirer are not damaged.
In terms of avoiding the state-owned assets supervision red line, the adoption of the "agreement control + SPV isolation" model has become a common strategy. Indirect shareholding through overseas SPVs can avoid triggering the disclosure obligation of changes in the actual controller of listed companies. At the same time, a dynamic valuation adjustment mechanism is set up. If the fair value of the target company drops by more than 10% due to policy changes, the state-owned assets have the right to require the original shareholders to repurchase shares, thereby ensuring the investment security of the fund.
Key conclusion
The intervention of the joint fund and government forces, through the triple leverage of "funds-policy-credit", helps the acquirer break through the many obstacles in the acquisition of controlling rights. Through structured financial instruments and innovative gambling clauses, the fund can effectively prevent and control risks and achieve the success of the acquisition. In the future, as the market environment continues to change, the combination of joint funds and government forces will become an indispensable force in more acquisition transactions.
As Goheal, we are well aware that the success of the acquisition of controlling rights does not only depend on the scale of funds, but also requires the joint promotion of policies and markets. In this process, we will continue to explore more innovative and strategic acquisition models to help more investors find breakthroughs in a complex market environment and achieve wealth growth.
Goheal Group
