There are many kinds of funds, one of which is called M&A fund, which investors may rarely contact. I don't know what this is and what M&A Fund means. Let's follow Bian Xiao and see what M&A Fund means!
What is M&A Fund?
M&A fund is a fund serving M&A target enterprises, which is derived from venture capital funds and private equity funds. There is a specific investment method, which is to acquire the control right of the target enterprise by acquiring the equity of the target enterprise, and then carry out a certain degree of restructuring and transformation, and then sell it after holding it for a certain period of time.
What are the characteristics of M&A fund?
1. When raising funds, M&A funds are mainly raised privately by a few institutional investors or individuals, and their sales and redemption are conducted by fund managers through private consultations with investors. In addition, the investment method is also a form of private placement, which rarely involves the operation of the open market, and generally does not need to disclose the details of the transaction.
2.M&A funds generally invest in private companies, that is, unlisted companies, and rarely invest in publicly issued companies, and will not involve the obligation of tender offer. At the same time, equity investment is adopted, and debt investment is rarely involved. Therefore, private equity investment institutions enjoy certain voting rights in the decision-making management of invested enterprises, which is mainly reflected in investment tools.
3.M&A funds tend to set up enterprises with a certain scale and stable cash flow, which is obviously different from venture capital funds. Its investment period is longer, generally reaching 3 to 5 years or longer, and it belongs to medium and long-term investment. So liquidity is poor, liquidity is poor. There is no ready-made market for the transferor and buyer of unlisted companies to directly contact the transaction.
4. More limited partnerships are adopted. This form of enterprise organization has good investment management efficiency and avoids the disadvantages of double taxation. At the same time, the investment exit channels are diversified, and M&A funds can be invested through IPO, transaction sale, M&A and management buyback of the target company.
We can discuss why the M&A Fund should be established from two angles. From the perspective of private placement of equity investment institutions, equity listed companies and private placement institutions aim to solve the current problems of financing difficulties and limited channels for capital withdrawal. The main reason for the difficulty in financing is that with the development of the financial industry, the homogenization of funds is serious and the competition between funds is becoming increasingly fierce. Cooperate with listed companies to provide implicit endorsement for investment projects, increase investor confidence and attract more investors. On the one hand, due to the imperfect domestic capital market, strict IPO supervision and complicated procedures, a large number of enterprises are waiting to go public. On the other hand, most M&A funds only pay attention to the scale of fund raising and the number of target enterprises at the beginning, without considering the risk of exiting channels and not fully realizing their own exit channels. In addition, the term of M&A fund is generally 3 to 5 years, and the uncertainty makes the original plan change.
For listed companies, listed companies usually join M&A funds as limited partners, because most of the funds are raised by private equity investment institutions with excellent financing ability, and listed companies only need to pay less funds to reduce the financing pressure. Because private equity investment institutions have excellent professional investment management teams, they can speed up the integrated management of listed companies to target enterprises, thus improving the efficiency of mergers and acquisitions.
First, the meaning and characteristics of M&A fund
1, the meaning and characteristics of M&A fund
M&A fund refers to the fund that obtains the control right of the target enterprise through equity acquisition, improves the quality and operation level of the enterprise through asset reorganization, and then gains income through premium sale. In short, M&A fund is a fund that controls and reorganizes the target enterprise through financing leverage to obtain income.
According to historical data, the general investment period of domestic M&A funds is usually 3 to 5 years, while the international M&A funds generally need 5 to 10 years from investment to withdrawal, and the annualized internal rate of return (IRR) can reach about 30%. M&A fund is different from VC/PE fund in the choice of target enterprises. The investment of VC/PE funds generally occurs in the start-up period or growth period of enterprises, while the goal of M&A funds is mature enterprises, and the goal is to obtain the control and management rights of enterprises.
2. Operation process of M&A fund
The operation of M&A fund is generally to acquire the target enterprise through leveraged financing. Compared with foreign countries, due to the immature capital market in China, high-interest debt, mezzanine debt and subordinated debt cannot be widely used for financing, so equity or creditor's rights financing is the main financing method.
It should be noted that bank loans, as a popular financing channel in the above operation, are fast, but they must be mortgaged by the assets of the acquired company, and the loan amount is limited.
Generally speaking, because leveraged financing has certain risks, M&A funds usually guarantee the bonds issued by new companies with the acquired target rather than their own assets and future cash flow.
3.M&A Fund's profit model
1) "capital replacement" profit
M&A funds can reduce the liabilities of enterprises by injecting capital, that is, resetting the balance sheet or adjusting the capital structure. The injection of M&A funds will deleverage heavily indebted enterprises, greatly reduce the debt cost and give enterprises a chance to breathe, survive and rest. Such a "capital reset" process can often help enterprises improve their efficiency and get a better valuation in the capital market.
2) the income from "asset reorganization" comes from1+1>; 2 or 3-1>; 2
M&A funds can participate in a series of activities, such as asset sorting, divestiture and addition, to form a new and recognized asset portfolio for enterprises, and then transfer it through mergers and acquisitions, thus realizing income.
3) "improved operation" method
By guiding and participating in the daily operation of the invested enterprise, the operating performance of the enterprise will be improved, and finally the income will be obtained.
4) Profit from "tax burden optimization"
Generally speaking, the pre-tax debt cost is lower than the equity cost; If the interest cost of debt is tax-free, then this reduces the after-tax debt cost. Therefore, M&A funds can also artificially increase the leverage of the enterprises they invest in, so as to obtain tax burden optimization.
Second, the status quo of M&A funds in China
1, M&A Fund Raising in China
After 2000, M&A funds rose in China, but the initial development speed was not very fast. It was not until 10 that M&A funds entered a period of rapid growth. At present, the proportion of M&A funds in the whole fund industry is still low. Take 15 as an example. In 185, the number of new funds raised by M&A Fund was less than 10% of that of the private equity market. In mature markets in Europe and America, more than 50% pe funds are M&A funds. Compared with western developed countries, M&A fund in China is still in the initial stage of development.
2.M&A fund model
At present, there are many restrictions on the use of leveraged financing by M&A funds in China, so there are few funds in China that are truly capable of engaging in leveraged buyouts independently. Especially under the background of supply-side reform in recent years, the operation of M&A funds in China has its own unique characteristics, including the following three types.
1) M&A fund model reform of state-owned enterprises
In recent years, the reform of state-owned enterprises has provided fertile ground for the development of M&A funds. On the one hand, under the economic background of structural upgrading and deleveraging, state-owned enterprises need to transform through the rapid development of M&A, and the fastest way is to establish M&A funds in cooperation with PE. On the other hand, due to various reasons, M&A state-owned enterprises are short of talents and encounter many difficulties in negotiating with the target enterprises. Therefore, they can appear as third-party shareholders in the target enterprise through M&A fund, which can easily bypass the above disadvantages.
2) "listed company+PE" M&A fund model
In this mode, PE cooperates with listed companies to set up M&A funds to promote industrial transformation and upgrading of listed companies. Generally, the contribution of listed companies and PE is 10% of the total fund. As the general partner of M&A Fund, PE is responsible for the operation and management of the partnership, and the remaining 80% of M&A Fund is raised by PE, the investor. This model is the leverage ratio of listed companies 10 times. With the help of PE's project resource advantages and investment management capabilities, M&A funds are promoted to merge or participate in upstream and downstream enterprises in line with the development strategy of listed companies through industrial integration and mergers and acquisitions. The listed company signed an agreement with PE to buy back the equity of the target company, and after the comprehensive operating performance of the target company reached the agreed profit standard, it sold the equity of the target company to the listed company to realize the withdrawal of funds.