"Policy tailwinds are igniting the M&A market," stated Xu Chun, Vice President of Guolian Minsheng Securities and Chairman of Guolian Minsheng Underwriting and Sponsorship, during an interview marking the first anniversary of the "Six M&A Measures" implementation.

Reflecting on the past year, Xu observed that China's A-share M&A market has remained active under the dual driving forces of policy support and industrial upgrading, with accelerated industrial consolidation creating significant opportunities for securities firms. However, cross-industry M&A faces multiple challenges, including substantial valuation expectation gaps between buyers and sellers and high uncertainty in subsequent integration.

Looking ahead, Xu believes that technology companies will become the "main force" in M&A activities, while traditional industry enterprises will upgrade by entering emerging sectors through acquisitions. He suggests that regulatory authorities further optimize classified review mechanisms and show appropriate tolerance for non-material internal control deficiencies and valuations of target companies.

**Industrial M&A Takes Center Stage**

According to Xu's observations, the implementation of the "Six M&A Measures" over the past year has brought five significant new characteristics and changes to the M&A and restructuring market:

First, industrial consolidation continues as the market's main theme, with companies conducting same-industry or upstream-downstream M&A around their core businesses to optimize processes, reduce costs, increase efficiency, and enhance competitiveness. Examples include Huahai Chengke's acquisition of Hengsuo Huawei and Fulude's acquisition of Fulehua.

Second, cross-industry M&A activity has significantly increased, with many traditional industry listed companies actively acquiring innovative technology enterprises to seek transformation and second growth curves, achieving transition to new productive forces. Examples include retail company Youa Corporation's planned entry into semiconductors and real estate company Quzhou Development's acquisition of Xiandao Technology.

Third, the "Six M&A Measures" support acquisitions of high-quality unprofitable assets, with multiple cases emerging in the semiconductor sector, including VeriSilicon Holdings' acquisition of Nuclei System Technology and Wantong Development's acquisition of Sudu Technology.

Fourth, influenced by primary market financing environment and IPO review processes, companies planning IPOs or those with terminated IPO plans have become important sources of acquisition targets for listed companies, such as Youa Corporation's acquisition of Shenzhen Shangyang Tong and Foshan Plastic Group's acquisition of Jinli Shares.

Fifth, M&A payment instruments have become more diversified. The "Six M&A Measures" explicitly encourage listed companies to comprehensively utilize shares, targeted convertible bonds, cash, and other payment tools for M&A implementation, with cases like Fulude and Huahai Chengke adopting convertible bond payment methods.

According to statistics from Times Business Research Institute, M&A market activity has rapidly increased since the new regulations were implemented nearly a year ago. As of August 31, 2024, the number of major M&A transactions first disclosed in the A-share market reached 163, up 117.3% year-on-year, with total transaction value reaching 472.478 billion yuan, up 172.9% year-on-year.

Xu noted that over the past year, M&A targets have mainly concentrated in hard technology sectors such as semiconductors, high-end equipment, and new energy, generally possessing technological barriers or synergistic value. Valuation logic has become more scientific, focusing on non-profit indicators such as R&D intensity and patent quality. Buyers are primarily companies from the ChiNext and STAR markets, with industries mainly distributed in electronics, mechanical equipment, and other sectors closely related to new productive forces. Many small and medium-cap companies and even traditional industry enterprises are actively seeking transformation through M&A, with industrial consolidation and seeking second growth curves as core motivations.

**Cross-Industry M&A Faces Multiple Challenges**

"While cross-industry M&A cases have increased, termination situations are also frequently observed," Xu noted. In his view, cross-industry M&A faces three major obstacles: first, regulatory review has become more "penetrative," highly focusing on compliance with industrial transformation and upgrading, business logic, and protection of minority shareholders' interests, with extremely high requirements for transaction compliance and information disclosure; second, significant valuation expectation differences between buyers and sellers due to industry differences, as traditional industries and emerging technology industries have different valuation logics, with cross-industry acquisition targets often being AI, semiconductors, and other emerging industries favored by capital markets, leading to high valuation expectations; third, high uncertainty in subsequent integration.

Xu mentioned that over the past year, under regulatory emphasis on "moving from virtual to real" and cracking down on "concept speculation," the valuation inversion phenomenon of M&A targets caused by inflated primary market valuations has been somewhat alleviated. On one hand, tightened IPOs have led to difficulties in private equity institution exits and fundraising, causing changes in the primary equity market financing environment and ultimately resulting in some decline in primary market valuations in certain industries, with some companies even experiencing discounted financing; on the other hand, secondary market recovery has also provided space for listed companies to increase M&A valuations.

However, valuation expectation differences between buyers and sellers remain a key challenge in achieving transactions. For example, in semiconductor industry M&A, parties may respectively focus on historical financial data or future growth potential, leading to valuation disagreements. To bridge these gaps, market practice has seen the emergence of differentiated pricing, equity investment plus acquisition, "agreement conversion + acquisition," and other diversified transaction structures.

Xu pointed out that despite clear policy support for acquiring high-quality unprofitable assets, actual cases remain relatively limited. Main bottlenecks include potential negative impact on listed company performance, difficulty in valuation pricing, and uncertainty in technology industrialization prospects. Evaluating such assets should focus on technological advancement and market potential while examining core team stability and professional capabilities. In balancing innovation layout with investor protection, Xu emphasized the importance of adequate information disclosure, reasonable valuation pricing, risk warnings, and commitment supervision mechanisms: "By strengthening commitments and accountability for technical indicators, industrialization progress, and other non-financial indicators, innovation can be encouraged while maintaining investor rights."

Xu also noted that significant differences in industry attributes, management models, and cultural genes make integration difficulty much higher than same-industry M&A. "If matchmaking is 'dating,' then integration is 'married life' - the ultimate test determining the final success or failure of cross-industry transactions."

Xu believes that the matchmaking difficulty of cross-industry transactions essentially stems from the superposition of three challenges: cognitive gaps, information asymmetry, and trust deficits. Different industries have significant differences in terminology systems, valuation logic, and thinking rhythms. For example, technology companies focus on iteration and growth, while traditional industries emphasize stability and profitability, making communication and valuation expectation alignment difficult. Meanwhile, both parties often struggle to clearly identify each other's real resource needs and capability shortcomings, with trust building becoming extremely costly due to lack of common industry background. Once entering the integration phase, risks further manifest in strategic synergy misalignment, cultural gene conflicts, and business process incompatibility.

**Broad Space for M&A Business**

In Xu's view, M&A business represents a blue ocean market with enormous potential for securities firms, especially as many industries transition from incremental competition to stock consolidation. Compared to IPOs, M&A is essentially unlimited by capacity constraints, offering broad space. Additionally, M&A business has strong customer stickiness, easily locking in long-term cooperative relationships, with successful cases having significant brand effects, making it a benchmark business showcasing securities firms' comprehensive strength.

However, Xu also acknowledged that M&A business faces challenges including multi-party interest gaming, long project cycles, high integration risks, and uncommercial fee models. "Although we currently interface and facilitate many projects, the probability of achieving transactions and ultimate success remains relatively low."

Facing these opportunities and challenges, Xu emphasized that securities companies need to comprehensively enhance six core capabilities: deep industry research capability, precise value discovery capability, comprehensive solution design and innovation capability, strong capital support capability, efficient internal coordination and resource integration capability, and excellent talent team building and retention capability.

According to Xu, Guolian Minsheng Securities has actively positioned itself across organizational structure, system construction, and resource integration to seize new M&A market opportunities. The company established a Corporate M&A Department last year, systematically integrating internal and external information and resources, promoting cross-departmental collaboration, and building an intelligent M&A opportunity database, with plans to introduce AI technology to enhance matching precision. In development mechanisms, the company fully integrates investment banking, investment, research, and branch resources while externally connecting with government, industrial capital, and intermediary institutions to deeply explore project opportunities. In internal coordination, efforts focus on promoting "investment banking + research" and "investment banking + investment" linkage, with research departments providing industry insights and target screening, while investment departments offer funding support and solution certainty.

**Recommendations for Further Optimization of Classified Review Mechanisms**

Looking ahead, Xu indicated that China's A-share M&A market may exhibit three major trends.

First, technology companies will become M&A "main forces," especially in new productive forces-related fields such as high-end equipment, biomedicine, new energy, and artificial intelligence, with traditional industry enterprises upgrading by entering emerging sectors through M&A; second, the listed company control transfer market will show significantly enhanced vitality, with local government platforms, private funds, and "A acquires A" cases becoming increasingly active beyond private enterprises; third, industrial consolidation as core logic will be further strengthened, with "vertical M&A and supply chain strengthening industrial consolidation trends expected to increase in the next one to two years."

Xu also noted that while the M&A and restructuring market is developing rapidly, there remains room for further improvement in valuation system diversification, integration effect evaluation mechanism construction, and enhancement of small and medium-cap company M&A vitality.

Xu suggests that regulatory authorities further optimize classified review mechanisms, showing appropriate tolerance for non-material internal control deficiencies of target companies while enhancing tolerance and case guidance for "hard technology" enterprise valuations and improving valuation disclosure guidelines and pre-communication guidance. For listed companies, he recommends establishing long-term strategic vision, clarifying M&A intentions, strengthening post-investment integration, and strictly managing internal information. Regarding private funds, Xu acknowledged that "valuation differences between M&A and private financing suppress M&A behavior occurrence," suggesting they rationally view market environment, reasonably manage valuation expectations, and value M&A exit channels to promote transaction completion.