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[Media Focus] Special Column: Talking about the “PE + listed companies” pattern again

Date: 2016-04-11
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Lead: The pattern of “PE + listed companies” is playing an important role in facilitating M&A and reorganization, market-oriented development and effectively integrating market resources. 
The year of 2016 is the beginning of China’s “13th Five Year Plan” and also the crucial year of greatly pushing the reform of the supply front which puts forward five key tasks: de-capacity, de-stocking, de-leverage, cost-reduction and shoring up weak spots, and the three items of de-capacity, de-stocking and shoring up weak spots will be implemented through mergers and acquisitions.
The pattern of “PE+ listed companies” as a financial innovation with Chinese characteristics is a good remedy for China’s economic transformation and upgrading. Through this pattern, PE organizations can make their experience of industry integration and capital operation complementary to that of listed companies in industry management. By this way, the success rate of M&A and reorganization will be improved and a win-win situation will be achieved. 
As previous mentioned, the pattern of “PE + listed companies” plays a vital role in facilitating M&A and reorganization, market-oriented development and effectively integrating market resources, but it also requires the investors to possess of a whole-picture view and professional perspectives.
The data from CSRC showed that China’s registered private equity fund managers exceeded over 25,000 and the number of employees nearly amounted to 380, 000 in 2015. However, how many agencies and employees that truly own operation experience and abilities of “PE + listed companies” pattern do we have? Currently, China is making great efforts to build the multi-level capital market and it is the best times for the equity investment industry although there is fierce market competition.  
It is inevitable that the pattern of “PE + listed companies” becomes popular in China. China’s current industry status is very similar to that of America in 1970s when the oligopolistic economy had not been formed yet and a great batch of small and medium sized enterprises were competing in each subdivided industry. But today, American modern enterprise system is improved constantly and the professional manager section is increasingly mature. Therefore, with the improvement of professional managers’ team, abundant management team resources are created for the holding acquisition of foreign PE organizations like KKR. Unfortunately, China’s industry environment has not formed such conditions. 
After over thirty years of development, China’s economy has grown from scarcity economy to surplus economy, but the professional managers’ team is still insufficient, and a huge management team has not been formed. In addition, the mergers and acquisitions market has just sprung up in recent few years, and the follow-up operation of holding acquisition is still facing great challenges. Therefore, the combination of capital and industry becomes “the only road”, and that is one reason why the pattern of “PE + listed companies” is widely recognized by the market. 
Since 2011, the pattern of “PE + listed companies” has kept improving and upgrading. From the earliest independent establishing of merger and acquisition fund to buying shares of listed companies and acting as the strategic minority shareholders, and then to signing M&A advisory contract with listed companies and cooperatively carrying out overseas merger and acquisition, the cooperation of PE and listed companies is becoming wider and deeper. Many people think it is very easy to generate insider trading and market manipulation risks under this pattern, but I think we cannot deny its value because this risk is essentially attributed to the person. This point of view can be proved from the regulatory thinking in which the Guidelines on Information Disclosure of Cooperative Investment Matters between Listed Companies and Private Equity Funds issued by Shanghai Stock Exchange emphasized on the standardization and guiding of compliance in the course of both parties’ cooperation, and encouraged the operation of PE and listed companies. 
For PE organizations, this pattern has carved out a new way of project exit and business innovation for PE industry, and also generated positive effects on improving listed companies’ characters and serving substantial economy. Moreover, it is very likely to promote the reform of the supply front and economic transformation and upgrading. The defects and deficiencies existing in the pattern will be improved and even eliminated gradually by virtue of governments’ powerful regulation and industry peers’ self-disciplined management. As for how the pattern develops its value further, we should cherish it when practicing the pattern. Let us do something for the financial innovation of PE industry! 
(Reprinted from 21st Century Business Review; Contributing Author: BAO Yue, the column writer of 21st Century Business Review and the President of Heaven-sent Capital Management Group Co., Ltd.) 

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