Mergers and acquisitions in the film and television industry are getting colder, and the New Third Board Film and Television Company actively seeks IPO

As mergers and acquisitions in the film and television industry are getting colder, will independent IPOs be the next major trend in capital operation in the film and television industry? Last year was the year when mergers and acquisitions on the New Third Board began to boom, and many of them were listed in the film and television category. In 2016, there were 5 cases in which listed companies acquired film and television listed companies, involving a total amount of 5.457 billion yuan, of which 2 were terminated and 3 were under implementation.

On January 9 this year, Kaixin Mahua announced that it was preparing to accept IPO guidance and sprint to the GEM. This is the second film and television listed company on the New Third Board after Heli Chenguang that is determined to move to A-shares.

As mergers and acquisitions in the film and television industry are getting colder, will independent IPOs be the next major trend in capital operation in the film and television industry?

Last year was the year when mergers and acquisitions on the New Third Board began to boom, and many of them were listed in the film and television category. In 2016, there were 5 cases in which listed companies acquired film and television listed companies, involving a total amount of 5.457 billion yuan, of which 2 were terminated and 3 were under implementation.

Gongda Electroacoustic and Lehua Culture were combined twice due to "interception" by the China Securities Regulatory Commission. The first time, Gongda Electroacoustic planned to acquire the entire equity of Lehua Culture for 2.32 billion yuan. The China Securities Regulatory Commission issued an inquiry about the high valuation of the target company. The acquisition was finally abandoned; the second time, Gongda Electroacoustic proposed to acquire Lehua Culture for a total of 1.887 billion yuan, which has been approved by the shareholders 'meeting of this transaction.

Film and television companies are prone to unstable performance, which has become a major obstacle to IPO meetings. In order to successfully enter the A-share market, most New Third Board film and television companies choose to be acquired by listed companies. It is rare to seek IPOs independently. Kaixin Mahua and Li Chenguang are currently the only two companies.

Heli Chenguang submitted guidance and filing materials for initial public offering and listing to the Beijing Securities Regulatory Bureau as early as December 2015. In July 2016, he announced that the company's IPO application had been accepted by the China Securities Regulatory Commission. At this time, Heli Chenguang was listed on the New Third Board. Less than three months.

With the strengthening of supervision of A-share mergers and acquisitions and backdoor activities, the pace of IPOs continues to accelerate. Under the huge valuation gap between the A-share and the New Third Board markets, the trend of mergers and acquisitions stalling and the rise of independent IPOs has quietly emerged.

The rise of the film and television cultural industry The

rise of each industry has a "trigger". The listing of Huayi Brothers is the first fire that ignited the rise of the film and television industry.

In 2009, Huayi Brothers landed on the GEM as the "No. 1 film and television stock". Soon after its listing, its market value was close to 5 billion yuan. At that time, Huayi Brothers 'annual net profit was less than 70 million yuan. For the domestic film and television industry, Huayi Brothers 'listing is undoubtedly a huge exemplary and leading role. For investors, Huayi Brothers allows them to see their infinite capital potential.

Policy support is another important factor. In October 2011, the state proposed to promote the cultural industry to become a pillar industry of the national economy. Subsequent "Twelfth Five-Year Plan" and "Thirteenth Five-Year Plan" emphasized this. The benefits of national policies have brought to the film and television industry. A sustainable release of market dividends.

The rise of capital operations in the film and television industry also depends on the rapid expansion of the New Third Board.

Data shows that as of December 31, 2013, there were only 12 companies listed in the media industry on the New Third Board, reaching 367 by the end of 2016. During the same period, the number of companies on the New Third Board expanded from 356 to 10163. The growth rate of the number of companies in the media industry exceeded that of the overall New Third Board. As a result, many film and television companies under the banner of "The Next Huayi Brothers" have access to the capital market and raise funds to expand reproduction channels.

Happy Mahua is a typical case of expanding reproduction through fundraising on the New Third Board. Kaixin Mahua was listed at the end of 2015. At the beginning of its listing, it established the goal of introducing investors through the New Third Board to achieve low-cost financing. In less than two months after its listing, the company issued two additional issues, raising a total of 305 million yuan. In 2016, Kaixin Mahua launched its second movie,"Donkey Deshui", achieving a double harvest of box office reputation.

Thanks to the above three core factors, the overall environment of the film and television cultural industry continues to improve. In 2014, the total box office of movies nationwide reached 29.639 billion yuan, a year-on-year increase of 36.15%; in 2015, it was 44.069 billion yuan, a year-on-year increase of 48.7%.

Capital began to pour into the China film market in large quantities, and mergers and acquisitions in the film and television industry flourished. Data shows that from 2014 to 2015, there were 67 and 90 mergers and acquisitions in the film and television industry respectively, with the M & A amounts reaching 11.942 billion yuan and 72.239 billion yuan respectively.

In addition to the boom in film and television mergers and acquisitions, the phenomenon of "star securitization" also largely reflects that the market is in a period of rapid development. "Star securitization" refers to the fact that with the rise of IP and fan economy, stars with their own IP attributes have become objects of competition. In order to achieve a deep binding with the stars themselves, powerful film and television companies will purchase stars at a high premium. Shell companies are actually acquiring stars themselves.

Huayi Brothers is the earliest and most mature operator of star securitization. In September 2013, Huayi Brothers announced the acquisition of Zhejiang Changsheng Film and Television Production Co., Ltd. under Zhang Guoli for 252 million yuan, at a premium of 36 times; in October 2015, Huayi Brothers acquired 70% equity of Zhejiang Dongyang Haohan Film and Television Entertainment Co., Ltd. held by six stars: Li Chen, Feng Shaofeng, Angelababy, Zheng Kai, Du Chun and Chen He for 756 million yuan; In November of the same year, it announced the acquisition of 70% equity in Zhejiang Dongyang Meila Media Co., Ltd., with Feng Xiaogang as the main shareholder, with a transaction consideration of 1.05 billion yuan.

Before the phenomenon of celebrity securitization, film and television companies usually let celebrities invest in the company in order to bind them. Heli Chenguang has a long history with the famous writer Guo Jingming. The company had previously invested in the filming of the "Tiny Times" series of films. Although the evaluation was poor, it made a lot of money. Guo Jingming also obtained a 5% stake in Heli Chenguang. After the company completed its listing, Xiaosi's shareholding ratio dropped to 4.05%, making it the company's seventh largest shareholder.

The whole industry encounters Waterloo

. The story of "the industry goes hand in hand" changed in 2016.

Last year, China's movie box office totaled 45.712 billion yuan, a year-on-year increase of 3.73%. This growth rate is almost negligible compared with the growth rate of nearly 49% in 2015. China films showed signs of declining growth. For a time, the capital panicked and the media panicked. People began to discuss whether China films were ushering in a cold winter.

In May of the same year, it was reported that the China Securities Regulatory Commission restricted cross-border fixed growth of listed companies, involving four industries: Internet finance, games, film and television, and virtual reality (VR). Although the China Securities Regulatory Commission subsequently came forward to clarify, several mergers and acquisitions in the film and television industry were still ruthlessly stopped. The direction of the regulatory authorities is very clear, tightening supervision of the film and television industry to help squeeze out the bubble in the primary market.

Behind Sanqi Mutual Entertainment's abandonment of 1.2 billion yuan to acquire a 100% stake in Zhonghui Film and Television is the shadow of the China Securities Regulatory Commission. This acquisition was once praised as a classic case of rapid realization of IP.

Zhonghui Film and Television was established in September 2012 and is mainly engaged in the investment, production and distribution of film and television dramas; at the end of 2014, former CEO of Shanda Literature Hou Xiaoqiang participated in the establishment of the current Zhonghui Film and Television. The company's transformation fully embraces IP. The high-quality IP currently owned by the company includes "Return to the Ming Dynasty to Be a Prince","Crane Huating","He Know Which Direction the Wind Comes","The Dedicate of Suspect X", etc. Among them,"The Dedicate of Suspect X" has been developed into a movie directed by Youpeng Su.

Under the wave of IP, it is not surprising that Zhonghui Film and Television sold its shares for 1.2 billion yuan, but the China Securities Regulatory Commission does not think so.

After the reorganization plan was released, the China Securities Regulatory Commission issued an inquiry letter, in which it required Sanqi Mutual Entertainment to explain the rationality of part of its fundraising investment in Zhonghui Film and Television's IP resource library expansion and film and television drama production projects. Later, Sanqi Mutual Entertainment stated that it decided to abandon the acquisition of Zhonghui Film and Television due to fluctuations in the capital market environment. However, probably out of its obsession with IP, Sanqi Mutual Entertainment announced in December that it would invest in Zhonghui Film and Television through debt-to-equity swaps, acquiring a 23.08% stake in Zhonghui Film and Television with a debt of 300 million yuan.

Zhonghui Film and Television is not the first film and television company to fail in acquisitions due to tightening supervision. Previously, Wanda Cinema announced that it would terminate the 37.2 billion yuan acquisition of 100% equity of Wanda Film and Television. LeTV Pictures 'injection into LeTV also encountered unexpected changes. East China Heavy Machinery's acquisition of film and television targets was suspended, and fluctuations in the capital market environment became the common reason for the failure of these mergers and acquisitions.

The phenomenon of "star securitization" that emerged from 2014 to 2015 was more likely to be blocked from A-shares. Last year, Storm Group wanted to acquire a 60% stake in Caocao Bear Films under Wu Qilong and Liu Shishi for 1.08 billion yuan. The China Securities Regulatory Commission believed that the profitability of the target company was highly uncertain and refused to approve it. Later, Tangde Film and Television also took the initiative to terminate the acquisition of Fan Bingbing's 51% stake in Aimei God.

In addition to tightening supervision, the difficulty in fulfilling performance commitments for many mergers and acquisitions in the early stage has also adversely affected investors 'investment confidence.

Most film and television companies belong to the "asset-light" industry. Most of the valuations during mergers and acquisitions are based on performance forecasts and performance commitments. Whether and how to achieve the performance commitments completely depend on the target company. Looking back at previous M & A cases, the completion of performance commitments is not optimistic. According to media statistics, the full completion rate of film and television M & A performance commitments in 2015 was only 71%.

In June 2014, Zhejiang Guangsha controlled Futian Film and Television through asset swaps. At that time, Futian Film and Television made a performance commitment that it would achieve a net profit of no less than 52.2177 million yuan, 62.7296 million yuan, and 78.1531 million yuan in 2014, 2015 and 2016. However, Fortune Film and Television only achieved profits of 32.9 million yuan and 7.6044 million yuan in 2014 and 2015 respectively, which was significantly reduced compared with its promised performance.

Lugang Culture's 100% acquisition of Tianyi Film and Television also aborted because the other party failed to meet its performance promise. Lugang Culture acquired a 51% stake in Tianyi Film and Television in 2015, and the latter immediately promised to achieve a net profit of no less than 25 million yuan, 55 million yuan and 85 million yuan respectively from 2015 to 2017. However, Tianyi Films 'profit in the first half of 2016 was less than 5 million yuan, which did not reach 10% of the annual commitment. Therefore, Lugang Culture decided to terminate the acquisition of the remaining 49% stake in Tianyi Films.

The

decline in industry growth, strengthened supervision and lack of investor confidence in the era of high valuations have all limited the growth logic of the media sector, and the overall valuation of the sector has shown a negative state. Li Tianlu, an analyst at Capital Securities, believes that it is difficult for media to return to the era of high valuations.

In 2016, the media sector fell by 32.39% overall, and stock prices in the secondary market fell collectively. Leading stocks such as Huayi Brothers and Enlight Media became the hardest hit areas for the stock price decline. Huayi Brothers 'share price fell 46.8% for the whole year, and Enlight Media fell 35.32%. The gains of these two leading stocks in 2015 were 57.77% and 66.97% respectively. In addition to leading stocks such as Huayi and Light, other stocks in the media sector also fell to varying degrees. Companies that fell more than 50% throughout the year include New Culture, Wanda Cinema Line, and Aofei Entertainment...

The environment can no longer support the high valuation of film and television culture companies, the secondary market rationality returns to the stage of judging performance, while for the New Third Board film and television companies, the experience of ebbing is more direct. In the process of encountering Waterloo in the industry, many small film and television companies themselves did not have much core competitiveness, and are now unpopular with investors. However, some capable and ambitious film and television companies are naturally unwilling to lie dormant, and independent IPOs may be The next big trend.

A large reason why listed companies are keen on switching is the huge valuation gap between the A-share market and the New Third Board market.

Currently, the New Third Board has 118 film and television companies, of which 16 market-making and transfer companies have an average P/E ratio of 32.42 times, and the average P/E ratio of A-share film and television companies is 50.31 times. The financing capabilities of the two markets are also far apart. In 2016 alone, the New Third Board film and television companies raised 3.627 billion yuan, and the cumulative financing amount of A-share film and television companies reached 29.133 billion yuan. The financing amount of 50 New Third Board companies adds up. Only when it is equal to the size of a main board film and television company.

Heli Chenguang and Kaixin Mahua are currently the only two film and television listed companies on the New Third Board that have disclosed their willingness to switch to IPO on the New Third Board. Currently, Kaixin Mahua has a market value of 5.18 billion yuan and has raised a total of 305 million yuan in funds on the New Third Board. Although its market value and financing capabilities are not as good as the main board, it is also among the top film and television companies on the New Third Board; Heli Chenguang has no transactions or financing records since its listing, so it is impossible to compare.

Heli Chenguang's IPO application has been accepted by the China Securities Regulatory Commission. In 2015, the company achieved revenue of 256 million yuan and a profit of 93.81 million yuan; in the first half of 2016, revenue of 75.5313 million yuan and net profit of 3.393 million yuan, in line with the listing requirements of the GEM. Last year, Heli Chenguang once again tied up with Guo Jingming to co-produce "Jue Ji". Unfortunately,"Jue Ji" failed to continue the popularity of "Tiny Times" and its box office reputation was not ideal. Heli Chenguang's performance in 2016 may be affected to a certain extent.

Kaixin Mahua is a star company on the New Third Board. The company revealed that it plans to hire CITIC Construction Investment Securities as an IPO counseling broker to provide counseling on listing matters. Kaixin Mahua achieved revenue of 383 million yuan and profit of 132 million yuan in 2015; in the first half of 2016, revenue of 118 million yuan and net profit of 34.4876 million yuan. The company's performance also meets the listing conditions on the GEM.

So do the two film and television listed companies have the ability to sprint to the GEM? According to statistics, the 19 film and television companies on the main board achieved a total revenue of 35.579 billion yuan and a profit of 5.997 billion yuan in 2015. The average revenue of a single company was 1.873 billion yuan and a profit of 316 million yuan. Among the 19 main board film and television companies, Wanda Cinema achieved revenue of 8 billion yuan and a profit of 1.186 billion yuan, the best performance; Dongfang Network had revenue of 404 million yuan, the lowest; and China Television Media had a net profit of 26.38 million yuan, ranking last.

From this point of view, Kaixin Mahua's performance is enough to support its impact on the GEM, and Heli Chenguang also meets the transfer requirements, but its performance is not eye-catching among the main board film and television companies.

Editor: yvette