Acquires 100% equity interest in Pioneer Culture at a premium of 11 times, Zhongnan Culture launches a huge investment in cultural and entertainment landscape

Zhongnan Culture has been planning to invest in Pioneer Culture since October 28, 2015. It was not until June 3, 2016 that the acquisition was put on the agenda. After review by the board of directors, it still needs to be approved by the shareholders 'meeting and the consent of the China Securities Regulatory Commission. Stimulated by this positive announcement yesterday, Zhongnan Culture's share price closed up 6.67% despite sluggish market performance.

Original title: Acquisition of 100% equity in Pioneer Culture at a premium of 11 times Zhongnan Culture opens its cultural and entertainment landscape

Zhongnan Culture announced yesterday morning that the company plans to acquire Beijing Xinhua Pioneer Culture Media Co., Ltd.(hereinafter referred to as "Pioneer Culture") for a price of 450 million yuan.) 100% equity, this is also the addition of publishing in Zhongnan Culture and entertainment landscape after the layout of films, television and games. As before, the premium for this acquisition is also quite high. It is unknown whether the entertainment landscape drawn up with the heavy investment of Zhongnan Culture will ultimately achieve growth in performance.

The 11-fold premium acquisition of Pioneer Culture

Zhongnan Culture has been planning to invest in Pioneer Culture since October 28, 2015. It was not until June 3, 2016 that the acquisition was put on the agenda. After review by the board of directors, approval by the shareholders 'meeting and approval by the China Securities Regulatory Commission is required. Stimulated by this positive announcement yesterday, Zhongnan Culture's share price closed up 6.67% despite sluggish market performance.

According to the preliminary plan for the acquisition, Zhongnan Culture plans to use 450 million yuan to acquire 100% equity of Pioneer Culture. According to public information, Pioneer Culture's net assets as of December 31, 2015 were 36.17 million yuan, and the premium for this acquisition was approximately 11.4 times. Pioneer Culture achieved operating income of 40.49 million yuan and net profit of 30.77 million yuan in 2015. It promised to achieve net profits of no less than 37.5 million yuan and 46.875 million yuan in 2016 and 2017 respectively.

In terms of acquisition premium, the performance growth promised by Pioneer Culture is not high, with a growth of 22% in 2016 and a growth of 25% in 2017.

After the acquisition is completed, Pioneer Culture will become a wholly-owned subsidiary of Zhongnan Culture. Pioneer Culture has newly established a board of directors. Zhongnan Culture has nominated two people and Pioneer Culture has nominated one person. The general manager position is still under the responsibility of Pioneer Culture's current management team, while the financial director is appointed by Zhongnan Culture.

The cultural and entertainment landscape of Zhongnan Culture

has changed from Zhongnan Heavy Industry, which is mainly engaged in metal manufacturing, to Zhongnan Culture, which now integrates investment in film and television art and culture. The transformation of Zhongnan Culture can be said to be that the Han Dynasty picked up the embroidery needle, and the span is very large.

The first step in the cultural transformation of Central and South China is the acquisition of Datang Glory. The company began planning to acquire Datang Huiguang in March 2014, and officially completed the acquisition and consolidated its statements in January 2015. 2014 was in a year when mergers and acquisitions in the A-share film and television industry were in full swing. At that time, Zhongnan Culture paid 1 billion yuan to acquire Datang Huiguang. It was also heated by the market.

What satisfies investors and the company is that Datang Huiguang achieved a net profit of 131 million yuan in the first year of 2015, fulfilling its original performance promise. After completing the film and television layout of the acquisition of Datang Huiguang, soon, in July 2015, Datang Huiguang completed the acquisition of Qianyi Zhicheng, a company mainly engaged in artist brokerage business. The target company achieved a net profit of 27 million yuan and also fulfilled its performance commitment.

After trying to acquire Datang Glory, in February 2015, Zhongnan Culture hired Liu Chun, former editor-in-chief of Sohu, as the company's chief cultural officer. After all, the company's previous executives mainly had operating and management experience in the metal manufacturing industry. After the establishment of the chief cultural officer, Zhongnan's cultural and entertainment territory expanded rapidly. Zhongnan Fund was established, Zhongnan Film Industry was established, and 163 million yuan was invested to jointly establish Hunan Mango Yingtong Creative Culture Investment Company with Mango Media and Happy Shopping. It was jointly planned with Nanjing Art Institute and Jiangyin City People's Government to jointly hold an undergraduate art school within the jurisdiction of Jiangyin City. It is planned to purchase the game company at a price of 870 million yuan through a combination of cash and share issuance.

Now the company is preparing to publish IP culture industry by acquiring private publishing company Pioneer Culture Layout. After the crazy layout of the entertainment sector, the current main business of avant-garde culture shows that the revenue of metal manufacturing and cultural industries accounts for half the same, but the latter has a higher gross profit margin.

The core competitiveness of avant-garde culture is

variable. The avant-garde culture, with a value of 450 million yuan, is still well-known in the industry. It is currently one of the few in China that has the entire industry chain of Internet publishing rights (Xinhua Reading Network), physical book publishing and film and television adaptation. Internet + Company publishes famous classics that include almost all modern people. It also owns a large number of famous writers such as Wang Meng, Yan Geling, and Ji Lianhai, as well as Internet celebrities who are popular with the "Ghost Blows the Lantern" series.

Literary works, as the upper reaches of the IP industry chain, occupy a favorable position in themselves. Almost all major domestic directors and film companies have bought novel copyrights of films and television from Wang Dongdong, the leader of avant-garde culture. Wang Dongdong then operates digital copyrights of novels., earning a considerable income. Take "The Thirteen Gifts in Jinling" as an example. In the month after the movie was released, its digital copyright revenue exceeded 1 million yuan.

Senior publisher Yang Wenxuan said that the content industry has become a popular outlet, and the publishing industry's "node industry" attribute makes it small in scale, but it has strong extensibility to other industries. Pioneer Culture's main source of income is profits generated from IP development and derivative copyright of adaptation rights and derivative rights such as films and television, Internet, games, variety shows, etc., and it also promises that the profits brought by this part of its business will account for the total realized net profits in 2016 and 2017 in the future. Profit shall not be less than 50% and 60%.

Industry insiders said that in fact, the business model of Pioneer Culture itself also has certain risks, because Pioneer Culture packages IP more like a brokerage service provider. Once a brand is successfully built, there will naturally be countless competitors eyeing it. Take Tianxia Ba Sing as an example. Before 2010, Tianxia Ba Sing was not well-known. Later, through the series packaging and commercial operation of avant-garde culture, Tianxia Ba Sing quickly became a well-known writer on the front line, risking going solo.

Liu Deliang, chairman of Beijing Xinyuan Wenzhi Consulting Services Co., Ltd., believes that the acquisition of cultural industries is currently a hot spot in capital mergers and acquisitions, and this is not the first time that Zhongnan Culture has acquired cultural industries. Although Zhongnan Culture has good capital reserves, cross-industry acquisitions still have certain risks due to differences in business models.

Editor: yvette