The reorganization of Storm Technology has been sent three signals by the CSRC: film and television VR cooling down

"The CSRC's veto of Storm Group's acquisition at this time is a continuation of previous policies and a clear signal." Industry experts analyzed that the incident may reflect that the CSRC is releasing three major signals

Recently, the China Securities Regulatory Commission issued a notice to stop Storm Group's 3.1 billion acquisition. Liu Shishi, who previously became a billionaire, was overjoyed and his fortune of 200 million yuan was lost. Liu Shishi was not the only one crying in the toilet. The merger was rejected and involved three companies, namely Caocao Bear Film, Ganpu Technology and Lidong Technology, which belonged to the film and television and game industries respectively. Storm Group is a leader in the VR field and involves VR industry.

"The CSRC's veto of Storm Group's acquisition at this time is a continuation of previous policies and a clear signal." Industry experts analyzed that the incident may reflect that the China Securities Regulatory Commission is releasing three major signals: 1. The three industries of film and television, games, and VR should cool down, and mergers and acquisitions involving the three industries should be cautious and strict;2. The valuation of the above three industries needs to be re-established. New market expectations and market standards should be established;3. Employees in the three industries should not use the wind to cash out, and companies like Storm Group should not simply increase their market value through hot mergers and acquisitions.

Liu Shishi became a billionaire. The CSRC vetoes focusing on profitability.

On the evening of June 7, the CSRC issued a notice stating that Beijing Storm Technology Co., Ltd.'s share issuance to purchase assets was not approved. The review opinion of the China Securities Regulatory Commission is that the profitability of the target company is highly uncertain and does not comply with the relevant provisions of the Measures for the Administration of Large Assets Reorganization of Listed Companies.

Previously, on March 14, Storm Technology issued an announcement stating that the company plans to purchase 60% equity in Caocao Xiong Pictures by a combination of issuing shares and paying cash, with a transaction amount of 1.08 billion yuan; purchase 100% equity in Ganpu Technology, with a transaction amount of 1.05 billion yuan; purchase 100% equity in Lidong Technology, with a transaction amount of 975 million yuan; and raise 3 billion yuan in matching funds.

Among the three acquisitions, Storm Technology's acquisition of Straw Bear Pictures attracted the most attention. Previous announcements showed that the 60% equity of Caocao Bear Films acquired were the 47.40%, 12.00%, and 0.60% equity of Caocao Bear Films held by Liu Xiaofeng, Liu Shishi (Liu Shishi) and Zhao Liying respectively. Among them, Liu Shishi (Liu Shishi) will receive a cash payment of 64.8 million yuan and a share-based payment of 151 million yuan; Zhao Liying will receive a cash payment of 3.24 million yuan and a share-based payment of 7.56 million yuan.

It is worth noting that less than three months before the merger was announced, Caocao Bear Pictures made a shareholder change on December 22, 2015. Liu Shishi (Liu Shishi) obtained a 20% stake in Caocao Bear with 2 million yuan, and Zhao Liying 100,000 yuan received a 1% stake in Caocao Bear. According to the announcement's valuation of 1.527 billion yuan, Liu Shishi (Liu Shishi) and Zhao Liying's investments appreciated by as much as 1.5 million times.

At the same time, looking at the performance of Caocao Bear Pictures, the net profit in 2014 was negative, and in 2015, it turned from loss to profit, with a net profit of 28.5208 million yuan. Despite the rapid growth rate, as of December 31, 2015, Caocao Bear Pictures 'asset-liability ratio reached 76.76%. In order to achieve the promised profit after the merger, it will have a profit of 438 million yuan over the three-year bet period, but there is also great uncertainty. In response to this, the regulatory authorities also conducted as many as 40 questions.

"How does straw bear's performance support its consideration of 1.08 billion yuan in the storm technology acquisition, with a valuation of 1.527 billion yuan, which is close to a multiple of 50 times the P/E ratio. It is indeed outrageous for an unlisted company to be acquired at such a high P/E ratio multiple." Yuan Chuyun, director of the Beijing branch of the Cultural Industry Finance Division of Minsheng Bank, said.

Experts say that the China Securities Regulatory Commission's move to release three-signal video games VR will cool down

. In fact, since the day of listing, Storm Group has established a DT entertainment strategy of "platform + content + data" and has become a leading provider of VR hardware equipment and technology application services in the A-share market under the "Internet +" format. The purpose of acquiring Caocao Bear Film, Ganpu Technology, and Lidong Technology is also obvious. The acquisition of Caocao Bear Film will improve and enrich the provision of upstream content copyright and lay out the film and television industry; the acquisition of Lidong Technology to lay out the game industry; the acquisition of Ganpu Technology to lay out the distribution platform field.

"But in fact, Storm Group's 3.1 billion merger violated the China Securities Regulatory Commission's red line to a certain extent," Yuan Chuyun said. To a certain extent, the China Securities Regulatory Commission's veto of Storm Group's merger announcement was a case for its previous policies. Signal release. "Storm Group's acquisition, whether from three aspects: industry boundary ownership, inflated consideration, and unstable profit expectations, is in line with the typical characteristics of cross-border high-premium mergers and acquisitions that the CSRC wants to curb or adjust."

It is understood that in early May, rumors spread that "listed companies would suspend cross-border fixed growth, involving four industries: Internet finance, games, film and television, and VR." Although the China Securities Regulatory Commission clarified later, the strict approach has gradually become clear. Since May, inquiries and secondary inquiries about mergers and acquisitions have appeared frequently. Some media have also revealed that securities brokers have reported that in actual operation, cross-border mergers and acquisitions involving financial products have been suspended. For industries with popular capital such as games, film and television, and VR, specific reviews are also discussed on a case-by-case basis. "In principle, the China Securities Regulatory Commission opposes cross-border mergers and acquisitions of companies with unstable and unclear earnings expectations," Yuan Chuyun analyzed.

"The CSRC's veto arrangements for typical cases at this juncture are a continuation of its previous policies and a clear signal." Yuan Chuyun analyzed that the China Securities Regulatory Commission's veto of Storm Group's 3.1 billion acquisition actually sent three major signals.

First, the three industries of film and television, games, and VR should be cooled down, and mergers and acquisitions involving the three industries should be cautious and strict. It believes that growth companies in these three fields, especially companies based on innovative technologies such as VR such as Storm Group, and film and television companies with star resources such as Straw Bear Film, will restructure and mergers and acquisitions to bring short-term wealth. This may create a cooling effect.

Second, the valuation of the three industries of film and television, games, and VR must re-establish new market expectations and market standards. "Through this veto, the China Securities Regulatory Commission sent a clear voice that the valuation of the film, television, games, and VR industries is inflated. In the future, the valuation of these three industries is expected to cool down." Its analysis said that although Straw Bear Pictures promised to make a betting profit of 436 million yuan in the next three years, with an average share of about 140 million yuan per year, the P/E ratio based on this is slightly reasonable, the market valuation standards may be changed after the China Securities Regulatory Commission vetoes this time. "Whether the profit expectations are reasonable or not, don't talk about future profits, use the established and verifiable profit level, and use the facts."

It believes that for film and television companies with star effect, the service contract period of stars is limited. Once the star leaves, the company's performance may be unsustainable. "It is unreasonable to use the performance of a short-term three-year cooperation period to support a price-to-earnings ratio of tens of times in the future." Similarly, for a technical company such as VR, when the entire industry is losing money and does not see a clear profit model, it is unreasonable to price the future too early."We are not optimistic about this. While pessimistic in the field, we should not be too optimistic."

Third, employees in the three industries of film and television, games, and VR should not use the wind to cash out. Whether it was Tang De Film and Television's acquisition of Fan Bingbing's shell company at a valuation of 800 million yuan, or after LeTV Pictures merged into LeTV, a large number of star shareholders surfaced, and cashing has become the focus of constant questioning by the media and investment. "People in the industry should not think about withdrawing at consideration and then cashing out, but should provide investors with sustained and stable performance and data. At the same time, a company must develop steadily and not increase its market value simply through hot mergers and acquisitions on a subject matter."

Editor: yvonne