Total price of 29.5 billion, Minsheng Securities merged into Guolian Sec pricing revealed

After more than 3 months of planning, Guolian Securities' overall plan to acquire the controlling rights of Minsheng Securities has finally taken shape.

On the evening of August 8th, Guolian Securities released the "Issuance of Shares to Purchase Assets and Raise Matching Funds and Related Party Transaction Report (Draft)" regarding the acquisition of Minsheng Securities.

This marks another substantial progress following Guolian Securities' announcement on May 14th of the intention to acquire Minsheng Securities through the issuance of shares, bringing the two similarly sized securities firms closer to a merger.

According to the "Draft," Guolian Securities plans to issue shares and acquire 99.26% of Minsheng Securities' shares at a transaction price of 29.492 billion yuan.

It is worth mentioning that the remaining 0.74% of shares not yet acquired are pledged and frozen shares held by the FANHAI Group, which will not participate in the transaction and will not affect the overall acquisition.

After the formation of the "Draft," subsequent procedures such as state-owned assets approval and shareholder meetings are still required.

However, based on the extensive preparations and communications made by the parties involved in the early stages, industry insiders predict that the integration of the two institutions will continue to proceed steadily and orderly. The rapid progress of this transaction will further drive the trend of consolidation in the securities industry.

Accelerating Progress

Industry insiders view the efficiency of Guolian Securities' acquisition of Minsheng Securities as faster than market expectations.

"The integration of securities firms is quite complex. Although the market had expectations beforehand, both institutions are not small in size, and there are many parties involved in the transactions. Being able to proceed with the acquisition steadily and quickly is indeed faster than market expectations," said an investment banking professional from a large securities firm in Beijing.

The transaction price for the comprehensive acquisition of Minsheng Securities is undoubtedly a focus of market attention.

Based on the pricing calculation of acquiring 99.26% of Minsheng Securities' shares for 29.492 billion yuan as proposed in the "Draft," the implied total value of Minsheng Securities is 29.712 billion yuan, equivalent to a PB ratio of approximately 1.86 times.

It is worth noting that this valuation is slightly lower than the 1.95 times when Guolian Group acquired the largest shareholder of Minsheng Securities a year ago.

In 2023, based on Guolian Group's acquisition of 30.3% of Minsheng Securities for 9.105 billion yuan, the total estimated value of Minsheng Securities at that time was approximately 30.05 billion yuan.

During this period, the asset size of Minsheng Securities actually expanded. At the end of 2023, Minsheng Securities' net assets and total assets were 15.802 billion yuan and 599.42 billion yuan, respectively, representing a year-on-year growth of 4.29% and 1.62%.

Some analysts believe that the slight decrease in valuation is reasonable for two reasons.

First, the previous transaction was an auction and had the color of acquiring control rights.

"Since the previous acquisition of Minsheng Securities by Guolian Group was through an auction and involved a change in the largest shareholder position and touched upon the controlling interest threshold, such transactions usually carry a certain premium," pointed out a non-bank financial analyst from a listed securities firm.

Second, the valuation of the securities industry has also declined in the past year. Wind data shows that as of August 8th, the average price-to-book ratio of the CSI Securities Company Index was 1.14 times, a decrease from 1.31 times when Guolian Group took over Minsheng Securities a year ago "The final transaction price is actually a result of multiple parties' balance. Shareholders of Minsheng Securities hope to achieve the listing of their holdings as soon as possible, while small and medium shareholders of Guolian Securities also hope to avoid the premium in the acquisition," said the non-bank financial analyst. "This relatively reasonable pricing also helps to facilitate the smooth and rapid progress of the acquisition."

After the details of Guolian Securities' acquisition are finalized, there are still procedures such as state-owned asset approval and shareholder meetings that need to be completed.

A source close to Guolian Securities revealed, "The substantive due diligence work for Guolian Securities' acquisition of Minsheng Securities has been basically completed. After this announcement, the shareholder meeting will be convened for deliberation in a timely manner according to the progress of the state-owned asset approval process, followed by waiting for the relevant approvals from the stock exchange and the China Securities Regulatory Commission."

Approaching a Trillion

As the two securities firms are approaching the countdown to integration, the future prospects of the new securities firm are highly anticipated.

In terms of regional distribution, Guolian Securities focuses on the Wuxi and Yangtze River Delta regions, while the branches of Minsheng Securities are mainly concentrated in Henan and Shandong. The two have certain complementary resources in channels, clients, and funds.

Looking at the data from 2023, Guolian Securities, as the acquirer, slightly lags behind Minsheng Securities in terms of revenue, but the two are evenly matched in terms of profits.

According to Wind data, in 2023, Minsheng Securities achieved operating income of 3.799 billion yuan and net profit attributable to shareholders of the parent company of 681 million yuan; during the same period, Guolian Securities achieved operating income and net profit attributable to shareholders of the parent company of 2.955 billion yuan and 671 million yuan, respectively.

As of the end of 2023, Minsheng Securities had net assets and total assets of 15.828 billion yuan and 599.42 billion yuan, respectively; while Guolian Securities had net assets and total assets of 18.124 billion yuan and 87.129 billion yuan, respectively, during the same period.

Based on the above data estimates, the combined net assets of the two securities firms at the end of the previous year had already reached 33.952 billion yuan, surpassing Guojin Securities to rank 24th in the industry; the total assets were close to 150 billion yuan, surpassing Zhejiang Securities at the time to rank 22nd in the industry.

Moreover, as the transaction involves supporting fundraising, it is also seen as an opportunity to help the new entity grow stronger.

In the plan announced in May this year, Guolian Securities stated that the acquisition will also raise funds of up to 2 billion yuan from no more than 35 specific investors, to be used for the business development of Minsheng Securities.

"Since it involves supporting fundraising, this listing of Minsheng Securities not only solves the problem of restructuring and listing, but also to a certain extent addresses the subsequent funding needs for business development," said the non-bank financial analyst. "Currently, it is considered the bottom of the (securities) industry cycle, which is very suitable for securities firms to expand against the trend."

Guolian Securities believes that this transaction will help create a large securities company with leading business scale, strong capital strength, and significant market influence.

"Fully utilizing the industrial advantages of Wuxi and the empowerment of shareholders, as well as the financial resources and talent gathering advantages of Shanghai, to achieve the expansion of business geographical territory, the sharing of customers and channel resources, and the complementarity of business advantages," Guolian Securities pointed out. "By achieving synergy in various businesses, it aims to achieve leapfrog development and seize opportunities for growth and expansion in the increasingly fierce market competition." Increasing the concentration of the securities industry and steadily promoting the integration of two securities firms is also a requirement from the regulatory authorities.

On December 15, 2024, the China Securities Regulatory Commission clearly stated in the "Reply on Approving the Change of Major Shareholders of Minsheng Securities Co., Ltd.": "Your company (Minsheng Securities) should, together with Guolian Securities and Guolian Group, proceed with the integration of your company and Guolian Securities in a stable and orderly manner according to the direction and timetable determined in the preliminary integration plan submitted to our commission."

In the industry's view, the current securities industry integration aligns with the decision-makers' intention to increase industry concentration, and is expected to further accelerate the consolidation of the securities industry, with the possibility of more securities integration cases in the future.

"At present, securities industry integration is encouraged and supported by policies," said the aforementioned non-bank financial analyst. "Due to the influence of the industry's past characteristics, the integration of the securities industry has been relatively slow, to some extent impeding the pace of direct financing transformation and industry efficiency improvement. Guolian's acquisition of Minsheng may not be the end, but the beginning of a new wave of industry consolidation. In the current downward cycle of the capital market, it is indeed suitable for mergers and reorganizations among intermediary institutions."