Everyone in the car should pay attention
Recently, the listed company Yinyi Real Estate Co., Ltd. (referred to as Yinyi Shares) announced that it will use the issuance of shares to purchase 100% of the equity of Ningbo Haosheng held by Tibet Yinyi, a wholly-owned subsidiary of its controlling shareholder Ningbo Yinyi Holdings Co., Ltd. The latter is valued at 3.3 billion yuan. After the completion of this transaction, Yinyi Shares will indirectly hold the relevant assets of the global gas generator company ARC Group through Ningbo Haosheng.
A real estate company entered the field of automobile passive safety by leveraging the operation of the capital market. This is a typical cross-border acquisition case. As the world's second largest multinational company that independently produces gas generators, ARC's products are mainly used in automotive airbag systems, and it has established long-term and stable cooperative relationships with major global automobile OEMs and first-tier suppliers. Through this transaction, real estate company Yinyi Co., Ltd. will officially enter the field of passive safety of auto parts.
Luo Ruihua, secretary of the board of directors of Yinyi Shares, said in an interview with reporters that through this transaction, Yinyi Shares can build an automotive industry-related business platform for the company through ARC's high-quality assets, successful business operation model and efficient management team, and realize the company's diversified strategic layout.
Benefit from "Takata Air Bag Door"
Business diversification strategy is conducive to improving the company's ability to resist risks and long-term development. This is the main reason why many listed companies have made cross-border acquisitions in recent years. Yinyi Shares is no exception.
The main business of Yinyi Co., Ltd. is real estate development and sales. The second pillar industry is the development of mining industry, coal and petrochemical industry. After this transaction, auto parts will become its third largest business segment. The asset value of ARC itself is also considerable. The reporter learned that ARC Group's operating income increased from US$190 million in 2012 to US$302 million in 2015, with an average annual compound growth rate of 18.9%, which is much higher than the average annual growth of most European and American auto parts companies. "ARC's business volume in China is very large. In 2015, its annual sales in China were approximately 2 billion yuan, and its operating income was approximately 700 million to 800 million yuan." An industry insider told reporters.
At a time when the "Takata airbag door" continues to ferment, the industry value of ARC is even more prominent. Because the main murder weapon called the "murder airbag" is the gas generator. It is reported that 90% of Takata's inflators are produced by the company itself. The airbag used in the accident used amine gunpowder, an ingredient that is not favored in the industry. "After 2017, Japanese cars may abandon the use of amine gunpowder, and guanidine gunpowder, the mainstream technology based on ARC, may become the mainstream product in this market." Zhao Chengming, general manager of Jinzhou Jinheng Automobile Safety System Co., Ltd. ("Jinheng") told reporters in an interview. Obviously, this is a nightmare for Takata's airbags and inflators. However, Takata's competitors were the beneficiaries of this disaster. "Takata's generators will be greatly affected, and ARC will be the direct beneficiary." Zhao Chengming said.
Zhang Shaowei, vice president of research and development of Shanghai Oriental Jiule Automotive Airbag Co., Ltd. ("Jiule") said that although the acquisition of Yinyi shares will not directly affect the changes in the global gas generator pattern, there is no doubt that after the "Takata airbag door", ARC's technical advantages in gas generators will help its market share continue to increase. After the acquisition is completed, ARC will take advantage of the asset advantages of the capital side to be more conducive to its expansion in the Chinese market. "In recent years, airbag recalls have occurred frequently, and the recalled airbags all use gunpowder gas generators. The technology used by ARC is a mixed gas, part gunpowder, and part compressed gas. After the Takata incident, this technology has become more recognized by the market." Zhang Shaowei said that technical factors are one of the reasons why capital parties consider acquisitions.
ARC welcomes expansion opportunities
However, some people are not optimistic about this acquisition. The reason why it is not optimistic is related to the poor performance of ARC and its cooperative enterprises in China in recent years.
It is reported that in China, ARC mainly provides supporting services to foreign investors such as Mobis, Autoliv, and Trina, as well as independent and joint ventures such as Jinheng, Jiule, and Yanfeng Baili. These airbag companies have their own inflator factories, and some of their product supplies rely on internal supply, while some require external procurement.
"The proportion of externally sourced gas generators in Jinheng is 80%, Yanfeng Bailide is 70% to 80%, and Jiule is 50%. ARC is the main supplier." Zhang Shaowei said that because domestic enterprises started late in technical research in the field of gas generators, the factory was established for a short time, and the product lines were not rich enough, so internally supplied gas generators cannot meet the needs of enterprises, but most airbag companies have independent research and development capabilities for gas generators. Yanfeng Bailide insiders told reporters that considering the reliability and stability of the product, some gas generators need to rely on external procurement.
So why are partner companies dissatisfied with it? After several prevarications, an expert from an industry association told reporters part of the inside story. According to his understanding, due to the slow update of ARC technology, slow production expansion, high product costs, and poor cooperation and service with airbag companies, it has restricted the development of airbag factories to a certain extent, causing many domestic airbag factory companies to complain about it. If there is no improvement, ARC's market share in China will definitely decline year by year in the future. "In response to the modification requirements put forward by some OEMs, the airbag companies submitted their feedback to ARC. ARC's lack of cooperation in cooperation affected the cooperation between the airbag manufacturers and OEMs."
"ARC supplies a large amount of domestic mainstream airbag companies." The expert said, but due to dissatisfaction with ARC, local airbag companies have been trying to expand the proportion of internal gas generators in recent years and reduce their dependence on ARC. This expert believes that the gas generator technology itself is not difficult to overcome, and the mainstream technology of gas generators has not changed in recent years. There are no technical obstacles for independent air bag companies. When independent gas generator companies restrict the development of air bag factories, air bag manufacturers must take the initiative to overcome the obstacles.
It is understood that in order to meet domestic demand, several mainstream domestic airbag companies have established gas generator factories. For example, Jiule's generator factory was established 10 years ago, Yanfeng Bailide was established 5 years ago, and Jinheng also established a gas generator factory two years ago. "The gas generators of local companies are gradually growing. For example, although Jinheng's generator factory has only been established for two years, the amount of self-supplied generators has reached 20% of its total demand, and the growth rate is very fast. As the proportion of gas generators supplied by companies continues to increase and the demand for external procurement decreases, the dependence on ARC will decrease, and ARC's market share may decline." The expert said that if ARC does not change the status quo, whether ARC's performance in China will continue to grow in the future will be a question mark. The intervention of Yinyi Shares may provide financial support for ARC's rapid expansion.
M&A prospects are risky
For this cross-border acquisition of real estate companies, industry insiders believe that there are certain risks.
Based on ARC's performance in China, whether ARC will continue to maintain market share growth in the future is not only a risk faced by ARC, but also a risk faced by investors.
"The identity of the investor is not important. In fact, investors in ARC in the United States are not engaged in the automotive industry, but corporate management after investment is very important." Zhao Chengming said that there are certain risks in cross-border acquisitions, but the investor Yinyi Shares is a listed company, and its own advantages are better financing channels and capital, which can quickly realize ARC's global market layout.
Zhang Shaowei believes that from 2014 to 2015, the income of real estate companies has declined due to the overall impact of the industry. Compared with the auto parts industry, the latter's foreseeable profits and space are more obvious, the industry is more stable, and the profits of high-quality assets have large room for growth. This is the main reason why Yinyi shares entered the auto parts industry. However, judging from many cross-border acquisitions, the current situation of most companies is not optimistic. Due to the lack of industry experience, financial pressure has increased sharply, which is likely to cause the comprehensive main business to be cut.
