Tips｜Why M&A funds have become the leader in private equity funds

Today, Hong Kong Information Communication - Let me introduce to you why M&A funds have become the leader in private equity funds.，Let’s learn together! one、The concept of buyout funds Buyout funds，The full name is Buyout Fund，It is a form of fund developed in European and American countries in the mid-20th century.，As the name suggests，M&A funds refer to funds that focus on corporate M&A investments.。two、What are the operating modes of M&A funds?

1. Different investment methods. M&A funds can be divided into two types according to different investment methods.：
2. Equity-participating M&A funds Equity-participating M&A funds mainly assist leading M&A parties，Provide financing services or equity investments for them，Finally exit with profit。The operation of domestic PE institutions is not yet fully mature.，And the M&A market is still in the development stage，Therefore, China’s domestic M&A funds mostly engage in equity investments of the participation type.。
3. Holding M&A Fund The operation of holding M&A fund is based on obtaining control of the target enterprise.，Use asset integration、Cultivation of target companies through means such as restructuring or improving operations，Final profit exit。Holding funds are relatively mature in Europe and the United States，And it is the main form of M&A funds in European and American markets.。
4. Different organizational forms M&A funds can be divided into three types according to different organizational forms：
5. Contractual buyout funds There are many buyout funds in the United States that adopt the contractual organizational form.。Contractual M&A funds refer to an agreement that stipulates the rights and interests of each party and the decision-making method.，Leave the funds to the fund custodian for safekeeping，A type of buyout fund operated by fund managers。

Features：This type of buyout fund can avoid the disadvantages of double taxation，And because it is based on a protocol，Therefore it is more hidden。

1. Corporate M&A Funds Corporate M&A funds mainly refer to funds from two or more sources of funds.，Such as listed companies、PE organization、Commercial banks or securities firms, etc.，A form of merger and acquisition fund that establishes a fund company with a certain amount of capital and then invests in it。
2. Partnership M&A Fund Partnership M&A Fund mainly refers to an organizational form in which a PE institution serves as the GP and the acquirer jointly invests in establishing a limited partnership as the fund manager and is responsible for the operation and decision-making of the M&A fund.。M&A funds in my country mostly use limited partnerships。Features：Limited partnerships can also avoid double taxation；It can also be flexibly changed according to the different demands of both parties.；at the same time，It can also stimulate GP’s work potential。
3. M&A funds can be divided into multiple factions based on different participants.，The most common ones are the following：
4. State-owned M&A Fund；
5. Foreign M&A Fund；
6. Brokerage M&A Fund；
7. M&A funds involving commercial banks；
8. Industrial Capital M&A Fund。Features：M&A funds with different backgrounds pursue different goals，Therefore, there will be certain differences in the direction of the decisions they make.。

three、The power of buyout funds is that buyout funds are a type of private equity funds.，Used for mergers and acquisitions of enterprises，Obtain control of the target company。A common mode of operation is to merge and acquire a company，through reorganization、improve、Promotion, etc.，Achieve listing of enterprises or sale of equity，thereby obtaining substantial profits。

The logic of M&A funds and VC/PE investment is different，The latter mainly invests in companies with development potential，Earn money by helping businesses grow and expand；Buyout funds invest in undervalued companies，Profit from the restructuring of invested companies。Investment targets tend to be high-quality companies that have established a certain scale and generate stable cash flow.。

But it’s the same as VC/PE investment，M&A funds are generally raised in a non-public manner，Sales and redemptions are conducted by fund managers through private negotiations with investors.。From historical data，The investment period of domestic buyout funds is usually 3 to 5 years，International M&A funds generally take 5 to 10 years from investment to exit.，annualized internal rate of return(IRR)Can reach about 30%。

1. Flying together：PE+listed company model At present, the main cooperation model of domestic M&A funds is PE+listed company，In other words, PE and listed companies jointly serve as LP。PE institutions use their professional capital operation and asset management capabilities to provide technical support for M&A funds，Including but not limited to responsible for the strategic planning of the post-merger enterprise、Industry research analysis、Resource integration and optimization。

Listed companies are responsible for the operation and management of the enterprise，And provide convenient channels for fund raising and later exit of M&A funds with the endorsement of good reputation。Many listed companies face small scale of main business，The problem of low profitability，At the same time, it is subject to the criticism of the company's performance from many stakeholders in the capital market.

Require

pressure。Therefore, out of the need for business integration of listed companies,，M&A funds generally focus on the strategic development of the industrial chain of the listed company.。

And when the fund is established，There will be clear investment directions and exit channels，The investment cycle is relatively short。(2) Income guarantee：In terms of exit methods, IPO and mergers and acquisitions are two important investment exit channels in mature capital markets.。In recent years, the merger and acquisition boom of listed companies has accelerated the merger and acquisition funds.，And become a typical model of private equity investment。It is precisely because the exit method of M&A funds is relatively more secure.，thereby attracting more investors to choose this investment method。

Specifically，M&A funds achieve investment returns for investors through the following exit methods:。1、If the project is running normally，The duration of M&A funds exiting from mergers and acquisitions of listed companies is usually three years.。The target project was acquired by a special fund and completed standardized cultivation、Comply with listed companies

Require

back，Listed companies can propose to acquire the target。

The target acquisition price must be based on the higher of the current market price or the annual compound net rate of return on the limited partner's investment (usually 10-15%) (i.e. the listed company or its actual controller will provide the bottom line)，Reduce investor risk)。If there is an external organization to transfer，Then the listed company has the priority to receive the transfer under the same trading conditions.。

Three years after acquisition，M&A funds have free disposal rights：Conduct IPOs in domestic and overseas capital markets；Transfer invested projects to other industry funds；Acquisition by the management of the invested project company。

1. If something unexpected happens to the project，The major shareholders of the listed company will take full responsibility if the project suffers losses，For other LPs other than listed companies or their major shareholders，Listed companies will usually provide certain safeguards，There are mainly two situations：
2. "Investment" funds。

Listed companies and other LPs respectively contribute capital in prescribed proportions.，Listed company investment is equivalent to the inferior model，Once an investment project loses money，Listed companies bear project losses up to the amount of capital contributed；If the loss exceeds the listed company’s investment，The excess portion will be borne by other LPs in proportion to their capital contribution.。(2) “Financing” funds。

Listed companies and other LPs respectively contribute capital in prescribed proportions.，In addition to subscribing a certain amount of capital, listed companies，Need to bear the responsibility for capital guarantee and interest payment for other LP’s investment。(3) Follow the trend with listed companies in the context of economic transformation，stock market push、Factors such as industry consolidation and the restructuring of state-owned enterprises promote the development of M&A funds。

From a macro level，It can effectively promote the upgrading of industrial structure；mesoeconomic level，M&A funds can be regarded as a capital outlet，Alleviating the current asset shortage problem to a certain extent；micro level，M&A funds are listed companies actively exploring new profit growth points.，A good way to transform and upgrade。If you still need to know more about this，You are welcome to consult Hong Kong Xintong at any time!

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