| It may be the longest suspension of initial public offerings (IPOs) in the A-share market, which forces investors to turn to equity transactions, back-door listings, acquisitions and reorganization.
Statistics from Zero2IPO, a leading integrated service provider in the China venture capital and private equity industry, show that 654 mergers and acquisitions (M&As) took place in China by August this year, most of which were initiated by public companies, with a transaction value reaching $48.7 billion, up roughly 50 percent.
M&As should be encouraged, but the prerequisites are credit and being market-oriented. M&As began to thrive when an IPO comeback was not in sight, and some overseas IPO channels were blocked.
Better results would be yielded when venture capital and private equity exit through M&As than through IPOs, because initiators tend to be more professional and strict in deciding an M&A, and the premium of an M&A is far lower than that of an IPO. In M&A cases, parties concerned are always serious-minded in conducting investigations, in order to make sure that the deal is worth the money. The market will also react in a more rational way.
For example, when China's search engine Baidu acquired third-party app distributor 91 Wireless, the public didn't complain. On the contrary, people showed great interest in the industrial development path of the smart era and paid close attention to the distribution of industrial chains of new big players. China's enterprises, such as Huawei, ZTE and Geely, have also learned plenty through international M&As.
Attention has been paid to credit. One prerequisite for the deregulation of acquisition and reorganization is establishing credit records. If enterprises don't engage in cheating and insider trading and can help integrate the upstream and downstream industrial chains, supervisors and regulators are willing to let investors have a free hand.
To some extent, acquisition and reorganization have become a tool for money encirclement in China. In North America, the failure of back-door listing attempts by Chinese companies indicates deep mistrust from overseas markets. Since there is a strong demand for zombie companies from those that seek a listing, one such company can be worth as much as 1 billion yuan ($163 million), and the price doubles every three or four years. The more expensive a zombie company is, the more difficult it becomes to nurture a credit culture.
Some investors engage in stock price manipulation to transfer profits. If there is no clue of insider transactions and misconduct, it is difficult to catch unsavory investors.
What's worse is the government directs enterprises to become big through M&As but not strong. To nudge into the list of the world's top 500 companies, these enterprises overlook rates of return on capital. Inefficient big companies acquire lucrative small businesses. In this way, enterprises lose market efficiency.
On the other side, China's securities market, which is still in its infancy, should ensure that government interference is minimal and let the market do the work.
This is an edited excerpt of an article by Ye Tan, a financial commentator, published in National Business Daily | 
