Equity Crave-Outs In The Mode Of PE Incubator And Its Impacts

As a shrinkage capital operation,Equity Crave-outs has been widely used in foreign capital markets in combination with the needs of the development of a company.Due to the relative late development of China's capital market,the operation of Equity Crave-outs is not mature,and because the relevant regulatory regime is imperfect,examples of successful Equity Crave-outs are rare in China's capital market.In view of the fact that many domestic listed companies have a practical demand for Equity Crave-outs,therefore,to summarize the merits of successful cases and to explore the impacts on parent and subsidiaries are worthy of our study.By studying the case of "TongfangGuoxin" and "TongfangTaide" which are separated from "TongfangGufen",this paper will summarize the characteristics of the Equity Crave-outs of "TongfangGufen" for other enterprises to draw on past experience.This paper will also study and compare the impacts on the parent and subsidiaries that following by the Equity Crave-outs:by analyzing the short-term performance of the parent's stock price and the exit of investment capital to study the impacts on the parent;by analyzing the changes of the financing situation,R&D investment and assets acquisition,the growth ability and profitability after the listing to explore the impacts on the subsidiaries.This study finally draws the following conclusions:(1)The Equity Crave-outs of "TongfangGufen" has three characteristics:"TongfangGufen"avoids the direct way of listing of the subsidiaries in China's capital market;Choosing a subsidiary that has lower relevance in business with the parent and is relatively small in size to list;"TongfangGufen" achieved capital exit by hatching listed subsidiary,and then to carry out new projects.(2)Impacts on the parent company:parent's stock price has positive short-term market reaction,in the case of "TongfangTaide",the premium effect is more obvious;parent gained a considerable profit through the sale of the subsidiary's shares.(3)Impacts on the subsidiaries:The financing ability of "TongfangTaide" and the R&D capability of "TongfangGuoxin" has enhanced greatly after the Crave-outs,the ability of assets acquisition also promoted in both subsidiaries.After the Equity Crave-outs,the growth capacity of "TongfangGuoxin" has been greatly improved,meanwhile the overall profitability represented by sales gross profit margin is also obviously increased;the growth rate of operating income of"TongfangTaide" declined,the gross profit margin in the two years after the Equity Crave-outs maintained at a high level,but declined in the last two years affected by the whole industry.