Reverse Mergers:Motivation And Financial Performance Analysis

Recently,reverse takeover has become a hot topic in the Chinese capital market and has been adopted by many enterprises as a method for holistic listing.Getting listed via reverse takeover is a shortcut for accessing the capital market by high quality assets.It is conducive to the optimization and restructuring between the shell company and high quality assets and will lead to a win-win outcome of the two transaction parties.This thesis selects Sinobioway Biomedicine's reverse takeover of Wanchang Tech as a case study,which helps us to understand the motivation of the reverse takeover and to comprehensively evaluate the post M&A integration from the financial performance's perspective.Thus,we would know the business strategy adopted by the shareholders and management teams of the two firms,providing theoretical and practical guidance to the similar M&A deals in the capital market.The thesis consists of 6 chapters.Chapter One mainly introduces the research background,research approach and methods.Chapter Two elaborates on the reverse takeover theories and reviews domestic and foreign literatures.Chapter Three summarized the major mode of operation,process and cases,the valuable lessons learned for the deal participants of the reverse takeover in the capital market.In Chapter Four,the author analyzes the process of reverse takeover and the financial performance of the two parties before and after the takeover so as to sort out two parties' motivation of reverse takeover.Chapter Five compares financial performance horizontally and vertically after the reverse takeover to evaluate the overall result of the deal.In the final Chapter,the author draws the research conclusion,offers related policy advice and points out the limitations of the thesis and area for further improvement.It is found that Wanchang Technology's financial performance was mediocre prior to the reverse takeover,which can be reflected by a downward trend in its profitability,operation capability and growth potential;money funds have been left idle for long,high liquidity of assets.Additionally,the new shareholders hardly have the willingness to run the company on a long-term basis.Therefore,they decided to sell the rights of control over the listed firm.Whereas Sinobioway Biomedicine experienced a rapid growth before the reverse takeover,all financial performance outperformed the industry's average.After years of operation,large shareholders have strong motivation to increase the value of equity while venture capital wishes to exit urgently.Thus,it is ready to get into the capital market and its collaboration with Wanchang Technology is rationale.After the reverse takeover,Sinobioway Biomedicine demonstrates great competitive edge over other listed firms in the same industry.The assets quality,overall profitability of the listed firm has been substantially improved.A win-win outcome is achieved through a rise in the share price.This case study highlights the need for financial performance analysis of both listed firm and underlying asset,which can tell us the quality of the trading assets,rationality of the valuation,understand two parties' transaction motivation so as to avoid blind trading and lower transaction risks.