The Motivation And Economic Consequences Of The Carve-outs Of Frontage Holdings By Tigermed

In the 1980 s,after the wave of mergers and acquisitions,in order to eliminate the drawbacks of excessive diversification,many companies began to consider carving out their operating businesses to achieve more professional operations,and at the same time,the carveout assets could be financed in the capital market.It is more conducive to the development of parent and subsidiary corporations,and at this time,foreign equity carve-outs have become popular.Compared with foreign countries,equity carve-outs appeared later in China.In 2004,the CSRC issued a notice regulating overseas listing,and in April 2010,the CSRC made a statement on A Stock companies can carve out subsidiaries to be listed on the Growth Enterprise Market(GEM),and in December 2019,the CSRC explicitly issued the provisions on domestic equity carve-outs.The above information shows that the CSRC’s attitude towards carve-out is constantly changing,with the introduction of the new regulations in 2019,the concept of carveout has been hyped up again,and due to the explicit provisions of this time,the carve-out has officially been recognized by the CSRC.In recent years,in view of the CSRC’s obvious statement on equity carve-outs and the establishment of the Science and Technology Innovation Board,equity carve-outs are gradually becoming a preferred financing method for large enterprises.In the pharmaceutical field,the phenomenon of equity carve-outs is more common,and the carve-outs of many companies have finally produced amazing returns,and CRO companies,as an industry with high innovation and professionalism,equity carve-outs have also become an important way to meet their capital needs.Taking Tigermed,one of the leading local CRO companies in China,this article evaluates the performance changes before and after the equity carve-outs by exploring the motivation of the carve-outs of Frontage Holdings by Tigermed,and analyze the causes of their performance changes,explore the operating logic of CRO companies thriving under the wave of carve-outs and listings,and help CRO companies to judge whether to combine the characteristics of the industry and the company’s own conditions suitable for equity carve-outs.This thesis mainly uses the literature research method,case study method,event research method and comparative analysis method,and is divided into six chapters.The first part is an introduction to the thesis,which mainly includes the research background,significance and literature review,as well as the basic writing framework.The second part is a theoretical overview of equity carve-outs,including the conceptual definition of this thesis,the inductive carve-out drivers,and the theories used in this thesis.The third part is a case introduction of this article,which briefly describes the development of the CRO industry,the basic situation of the parent and subsidiary of the case enterprise,and the detailed process of the carve-outs of Frontage Holdings by Tigermed.The fourth part further analyzes the motivation of the carveouts of Frontage Holdings by Tigermed on the basis of the third part: the internal motivation is mainly that the business independence contributes to the reasonable valuation of the market,the expansion of production capacity requires capital injection,the expansion of financing channels to expand the scope of services and the improvement of its incentive mechanism;external drivers are mainly two macro factors that lead to an increasingly stringent regulatory environment and new opportunities brought about by the domestic encouragement of pharmaceutical innovation.The fifth part is an analysis of the economic consequences and causes of this case,and the event research method and the comparative analysis method are used to analyze the reaction,financial performance and economic consequences of the capital market before and after the carve-out.After analysis,it is found that the parent company’s stock price fluctuates with the market and performs smoothly,while the stock price of the subsidiary changes in the opposite direction with the market in the short term,but the cumulative excess yield of the parent company is greater than zero,it shows that the market still has positive expectations for it;in terms of solvency,the solvency indicators of parent and subsidiaries have improved,and the subsidiaries have increased more significantly due to a large amount of capital entry;in terms of profitability,the income of parent companies has increased year after year but the growth rate has slowed down.the profitability indicators performed more superiorly than the industry average in the year of carve-out,and the ROA,ROE and gross profit margin of subsidiaries decreased,but the revenue and profit side still maintained steady growth;in terms of operational capacity,the operating capacity indicators of parent and subsidiary companies decreased year by year due to continuous acquisition of companies.Further analysis found that the reasons for these changes in financial performance were,on the one hand,due to the abundant stabilization of market expectations due to the abundant number of contract orders,on the other hand,because the global layout of the accelerated listing increased market share,in addition,The subsidiary has been deeply involved in the Chinese and American market for many years and has a strong enough core competitiveness.The sixth part is the research conclusions and enlightenment of this thesis,through the in-depth analysis of this case,it is concluded that the carve-out has accelerated the layout of the industrial chain of the parent and subsidiary companies,improved the situation of limited financing,ensured the development of the respective businesses of the subsidiaries,and enhanced the reputation of the enterprises.Based on the analysis in the preceding article,this case provides the following experience to other CRO companies that want to improve their business conditions and restrict financing situation through carve-outs: first,they must gain insight into the development trend of the industry;secondly,select the listing sector that conforms to the strategic layout of the enterprise,finally,select the carve-out object with comprehensive advantages.