How To Control The "Entrance Gate" Of Restructuring In The 49Th Supervision? Evaluation Institutions Should Be Good "Gatekeepers" Instead Of "Tool People"

M & A is an important tool for listed companies to revitalize assets and improve quality and efficiency. However, there are often "three highs" and "Thunderbolt". A series of problems are closely related to the lax control of appraisal institutions and "instrumentalization".

In order to further consolidate the "gatekeeper" responsibility, on February 19, the China Securities Regulatory Commission (CSRC) reported the inspection of appraisal institutions in 2020 at its first press conference after the Spring Festival. It planned to take regulatory measures against 6 appraisal institutions and 27 asset appraisers and record them in the integrity file. Meanwhile, some suspected illegal clues were handed over for inspection.

This sign also shows that, as a key link to reshape the market ecology of M & A, the performance of assets appraisal institutions has been paid more and more attention.

Income method becomes a sign of high premium in restructuring

In recent years, the industry logic M & A is becoming the mainstream, and the regulatory authorities are strict with the supervision. Under this background, the value-added rate of the assets evaluation of the reorganization subject has decreased significantly. However, the 21st century economic reporter has noticed that although the number of programs which are often dozens of times the value-added rate is greatly reduced, the problem of high valuation still occurs from time to time.

Statistics show that in 2020, China Securities Regulatory Commission (CSRC) has reviewed 77 restructuring plans, 15 of which have not been approved. Among them, 7 audit opinions clearly mentioned that the schemes failed to fully disclose the fairness of pricing. Looking at the above-mentioned 15 single veto plans, it is a common fault that the appreciation rate of the underlying assets is high. The average value-added rate is more than 6 times, and the highest value-added rate is more than 12 times. It is worth noting that, except for one of the education information platforms, all of these underlying assets belong to the manufacturing industry. Such a high value-added rate is really puzzling.

For example, on May 19, 2020, a listed company disclosed its restructuring report, and planned to acquire a product manufacturing company in the field of military electronic countermeasures. Due to the special industry, the concentration of downstream customers providing supporting production in the subdivided military industry is high. The sales of the top five customers account for more than 90%. Each order can have a significant impact on the performance of the underlying assets.

According to the information disclosed in the restructuring plan, the orders in hand of the underlying assets only cover may 2021. However, the company and the appraisal institution still make very optimistic forecasts. The sales growth rates of main products from 2021 to 2024 are 260%, 43%, 41% and 27%, respectively.

The reporter studies found that the transaction pricing of the scheme adopts the income method to evaluate the results and blindly makes too optimistic forecast, which is the "fatal injury" that it can not pass the meeting.

This is not an exception. In recent years, the income method has become a symbol of high premium in M & A.

In 2020, a total of 108 companies in Shenzhen Stock Exchange disclosed their restructuring plans, and 45 companies adopted the income method as the final evaluation conclusion, with an average value-added rate of 486.59%. However, the average value-added rate of the scheme with market method or asset-based method is 98.15% and 60.25% respectively.

What is more worth mentioning is that in 2020, there are 41 reorganization plans for listed companies to purchase assets from the controlling shareholders and other related parties, 28 of which adopt the income method evaluation conclusion, with an average value-added rate of 523.63%; while there are 11 listed companies selling assets to related parties, 8 of which adopt asset-based method, and the average value-added rate is only 11%.

As for the phenomenon that the income method has become a sign of high premium in restructuring transactions, especially related party restructuring transactions, some people in the industry pointed out that the crux lies in the fact that some evaluation institutions make use of the characteristics of strong subjective judgment in the selection of income method parameters, adjust the evaluation conclusions according to the wishes of the employer, and even infer the calculation process according to the conclusion, which helps to "logically" complete the purchase of assets at a high premium This "mission" is naturally welcomed by listed companies and their related parties.

There are some deficiencies in the practice quality of the assessment institutions

In the case that some appraisal institutions are "powerless", investors' cognition of the underlying asset value is like a fly in the dark. It is difficult to see the real value of the asset and whether the valuation is reasonable.

In fact, as the "gatekeeper", the appraisal institution should have fully demonstrated and disclosed the assets with scientific and reasonable methods, stripped the assets layer by layer, and fully displayed their value in front of investors. However, the reporter observed that there are still some outstanding problems in the practice of evaluation institutions.

The procedure execution is not in place, which is the most common situation of violation of laws and regulations. For example, the lack of on-the-spot investigation, investigation, analysis, verification and other procedures leads to the unreasonable assumption of future income forecast under the income method.

For example, Anjie Technology issued shares to purchase an enterprise engaged in electronic equipment and instrument manufacturing, and the latter set a price of 3.4 billion yuan, with a value-added rate of more than 7 times, forming a goodwill of more than 3 billion yuan, and promising a cumulative net profit of 1.2 billion yuan in three years, which is a typical "three high" merger and acquisition. The target asset failed to fulfill the performance commitment in the year when the merger and acquisition was completed, and the three-year completion rate was only 69%, 20% and - 2%. In 2017, the company's one-time provision for impairment of goodwill exceeded 2.1 billion yuan, which was the first loss since listing. The regulatory authority inspected the evaluation agency of the transaction, and found that the evaluation institution did not conduct necessary analysis and verification on the evaluation evidence such as orders, did not conduct necessary visits and letters of confirmation to major customers and suppliers, and did not conduct effective interviews with key management personnel.

In addition, improper selection of assessment assumptions or key parameters is also very common. If the regulatory department points out in the warning letter issued to an appraisal institution that the selection of discount rate is unreasonable when adopting the income method evaluation, there are different new loan amounts in different years during the forecast period, and the discount rate should be variable, but the evaluation agency adopts the fixed discount rate and does not give a reasonable explanation of the relevant situation.

What's more, in some M & A transactions, the evaluation institutions directly take the pre-set value as the evaluation conclusion, which is completely reduced to "channel".

For example, in the restructuring plan disclosed by Anzhong in April 2016, Zoomlion asset appraisal group adopted the income approach to evaluate the asset placement of Jiuhao group, and the value-added rate was 449.56%. After investigation by the CSRC, it was found that there was financial fraud in Jiuhao group. In the evaluation process, Zoomlion asset appraisal group took the price negotiated by both parties as the evaluation conclusion, and then compiled the profit forecast in addition to the evaluation procedure being not in place and the evaluation assumption of forming the future income forecast was obviously unreasonable.

For the above-mentioned violations, on August 10, 2017, China Securities Regulatory Commission (CSRC) confiscated the appraisal business income of Zoomlion asset appraisal group by RMB 900000 and imposed a fine of RMB 4.5 million; two signed appraisers were given warning and fined RMB 100000 respectively. On November 17, 2017, the Shenzhen Stock Exchange also issued a notice of criticism to the two signature appraisers.

Compaction of intermediary responsibility has become a consensus in the market

The procedures are not implemented in place, the key parameters are obviously inappropriate, the pre-set value is taken as the evaluation conclusion, and the basic practice quality is not guaranteed. All of these reflect that the internal governance of some evaluation institutions is not standardized, and it is urgent for the evaluation institutions to strengthen self-discipline and make changes.

In recent years, regulatory agencies have repeatedly stressed that assessment agencies should be diligent and responsible.

At the end of 2020, the Asset Appraisal Association issued the No. 12 guidance for asset appraisal experts - Calculation of discount rate in the evaluation of enterprise value by income method; in January this year, the CSRC issued the guidance on the application of regulatory rules - appraisal category No. 1, which standardizes the selection of seven main parameters involved in the calculation of discount rate in income method evaluation, and strives to solve the problem of inconsistency of practice standards and references under income method evaluation Some key problems, such as random values and inadequate information disclosure.

In the eyes of market participants, the guidelines require assessment institutions to formulate unified measurement principles and methods and make full disclosure. It is worth noting that the guidelines also specify in the "Supplementary Provisions" that the assessment for the purpose of financial reporting, such as goodwill impairment test, which involves the calculation of discount rate of income method, should be followed. This is of great practical significance to solve some problems such as willful provision of goodwill impairment and financial "big bath".

In terms of regulatory measures, from 2016 to 2020, China Securities Regulatory Commission, local securities regulatory bureaus and exchanges have also been increasing their efforts. For example, administrative penalties and various regulatory measures against asset appraisal institutions and employees were 4 times, 10 times, 12 times, 28 times and 18 times respectively, showing an obvious growth trend. In the aspect of reorganization inquiry, the reporter consulted the inquiry letters issued by Shenzhen Stock Exchange in recent years, and found that the rationality of valuation almost has to be inquired in every single order, and the evaluation institutions are also required to express their opinions, so as to urge them to return to their original positions and perform their duties strictly.

Industry insiders pointed out that at this stage, with the implementation of the registration system and the normalization of IPO issuance, some potential restructuring targets have been directly listed, and the selection scope of listed companies has become smaller, and the responsibility of "gatekeepers" of evaluation institutions has become more prominent. As the foundation of intermediary organization, honest practice is the foundation of "stability". Faced with the determination of the regulatory authorities to crack down on the disorderly valuation of M & A, it is urgent for the appraisal institutions to refuse the "tool man" positioning and strengthen the "gatekeeper" responsibility.