Wang Jianwo, Secretary-General of Hunan Pesticide Industry Association.

In order to strengthen the R&D ability, achieve scale efficiency and synergy, increase market share, cut the management cost and improve profitability, Chinese pesticide enterprises make M&As. In 2015, M&As happen frequently in China’s pesticide industry, drawing wide attention from industry insiders. Both large-scale enterprises and medium- and small-sized enterprises hope to achieve the business strategy planning through M&A. At present, M&A of pesticide enterprises develop both in scope and in depth.

There are four ways for M&A:

• Asset-oriented transformation/ upgrading into high-profit business;
• Business-oriented sale channel expansion;
• Cost-oriented M&As;
• Split after M&As.

It is expected that M&As amongst pesticide enterprises and even cross-industrial M&As will happen frequently in the future, based on the enterprise development strategies and supported by government policies. Currently, the M&As in China’s pesticide industry have developed towards resource intensive integration from ordinary M&As. This is beneficial to the enterprises in resource integration, advantage complementation and industry chain extension. Besides, it to some extent enables enterprises to march into international pesticide market, improve added value of products and achieve scale benefits. Experts pointed out that M&As amongst Chinese pesticide enterprises present features as follows:

1. Strong complementarity in each side's products, able to satisfy the demand from up- and down-stream industry chains;

2. Targets in M&As possess advantages in R&D, technology innovation and market;

3. Listed enterprises (always subjects in M&As) carry out acquisitions in different regions, in a move to grasp market shares;

4. Small and disadvantaged enterprises are easy to be swallowed up.

According to the latest news, Hunan Bohan Biotechnology Co., Ltd., Hunan Chenzhou Tianlong Pesticide Chemical Co., Ltd. and some enterprises are negotiating with potential partners on M&A based on their self-development strategies.

On 14 May, 2015, Shandong Weifang Rainbow Chemical Co., Ltd. (Weifang Rainbow) invested USD3.47 million (RMB21.26 million) to acquire 73% equity of Ningxia Gerui Fine Chemical Co., Ltd. (Ningxia Gerui), subsidiary of Zhejiang Shenghua Biok Biology Co., Ltd. (Shenghua Biok). Ningxia Gerui mainly engages in the production and sales of PMIDA. However, due to insufficient market demand and poor product sales, Ningxia Gerui continued suffering losses with overstocked products. After the acquisition, Shenghua Biok no longer possesses equity of Ningxia Gerui. For Weifang Rainbow, it can further expand production scale to create scale benefit with the help of Ningxia Gerui’s advantages in resource and labor force. Meantime, the acquisition can further enrich Weifang Rainbow’s product lines, so as to rationalize the layout of its production bases. For Shenghua Biok, transferring equity in Ningxia Gerui is conducive to optimizing the company’s assets structure and improving the management benefit.

On 8 May, 2015, Zhejiang Yongtai Technology Co., Ltd. (Zhejiang Yongtai) announced to acquire Shanghai E-tong Chemical Co., Ltd. (Shanghai E-tong)’s 100% equity with USD31.04 million (RMB190 million). It is known that Zhejiang Yongtai hopes to perfect its whole production chain (pesticide intermediate - technical - formulations) by acquiring Shanghai E-tong. After that, Zhejiang Yongtai can develop the global pesticide formulation business to enhance profitability relying on Shanghai E-tong’s product registrations. As of now, Shanghai E-tong has submitted registration materials of near 1,800 pesticides in over 60 countries overseas and has obtained more than 500 registration certificates on pesticide.

On 7 April, 2015, Beijing Jinggeng Tianxia Agricultural Science and Technology Co., Ltd. (Beijing Jinggeng Tianxia) disclosed that it issued 3.8 million shares with USD3.73 million (RMB22.80 million) to Jiangsu Good Harvest-Weien Agrochemical Co., Ltd. (Jiangsu Good Harvest-Weien). And the raised funds were mainly used for the construction of Beijing Jinggeng Tianxia’s Langfang Production & Research Base and for the liquidity supplement, so as to optimize its financial structure. Beijing Jinggeng Tianxia stated that now the company meets the opportunity for its main businesses development; and Jiangsu Good Harvest-Weien and Beijing Jinggeng Tianxia complement each other in product structure and market distribution channel, which can promote the fast development of its performance.

Both the acquisition and equity transfer above are of great significance in speeding up processes of the pesticide segment layout and industrial chain extension, optimizing product structure, expanding sales scale, increasing profitability and enhancing core competitiveness in the market for related enterprises.

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