"A good chess player plans for the situation, while a bad chess player plans for the pieces." The capital market is like a chess game with no endgame. Every move of a listed company not only affects the immediate income, but also determines the future pattern. Equity financing, as an important way of capital operation, can help companies expand and optimize their capital structure, but once it is done too hastily, it may become a heavy capital burden and even affect the stability of controlling rights.
American Goheal M&A Group
In recent years, there have been many cases of companies turning over due to aggressive financing in the market, and some companies have achieved overtaking through clever operations. In the process of observing the global capital market for a long time, Goheal found that equity financing is not a one-way benefit, but a double-edged sword. How to use it properly is the real test for listed companies.
Equity financing: a dream or a trap?
The reason why equity financing is attractive is that it does not require short-term repayment and does not bring interest pressure like debt financing. For capital-intensive industries or high-growth companies, equity financing can provide stable cash flow, promote business expansion, and even achieve mergers and acquisitions. But the cost of financing is dilution of equity, and the controlling rights may become precarious.
Looking back at the market, many companies blindly expanded during equity financing, resulting in capital imbalance. A well-known domestic technology company once conducted multiple rounds of financing in a short period of time, and the shareholder structure was continuously diluted. The founding team eventually lost control and was forced to leave the market.
On the contrary, there are also companies that accurately grasp the rhythm of equity financing, not only maintaining control over the company, but also using financing to complete strategic expansion. Goheal believes that the key to equity financing lies in balance: How much financing is appropriate? Is the equity structure stable after financing? How to ensure that new shareholders will not affect the company's long-term strategy? These issues are the core of determining the success or failure of financing.
Capital balancing in controlling rights acquisition
In the world of equity financing, the most challenging part is often the acquisition of controlling rights. Many companies hope to achieve industry integration or global layout through acquisitions, but where does the acquisition funds come from? How to design the financing structure? Is the capital market recognized? These issues determine whether the acquisition can truly bring value to the company, rather than becoming a heavy financial burden.
Mulinsen's acquisition of OSRAM is a typical case. This domestic lighting company completed a "snake swallowing an elephant" merger and acquisition through industrial funds + equity financing. It not only quickly entered the international market, but also improved its global competitiveness, and ultimately promoted the company's market value growth. However, some companies did not consider capital costs during acquisitions, resulting in tight cash flow and even affecting the normal operation of core businesses, and eventually had to sell assets to stop losses. Goheal's analysis found that in the acquisition of controlling rights, companies need to pay special attention to financing costs, integration cycles, and market reactions to acquisitions to avoid getting into trouble due to unbalanced capital operations.
How to avoid capital burden?
"If you want to do your job well, you must first sharpen your tools." In the acquisition of controlling rights, how to reduce capital risks and ensure that the acquisition can truly enhance the value of the company rather than become a heavy burden? Goheal summarized the following key points:
1. Reasonable planning of financing structure
The acquisition of controlling rights does not necessarily rely entirely on equity financing, but can be combined with debt financing, convertible bonds and other methods to reduce the pressure of equity dilution. For example, some companies will adopt leveraged buyouts (LBOs) to support the future cash flow of the target company and reduce their own financial burden.
2. Control the pace of acquisition and implement it in steps
Blindly pursuing "big and fast" acquisitions often leads to tight capital chains. Qingdao Kingking adopted a gradual M&A strategy during its transformation, and each acquisition was verified by the market, rather than a one-time gamble. This approach not only reduces financing risks, but also ensures that each acquisition can truly play a synergistic role.
3. Evaluate market signals and choose the best time
Changes in the capital market affect financing costs and investor sentiment. When the market is in a bull market, companies can conduct equity financing at a lower cost, while in a market downturn, debt financing may be a better choice. Successful acquisitions of controlling rights often step on the market rhythm, which not only controls costs but also maximizes acquisition returns.
4. Maintain the stability of controlling rights and avoid passive loss
The equity dilution brought about by financing may affect the controlling rights of management. Some companies will adopt a dual-tier equity structure, repurchase shares or introduce long-term investors to ensure that the decision-making power of the core management is not weakened. For example, the founders of some Internet giants can use the AB share model to ensure that the company's long-term strategy is not disturbed by short-term fluctuations in the capital market even if their shareholding ratio decreases.
Conclusion: In the game of capital, the one who controls the game wins
The capital market is a long-term game. The real winners are often not the companies with the most financing, but those that can maintain a balance in the flow of funds, ensure the stability of controlling rights, and ultimately achieve value growth. How should listed companies choose between equity financing and controlling rights acquisition? How to ensure that every capital operation can bring real value-added, rather than falling into endless financial pressure?
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Goheal Group
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions. It has been deeply involved in the three core business areas of listed company control acquisition, listed company mergers and acquisitions and restructuring, and listed company capital operation. With its deep professional strength and rich experience, it provides enterprises with full life cycle services from mergers and acquisitions to restructuring and capital operation, aiming to maximize corporate value and achieve long-term benefit growth.
