The technology sector, characterized by its high technical requirements, substantial investment needs, and lengthy developmental cycles, has long recognized mergers and acquisitions as a powerful strategy for growth and expansionRecently, a notable transaction emerged in the tech industry, where Naxinwei announced plans to invest nearly 800 million yuan to acquire a significant majority stake (79.31%) in the magnetic sensor firm Maigeern, highlighting a robust effort to amplify its position in the magnetic sensor market.

In the wake of the latest "Eight Regulations for Science and Technology Innovation Board," Naxinwei has swiftly initiated this pivotal acquisition.

On June 23, Naxinwei disclosed through an official announcement its intention to purchase shares of Shanghai Maigeern Microelectronics Co., Ltd(hereafter referred to as "Maigeern") from Silikon Technology, Shanghai Liuci, and Shanghai Lairui, totaling 79.31% of the equity for a total valuation of 793 million yuan.

According to Naxinwei’s announcement, the acquisition valuation utilized an income approach

As of the valuation date, Maigeern's book value of owners' equity amounted to 148 million yuan, while the assessed value stood at 1 billion yuan, resulting in an increase in value of 852 million yuan—an impressive appreciation rate of 576.55%.

This significant premium demonstrates Naxinwei's strong interest in acquiring these assetsIn reality, this is not Naxinwei's sole acquisition activity in recent years; the urgency of this transaction may reflect the company's struggles with faltering performance growth.

Interestingly, the Hubei Xiaomi Yangtze River Industry Fund, an entity that is a shareholder in Naxinwei, also holds shares in Silikon TechnologyThis commonality hints at a deeper strategic involvement.

The acquisition of Maigeern at a premium rate further underscores the strategic maneuvers within this dynamic industry.

Naxinwei aims to secure a nearly 80% stake in Maigeern for 793 million yuan.

The details shared in Naxinwei’s announcement indicate a cash purchase of 62.68% of Maigeern's equity, directly held by Silikon Technology, while also acquiring an additional 5.60% stake indirectly through Shanghai Lairui

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Thus, the overall acquisition directly encompasses 68.28% of Maigeern for a payment of 683 million yuan.

Concurrently, Naxinwei intends to acquire 13.51% of Shanghai Lairui’s invested equity, amounting to 2.37% of Maigeern's shares, from Zhu Jianyu and Jiang Jie, and an additional 43.82% of Shanghai Liuci’s invested equity, which corresponds to an 8.66% stake in Maigeern, for a total transaction amount of 110 million yuan.

Upon completion of this transaction, Naxinwei will directly hold 68.28% of Maigeern and will indirectly hold an additional 11.03% through Shanghai Lairui and Shanghai Liuci, totaling 79.31%.

Public records illustrate that Maigeern is specialized in developing, producing, and selling mixed-signal chips based on magnetic induction technology and intelligent motion control, notably focusing on magnetic sensor chips

Currently, the company has solidified its operations into three key business lines: magnetic switches, current/linear Hall effects, and magnetic encoding.

Conversely, Naxinwei's primary business revolves around designing, developing, and selling high-performance integrated circuit chips, with its leading products including magnetic sensors, pressure sensors, temperature and humidity sensors, signal conditioning chips, and isolation devices.

A significant overlap in core business areas, particularly within the realm of magnetic sensor technology, suggests that this acquisition could strategically benefit Naxinwei by enhancing its market penetration and brand impactThis positioning could lead to economies of scale, thus improving material procurement cost advantages.

Notably, as part of this acquisition deal, the transferors offered performance commitments

The promised performance period spans the years 2024, 2025, and 2026, during which the selling parties pledged that Maigeern would achieve net profits of 39.12 million yuan in 2024, 51.54 million in 2025, and 75.68 million in 2026, totaling a cumulative net profit of 166 million yuan over three years.

When examined against Maigeern’s recently reported performance for 2022 and 2023, meeting this ambitious target poses challengesThe disclosed figures show Maigeern achieving net profits of only 28.59 million yuan and 18.83 million yuan for these two years, respectively.

The divestiture of core assets may signal an abrupt halt to Silikon Technology's anticipated Initial Public Offering (IPO). Reports suggest that Silikon Technology had previously initiated listing guidance with the China Securities Regulatory Commission in 2021, amidst a complicated structure featuring 48 non-natural person shareholders, including prominent investors like Xiaomi Yangtze River and Yunfeng Fund.

According to previously disclosed information, several issues regarding Silikon Technology's historical development and shareholder structure remain pending verification; as of now, its application for the Science and Technology Innovation Board has yet to be processed.

Interestingly, Xiaomi Yangtze River is uniquely positioned as a shareholder in both Naxinwei and Silikon Technology, suggesting potential advantages from both ends during this transaction.

Is Xiaomi's investment strategy benefiting effortlessly?

As an investor in both Naxinwei and Silikon Technology, Xiaomi Yangtze River stands to gain from the unfolding acquisition plan.

On a detailed analysis, Naxinwei’s prospectus reveals that on January 5, 2021, Guorun Ruqi transferred 696,800 shares at a price of 27.27 yuan per share to Xiaomi Yangtze River

This acquisition translated to an investment of approximately 19 million yuanBased on today's closing price of 123.17 yuan per share, Xiaomi Yangtze River's holdings could now be valued at over 120 million yuan due to share expansion in 2022.

However, Xiaomi does not appear within the company's top ten shareholders, leaving uncertainty regarding whether it has divested its stake in Naxinwei.

In the same year, specifically in February, Xiaomi Yangtze River also invested in Silikon TechnologyRecords from Tiyancha indicate that Xiaomi Yangtze River's paid-in capital amounts to approximately 86 million yuan, accounting for a 5.066% share of the company.

Should Silikon Technology realize the proceeds of 683 million yuan from selling Maigeern, according to the respective share distribution among stakeholders, Xiaomi Yangtze River's gain could potentially reach around 34.6 million yuan.

This scenario implies that if this merger and acquisition could finalize successfully, Xiaomi Yangtze River would not only receive tangible returns from Silikon Technology but, provided it hasn't reduced its position in Naxinwei, it could continue to benefit from future earnings derived from Maigeern through Naxinwei.

It is worth noting that beyond investing in Naxinwei, Xiaomi Yangtze River is also linked through collaborative investments

According to Naxinwei's annual report for 2023, the company, alongside reputable investment firms including Xiaomi, established a cooperative fund that invested in over 70 projects related to integrated circuits, semiconductors, and their upstream and downstream sectors.

Public records show that Xiaomi Yangtze River is one of the investment platforms belonging to the Xiaomi ecosystem, co-established in December 2017 with the governmental Hubei Yangtze River Economic Belt Industry Fund.

Reportedly, Xiaomi Yangtze River pays particular attention to advanced manufacturing, production, automotive transport, and artificial intelligence, aligning closely with Xiaomi's business framework and objectives.

Currently, Xiaomi Yangtze River has invested in several semiconductor and chip enterprises, including listed companies like Ge Kewei, Lexin Technology, and Xinchuan Shares, as well as subsidiaries of popular semiconductor firms such as BYD Semiconductor and Ganfeng Lithium.

Aiming to forge a second growth trajectory through acquisitions

The announcement specifies that, to facilitate this acquisition, Naxinwei plans to apply for up to 480 million yuan in bank loans to partially cover the share transfer fees and property share acquisition costs, with a loan term not exceeding seven years and a borrowing interest rate ranging from 2.60% to 3.00%.

This reveals that Naxinwei's liquidity may be constrained, potentially signaling an underlying reason for the company's recent performance decline

Reports indicate that Naxinwei maintained a staggering growth rate exceeding 90% from 2020 to 2022, even witnessing a staggering revenue spike of 256% and a net profit increase of 339% in 2021.

However, beginning in 2023, Naxinwei's growth trajectory faced significant challengesYearly reports indicate a revenue drop of 21.5% to 1.31 billion yuan in 2023, alongside a net profit loss of 305 million yuanAs of the first quarter of the current year, this declining trend remained unyielding.

It is noteworthy that sensor products—one of Naxinwei's core businesses—saw promising growth, with a revenue increase of 49% in 2023. Meanwhile, Maigeern has a commendable presence and expertise in this domain, potentially rationalizing Naxinwei's willingness to acquire it at a premium.

Last year, the imperative of establishing new growth drivers was not lost on Naxinwei, which explored merger and acquisition strategies

On August 2, 2023, Naxinwei revealed an intent to acquire a majority stake in Kunten Micro for a valuation not to exceed 1.5 billion yuan.

Additionally, the proclamation of the "Eight Regulations for Science and Technology Innovation Board" on June 19 further solidified Naxinwei's resolve towards acquisition strategiesThe regulations explicitly support the mergers and integrations of listed companies within the Science and Technology Innovation Board along their industry supply chains and promote consolidating efforts to enhance primary business strength.

Naxinwei stands as the second company on the Science and Technology Innovation Board to announce merger integration following the issuance of the "Eight Regulations," with Xinlian Integrated disclosing restructuring plans just two days prior.

For Naxinwei, which is keen to amplify its operations and reinforce its market position, mergers and acquisitions appear to be a promising strategy moving forward.