Recently, mergers and acquisitions (M&A) in the solar industry have drawn significant attention. Rumors of CATL negotiating the acquisition of Daqo New Energy have sparked heated discussions.
As a public company, such an investment would be considered insider information, making short-term results unlikely. Many have also focused on Tongwei Solar’s acquisition of Risen Energy, although it is not seen as representative of the entire industry.
The solar industry is currently in a downturn, with consolidation widely expected. Many anticipate industry M&A, especially involving companies that withdrew their IPOs. However, M&A is not easy and is not the ultimate solution.
Seller’s Dilemma
Current M&A efforts are mainly driven by sellers facing a grim situation. The industry is experiencing oversupply, falling prices, and tight cash flows, affecting the entire supply chain. The capital market has also lost its previous allure, with tightened IPOs leading to a withdrawal of primary market funds.
Many companies that pulled back from IPOs are now under financial pressure, and controlling shareholders face buyback obligations, making M&A and restructuring seemingly the only options.
Scarcity of Buyers
There are few potential buyers capable of M&A. These include leading solar companies, giants in lithium battery and energy storage sectors, and state-owned enterprises (SOEs). However, these “big players” often have high valuations, requiring buyers with strong financial resources.
Examples like Tongwei’s acquisition of Risen Energy and CATL’s rumored deal with Daqo show that buyers must have the financial capacity to pay and revive these assets. A-share listed companies also face regulatory and investor scrutiny, making compliance a challenging barrier.
Challenges of M&A
M&A involves numerous challenges, from value recognition to transaction structuring and post-merger management. It is not just about matching information but rather the collision of business and human factors. The key lies in meeting the needs of both buyers and sellers.
Currently, sellers are generally facing declining performance and even losses. Buyers, on the other hand, value technology, capacity, and market access. However, with overcapacity in the industry, the M&A value is limited, and the process itself is high-risk.
Current M&A Landscape
After last year’s IPO tightening, many believed M&A opportunities would arise, but activity has not increased as expected. The China Securities Regulatory Commission (CSRC) has recently been vocal on the matter, but M&A is inherently a market-driven activity, not something that can be propelled by administrative means. In the ongoing industry shakeout, only a few companies may ultimately find a way out through M&A.
