Ascendent bids $1.6b for China's Hollysys Automation
Ascendent Capital Partners has joined the battle for Hollysys Automation, a US-listed Chinese provider of industrial automation and rail transportation solutions, by submitting a bid that values the business at USD 1.6bn.
The middle-market Chinese private equity firm, which is currently deploying its third fund of USD 1.03bn, is willing to buy all outstanding shares for USD 26.00 apiece, according to a filing. This represents a 26.2% premium to the November 3 closing price. To prepare the ground for its offer, Ascendent has spent approximately USD 172m over the past few weeks, building a 13.7% stake in Hollysys.
The stock jumped 5.9% to close at USD 21.82 on November 6 in response to Ascendent’s announcement, giving Hollysys a market capitalisation of around USD 1.3bn.
Hollysys has been the subject of take-private interest for three years. Baiqing Shao, a co-founder and former CEO and chairman of the company, teamed up with CPE to make an offer of USD 15.47 per share in December 2020. This was rejected by the board, which also vetoed an improved bid of USD 17.10.
Relations between the two sides were already prickly, with Shao having been fired by Hollysys in July 2020. The board accused the buyer consortium of misrepresentation and hypocrisy, noting that Shao was the catalyst for the underperformance cited by the consortium. He initiated a secondary share offering in 2019 that led to 25% drop in the Hollysys share price before it was pulled, the board said.
Ascendent joined the fray in August 2021 with an offer of USD 23.00 per share, submitted in conjunction with Changli Wang, the original founder of Hollysys who retired in 2013. Shanghai-listed Zhejiang Longsheng Group and Loyal Valley Capital then came in with a bid of USD 24.00 per share, and Recco Control Technology and Dazheng Group topped that by offering USD 25.00 per share.
Wang, who returned to Hollysys as CEO in January 2022, said that a sale of the company was not in the best interests of shareholders. Evaluation of all unsolicited buyout proposals was suspended.
The Recco Control-Dazheng consortium wasn’t to be dissuaded, reaffirming its USD 25.00 per share offer in July 2022. There followed various reports that Wang and other management team members were lining up PE partners with a view to a take-private and domestic relisting.
Interest in Hollysys was reignited in August when certain shareholders asked the company to convene a special meeting to consider proposals to increase the size of the board and the appointment of director candidates. This coincided with Recco Control-Dazheng restating its original offer. Hollysys conducted a review of various strategic options and launched a formal sale process.
In addition to Recco Control-Dazheng – TFI Asset Management Limited and Great Wall Capital are now also members of the consortium – the company received a USD 25.00-per-share bid from its co-COOs.
Founded in 1993, Hollysys has grown from a research team specialising in automation control in the power industry into a group providing integrated automation control system solutions for customers in power, petrochemicals, and rail. The company claims to be the market leader in China, and it has a presence in eight other Asian markets.
Most of its revenue comes from industrial automation and rail transportation. In industrial automation, Hollysys supplies the full spectrum of field devices, control systems, enterprise manufacturing management and cloud-based applications. In rail transportation, it provides advanced signalling control and SCADA (supervisory control and data acquisition) systems for high-speed rail and urban rail.
Revenue for the 12 months ended June 2023 reached USD 777.4m – up from USD 707.4m a year earlier – with industrial automation and rail transportation accounting for 65.2% and 24.3%, respectively. The remaining 10.5% came from mechanical and electrical solutions, which includes the end-to-end design, construction, project management, and maintenance of facilities ranging from factories to airports.
Over the same period, net profit rose from USD 82.9m to USD 89.3m.
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