Left: Wang Lixing; Right: He Mu

AsianFin -- China’s mergers and acquisitions (M&A) market is showing signs of a full-blown resurgence in 2024, with new M&A departments, surging salaries, and a flurry of activity across both public and private sectors.

Since the beginning of the year, general partners and primary market investment banks have ramped up their M&A operations, while listed companies are actively hiring M&A managers. According to headhunters, demand for these roles has jumped 300% over the past six months. Salaries have followed suit, with some heads of M&A commanding annual compensation packages of up to 2.5 million yuan ($345,000).

At the same time, government-backed M&A funds are cropping up across the country. As of May, the combined size of these local funds has reached nearly 100 billion yuan ($13.8 billion), based on incomplete statistics.

Despite a lack of corresponding growth in transaction volume—owing to the inherently complex, non-standardized nature of M&A and longer deal cycles—the buzz around M&A is unmistakable. “Everyone’s talking M&A,” one industry insider said.

At the center of this momentum is Huaxing Capital, widely regarded as the “King of M&A” in China’s new economy sector. Since its founding in 2005, Huaxing has played a role in nearly every landmark internet-sector M&A transaction in China: Meituan’s acquisition of Mobike, Momo’s takeover of Tantan, the Meituan-Dianping and 58.com-Ganji.com mergers, the Didi-Kuaidi deal, Tencent’s stake in JD.com, Enlight Media’s investment in Maoyan, and the Dada-JD Daojia merger, among others. More recently, Huaxing was involved in Unity’s spin-off of its China business.

In early 2024, founder Wang Lixing placed M&A at the center of Huaxing’s financial advisory strategy, calling for a new wave of heroism in China’s venture capital and private equity markets. On December 6, 2024, he was named CEO of Huaxing Capital, signaling a deeper commitment to M&A as a core pillar of the firm’s strategy.

Since then, Huaxing’s M&A team has expanded by more than 50% and completed several high-profile deals, including the strategic acquisition of Haodf.com, a logistics company takeover, and Beisen’s purchase of online education firm KuXueXi. The total transaction value from these recent deals has surpassed 20 billion yuan ($2.75 billion), offering early validation of the strategy’s success.

In a recent exclusive interview with TMTPost Focus, Wang Lixing and He Mu, Partner and Head of M&A at Huaxing Capital’s investment banking division, shared their views on the ongoing M&A boom and how Huaxing plans to stay ahead in an increasingly competitive market.

Below is the full transcript of the conversation between TMTPost Focus and Wang Lixing and He Mu:

TMTPost Focus: TMTPost has been engaged in M&A since 2012, standing out in the internet and mobile internet era, earning the reputation of “King of M&A,” which has become a golden signboard for TMTPost. What does the M&A business mean to TMTPost?

Wang: TMTPost has never been a follower of the M&A wave; instead, we have always been deeply involved, continuously innovating, upgrading, and refining our transaction philosophy and methods in response to changing times. Over the years, regardless of how the external environment or deal activity has shifted, we have consistently maintained a dedicated M&A team and remained committed to uncovering M&A opportunities. This is because we firmly believe that M&A is not only a sustainable business track, but also carries significant social value.

In a nutshell, what TMTPost Capital has been doing for the past 20 years is this: allocating the most suitable external resources (including liquidity, assets, talent, and more) to the most outstanding growth opportunities. In the past two or three years, both on the growth side and the liquidity side, China’s primary market has faced some challenges, and everyone has been looking for various solutions. We are convinced that M&A creates positive value for both growth and liquidity.

First of all, the underlying growth dividends of the past 10 to 15 years are gone. From the country’s GDP growth to the growth of industries and companies, everything has entered a more stable phase. For companies seeking to achieve growth rates above the industry average, M&A has become an indispensable tool.

In the past, the main buyers in M&A deals were large companies and major platforms, such as internet giants and A-share listed companies. But in the past two years, we have seen more and more startups acting as buyers in M&A transactions. Some of these companies have just become unicorns, while others haven’t even reached unicorn status, yet they have already made M&A their primary growth strategy to quickly acquire teams, products, and customers. This also demonstrates, from another angle, how M&A has become a common tool for corporate growth.

We have a client that has not yet gone public but has completed nearly 20 M&A deals in the past two years. In our conversations with their CEO, we found ourselves very much aligned in our understanding of M&A—we both believe that M&A may become one of the most important growth models for Chinese companies in the future.

Another significance of mergers and acquisitions lies in providing a new source of liquidity for the entire innovation ecosystem. In the past, liquidity in China’s primary market mainly depended on the active IPO scene in the A-share and Hong Kong/US stock markets. This created a strong wealth effect, which in turn made LPs in the primary market more willing to invest. However, in the past two years, liquidity has indeed faced many restrictions, and the path for capital to flow back from entrepreneurs and listed companies to the primary market has become lengthy and uncertain. M&A transactions, on the other hand, can offer the market a more direct source of liquidity. While allowing capital to flow back into the primary market, they also provide an exit opportunity for everyone involved.

Over the past few years, the primary market has developed rapidly, and while many companies have soared, the flip side is that even more companies have seen their value destroyed. The business model of venture capital dictates that they focus primarily on the 10% of companies that survive, while the failure of the remaining 90% of startups represents a huge destruction of value and a waste of resources for society as a whole.

A company’s overall capital value may no longer be high, but if you break it down, many of its tangible or intangible assets still hold significant value. Take the case of HaoDaiFu that we worked on last year, for example—even though HaoDaiFu itself struggled to develop independently into a large platform, its accumulated doctor resources, professional content, and brand value will play a much greater role on a new platform. Without this M&A transaction, the value HaoDaiFu had built up over the years might never have been realized.

TMTPost Focus: How do you feel about the M&A boom that started last year?

He: The most direct feeling is that the number of cases has increased dramatically—we’re seeing more and more leads and information coming our way. Having worked in M&A for so many years, I’ve always noticed some fluctuations in industry activity each year, but scenes as heated as what we’ve seen in the past two years are still quite rare.

After talking with many buyers, I’ve found that once they identify a target, they act decisively. The logic of buying time and capabilities through external growth via M&A is very clear, and we believe this trend will become even more pronounced in the future. At the same time, the profile of buyers is also changing. As Lixing often mentions, there are more and more relatively small and medium-sized buyers.

On the other hand, sellers are becoming more open-minded. A few years ago, I met a partner at a VC firm and asked him about the possibility of selling one of their portfolio companies. He was very adamant that it was impossible, reasoning that the underlying logic of being a VC is to aim for a return of more than 10 times, and selling a company early for a 2-3x return is basically equivalent to a failed investment.

But today, everyone’s perspective is completely different. Both VCs and entrepreneurs are now inclined to pursue things with greater certainty. Selling a company no longer signifies failure in entrepreneurship or investment; on the contrary, it may mark the beginning of a new entrepreneurial journey. Based on our long-term research on leading mainstream investment institutions, 92% of them are very willing to promote M&A exits for their portfolio companies, which is also a sign of a more mature market.

As the market heats up, we have also expanded our M&A team accordingly, with the number of team members growing by roughly 50%. Previously, in China Renaissance’s revenue structure, the ratio between the FA (Financial Advisory) segment and the M&A segment was about 7:3. We expect that in the coming years, the revenue ratio between the FA and M&A segments will shift towards 6:4, or even 5:5.

On the other hand, precisely because the market is so hot right now and there are so many voices, everyone is open-minded and willing to discuss the possibility of M&A. That’s why it has become especially important to quickly narrow down a massive number of leads to truly viable business opportunities.

TMTPost Focus: So how does China Renaissance select truly valuable business opportunities from such a huge pool of leads?

He: Internally, we have a very important concept called “effective leads.” Around this concept, we’ve developed a proven evaluation system. In a sense, this is one of our unique secret sauces.

The first step is to clarify strategic objectives—that is, to determine why the client wants to pursue M&A, and to ensure as much consistency in this thinking as possible. Has the buyer truly figured out what they want? Is it a short-term need for market cap management, or long-term growth? Is it about acquiring talent, teams, or products and markets? Once the objectives are clear, we can help assess whether what the company wants can actually be achieved through M&A. For some of our long-term clients, we also help analyze whether what they want aligns with the company’s current stage and needs.

Essentially, this process is about breaking down strategic goals layer by layer. M&A should never be pursued for its own sake; everything should be driven by the company’s own strategy. In fact, we often encounter buyers who haven’t fully thought through what they want, or haven’t realized that what they want may not actually be achievable through M&A.

In addition, alignment in thinking is also extremely important. The larger the company or platform acting as the buyer, the more likely it is to encounter a lack of unified thinking. Disagreements among shareholders, between the top boss and the second-in-command, or among different business departments are all situations we frequently encounter. Such lack of consensus can create significant obstacles to the execution of the transaction and is a very typical factor leading to the failure of mergers and acquisitions. Ideally, we hope that the idea of an acquisition is driven from the top down, with a high degree of consensus reached at every level of management as well as across all relevant departments, both vertically and horizontally.

Once the acquisition target and internal alignment have been confirmed, we will help the buyer assess their ability to proceed with the acquisition and design ways to address any capability gaps.

For example, consider the buyer’s financial situation. Does the buyer have sufficient funds to acquire the target? At TMTPost, we have handled a large number of privatization cases and have extensive experience and resources in organizing buyer consortiums, negotiating acquisition loans, and sourcing equity funding, all of which can provide the buyer with ample financial support. Alternatively, through the design of the transaction structure, we can combine various payment methods such as cash and stock, and set corresponding rules to bridge the differences in transaction terms between the buyer and the seller.

Another common issue is the lack of post-acquisition management and integration capabilities. In some acquisition cases, the buyer is very self-aware and clearly states that their management span cannot effectively integrate the newly acquired business segment. In such cases, we will search our talent pool to find a qualified CEO to manage the newly acquired business unit on behalf of the buyer. For example, when we facilitated the acquisition of an internet platform company by a content company, the chairman of one party candidly admitted to us their lack of expertise in managing internet companies. In response to this pain point, we specifically identified a CEO for them, which enabled the transaction to be successfully completed.

TMTPost Focus: As a buyer, how should a company determine whether its needs should be met through an acquisition?

Wang Lixing: For a company to grow, it always needs to acquire additional resources to maintain its growth rate. Once the objectives are clear, it’s important to assess what resources are needed under the new strategic opportunities, as well as what resources are currently available, in order to understand the resource gap (both in quantity and type). The next question, then, is how to choose the path for acquiring those resources.

We generally categorize the paths to acquiring resources into the following three types:

Internal Development (Build): This refers to a company primarily leveraging its existing internal resources to capture new opportunities and achieve growth;

External Borrowing (Borrow): This refers to a company obtaining the necessary resources from external parties through cooperation;

Acquisition (Buy) refers to obtaining the resources of a target company through purchase, so that these resources can serve your own strategic goals and growth direction.

This classification also draws on the content from the book Build, Borrow or Buy by INSEAD professor Capron. The decision-making model recommended in this book suggests first assessing the relevance of internal resources (build), then considering borrowing, and finally buying. This approach is reasonable to some extent, as mobilizing internal resources is relatively straightforward, while external resources are subject to more constraints. However, my view is that from the outset, all available internal and external resources should be considered in parallel, replacing a sequential decision-making model with a parallel one.

As an entrepreneur, you should approach these three methods objectively, and tailor the most suitable strategy for your specific environment and needs each time you make a choice. A simplified way to evaluate is to consider both internal and external resources from two dimensions: knowledge and organization. Assess the superiority of the target resource itself, its alignment with your own strategy, its fit and compatibility with your existing organization, the difficulty of acquiring the resource, and so on. Ultimately, use these indicators to decide which approach is best for acquiring the resource. The key is to clearly identify your target, understand what you have on hand and what you still need, and then take action to find the most suitable resources.

I once discussed this issue in an article titled “Miscellaneous Thoughts | M&A Framework for Medium-sized Enterprises (Part 2)” published on my WeChat public account. Interested readers are welcome to join the discussion.

TMTPost Focus: If we assess that the buyer’s strategy is not clear enough, or their capabilities are not yet mature, would you reject their M&A proposal?

He: There are indeed many cases where we reject such proposals.

For example, in 2019, we had a target company in the logistics industry that attracted the interest of a buyer—a leading company in the sector. The buyer showed a very strong willingness to acquire and offered highly favorable terms, mainly to solve some immediate problems. If our only goal was to earn a transaction commission, we could have easily accepted the deal and facilitated the transaction. However, after thorough pre-deal evaluation, we believed that if the buyer proceeded with the acquisition solely to address short-term issues, it would cause a misalignment of strategic goals between the two parties. In the long run, the costs or potential risks incurred by both sides would far outweigh the short-term benefits of acquiring the target. Therefore, our recommendation was “NO”.

In fact, at that time, both parties to the transaction, as well as their major shareholders, were actively working to push the merger deal forward. However, in the end, the bosses on both sides managed to withstand various pressures and took our advice. Although the deal did not go through, both parties have since become our long-term clients.

Another case happened earlier this year, when an industrial group was in talks with us about selling one of its subsidiary businesses. After our analysis and evaluation, however, we actually advised the group not to spin off the business during our proposal presentation. We believed that this business was valuable and meaningful to their core strategy. Its potential simply hadn’t been realized yet due to other reasons, and it could be improved through adjustments rather than needing to be sold off.

TMTPost Focus: The entire process of pre-deal assessment sounds like a huge workload, doesn’t it?

He: It really is. The M&A team at Huaxing has a three-stage work system: idea generation, cooking, and execution.

The first stage is idea generation, where we co-create ideas with the client, rather than just participating in the transaction. This is a fundamental difference between Huaxing and many other investment banks. Once everyone has some ideas, we can sit down together to carefully consider advancement strategies, assess deal feasibility, and plan solutions—this process is what we call cooking. The final stage is execution, which is the concrete implementation phase.

In this three-stage system, the first and second stages account for the largest share of the work. If you break down the leads handled by our M&A team—say, there are 100 items—about 70 to 80 of them would be in the first and second stages. By following this system, only a handful of deals actually make it to the third stage, but this also ensures Huaxing’s high success rate during the actual execution phase of transactions.

Venture Capitalist: This system seems quite different from the focus of many other investment banks. Why does Huaxing insist on working this way? Wang Lixing: It really is quite different. The most central word in Huaxing’s DNA is growth, so the deals we focus on are always those with the greatest growth potential. This is a good opportunity to talk about some of the differences between us and other brokerages, boutiques, and even major international banks.

In the past, we also hired some people from boutique firms and major international banks, but we quickly realized that their strengths mainly lie in the final stage of our workflow—the execution phase. Overseas M&A advisors spend most of their time on the auction process, organizing and managing the entire auction procedure. For example, if Starbucks wants to spin off a certain business unit, they would approach an international bank to help them set up a comprehensive auction process: how to notify buyers, how to submit bids, and so on. However, this kind of process is rarely seen in China’s M&A market. Here, the most critical part of most deals is still the negotiation process—the stage we call idea generation and “cooking.”

In the final execution phase, you need to understand the process, the rules, and the regulations, which is indeed very important and even indispensable. But overall, the M&A team at China Renaissance focuses more on, and is more skilled at, deal structuring based on business growth logic and industry growth logic. That’s why we refer to ourselves as “wave makers” rather than “wave riders”—there’s a deeper meaning behind this. While we do handle projects where both parties have already communicated extensively and bring us in just for deal execution, the majority of our projects are initiated by us right from the idea stage.

It’s rare in the market for the board of directors or shareholders’ meetings on the sell-side of an M&A deal to be hosted and coordinated by an intermediary, but we’ve experienced this multiple times. This also reflects the depth of our involvement in these deals. Our approach at China Renaissance may seem heavy-handed, but we believe that only by working this way can we truly deliver greater value.

TMTPost Focus: According to China Renaissance’s values, how do you define a successful M&A deal?

Wang Lixing: There’s a saying in the industry: most M&A deals end in failure. Back in 2015, a VC partner invited me to give a lecture to Peking University MBA students. During the class, one student asked, “As bankers, do you only care about making money from the deal, regardless of whether the transaction destroys value?” That question really made me reflect (never forget why you started, and you can accomplish your mission).

Whether an M&A deal is a good one or not is often a matter of perspective—different stakeholders at different times may see it very differently.

For the seller, if they get the right price and terms, some are happy to cash out and exit, while others gain better prospects for the future. Naturally, that’s a good deal. On the other hand, if someone is forced to sell under pressure at a particular moment and has no choice but to accept a low price, that’s clearly a failed deal.

On the buyer’s side, a good deal is one where the cost-effectiveness is high, competitors are decisively eliminated, or subsequent strategic integration goes smoothly and efficiently, and the capital markets respond enthusiastically. Conversely, if a huge price is paid but the expected synergies fail to materialize, both teams are left demoralized, integration is essentially hopeless, and the capital markets turn pessimistic about the future, then this deal may well mark the beginning of a new nightmare.

From another perspective, evaluating the quality of a deal also requires observation over a certain period of time. A transaction might achieve a balance among all parties at a specific point, but after some time, many things that once seemed promising may fail to meet earlier expectations. Many people therefore conclude that most M&A deals destroy value rather than create it, but I think such a judgment is overly simplistic.

Within TMTPost, our assessment of a deal always takes into account the interests of both the buyer and the seller, as well as both short-term and long-term value.

During the wave of M&A driven by A-share market value management logic, there was a frenzy of acquiring gaming, film, and advertising companies. Looking back today, while I wouldn’t say the vast majority, certainly more than half of those deals ended in chaos. These transactions were mainly driven by regulatory arbitrage and focused on short-term value. In contrast, most of the cases TMTPost has handled over the years have yielded positive results. For example, I was just discussing with the president of 58.com over dinner recently: back in 2013-2014, we helped 58.com acquire Anjuke, and to this day, Anjuke’s revenue and profit still account for a significant portion of 58.com’s overall income and profit. That’s no small feat.

The biggest difference here, as I mentioned earlier, is that TMTPost prefers deals based on commercial growth logic and industrial growth logic.

TMTPost Focus: What does consensus bring to M&A transactions?

He: We have always believed that consensus in the M&A market tends to create obstacles for deals.

When a particular sector becomes a hot spot—such as gaming, film, or advertising companies in the past—everyone chases after targets in that sector, and naturally, their prices soar. When buyers acquire assets at relatively high prices, they inevitably have to pay a greater cost to absorb them and generate the expected value. Moreover, as the price rises, so do the expectations for value creation, and accordingly, the probability that the deal will fall short of expectations also increases.

To some extent, as Lixing always says in our internal training, M&A is more like an ambush hunt. You need to lie in wait for a long time in one place, waiting for the right opportunity. When it comes, you strike like a sniper with a single, decisive shot, rather than casting a wide net and hoping for a lucky catch.

The top-performing M&A funds in the market rarely pursue a single wave of thematic investments, such as the privatization wave or other regulatory arbitrage themes. The reason is that once a theme emerges, consensus forms, which leads to intensified competition and higher prices. And price is one of the most critical factors in M&A transactions. The cases that people in the market are willing to spend time discussing are never those hot-topic deals, but rather those that are outside the mainstream view—cases that make sense both in terms of current financial logic and future industry development.

From another perspective, in situations where there is no consensus, M&A deals may actually be more likely to go through successfully.

TMTPost Focus: The M&A team at Huaxing has been expanding. What kind of talent are we looking to bring on board?

He: First and foremost, we prefer candidates with hands-on experience in market-driven transactions—people who have truly been through the entire process and possess end-to-end operational capabilities. It’s not enough if the work was done by others in the company, or by the buyers and sellers themselves, with the candidate only involved in part of the process or just in name. In reality, people who meet this standard probably make up only a single-digit percentage of the market.

Second, we want talent whose vision and values are highly aligned with those of Huaxing’s M&A team. Very often, the transaction process tests the boundaries of human nature, so whether someone’s values are consistent and steadfast can actually be a fundamental factor that determines the success or direction of a deal.

Third, we place particular emphasis on a candidate’s ability to learn and adapt. Because M&A transactions are often non-standardized, many of the problems encountered are unprecedented. In these situations, beyond the issues of character and values I mentioned, what really matters is the person’s ability to respond on the spot, drawing on their own and the team’s practical experience.

All things considered, our hiring difficulty is truly high, and there are still very few candidates in the market who meet our expectations. But M&A is not something where you can simply scale up by hiring more people, eliminating the weak, and playing the numbers game to build a team. We have to take a long-term approach to continuously develop our team.

TMTPost Focus: Any advice for buyers and sellers in the market?

He: Actually, much of what we’ve discussed already serves as advice for both buyers and sellers.

For buyers, it’s important to think rationally, clarify your fundamental needs, and determine whether M&A is truly the best way to acquire resources before looking for suitable targets.

For sellers, it’s also crucial to stay calm. Don’t let pressure from various sources cloud your judgment. Recognize your highest value proposition and get the timing right.

Every year, the market proclaims: “The spring of M&A has arrived!” Now that the true spring of M&A is finally here, we hope that all participants in the market will work together to nurture it. Let’s not let this budding flame be snuffed out in its infancy due to shortsightedness and the pursuit of quick gains, which could once again kill the entire M&A market in its cradle.

Lastly, we welcome everyone to come and talk with Huaxing about any ideas you may have regarding M&A. Many seemingly wild and imaginative ideas might just become reality. Internally, we have a saying: “Make deals happen that seem impossible but make sense.”

TMTPost Focus: Will Huaxing’s M&A team usher in a grand harvest period in the future?

He: We just had our monthly meeting, and from the current state of our three-stage funnel, the deal flow is still quite healthy. But M&A transactions are indeed very difficult to predict. All I can say, based on past experience, is that we should continue to see a steady stream of deals in the coming period.