After analysing the valuation and pricing determination, payment method arrangements, performance commitments and compensation arrangements, we introduce the financing options. At present, there are four mainstream financing channels: borrowing, equity financing, debt financing and M&A funds, and in practice, the four methods can also be combined.

◆ Borrowing

When using borrowings for M&A financing, the main channels that can be selected are bank loans and capital lending from controlling shareholders.

(1) Bank M&A loans shall comply with the provisions of the Guidelines for Risk Management of M&A Loans of Commercial Banks, especially the proportion of loans in the M&A transaction price. In addition, M&A loans are not the best way to finance M&A because they have to pay interest on a monthly basis, the interest rate is also higher than the benchmark interest rate, and they require collateral or pledge guarantees.

(2) The listed company can also borrow funds from the controlling shareholder for asset acquisition, which is more common in cases where the acquiree has certain requirements for time and cash. For example, overseas acquisition transactions have relatively high requirements for transaction time and cash, and there are often financing methods such as borrowing funds from controlling shareholders, and even direct acquisitions by major shareholders.

◆ Debt financing

When using bond financing for M&A financing, the main channels that can be selected are public issuance of corporate bonds and non-public issuance of bonds. Both methods have their advantages and disadvantages. If an enterprise chooses to issue corporate bonds to the public, although it can enjoy a lower interest rate, it must also bear the restriction that the issuance amount can account for up to 40% of its net assets, and it must also pass the review of the China Securities Regulatory Commission; If a company chooses to issue corporate bonds non-publicly, although it can enjoy an unrestricted amount and faster financing speed, it will also have to bear a higher interest rate. On the whole, the method of public issuance of debt is more suitable for companies with large net assets, and the method of non-public issuance of debt is more suitable for the situation of planning to replace the controlling shareholder or capital lending.

◆ Equity financing

Equity financing is also a mainstream M&A financing method. The new financing regulations issued by the China Securities Regulatory Commission (CSRC) have made strict provisions on non-public issuance of shares in terms of issuance scale and issuance interval: the issuance size cannot exceed 20% of the original shares; The issuance interval should be more than 18 months. Since there are more restrictions on non-public offerings, listed companies will give priority to issuing public shares when using equity financing.

◆ M&A funds

If the target asset is an immature target asset, or the company plans to integrate the industrial chain, then the company may consider setting up an M&A fund for financing. For example, MLS set up an M&A fund when it acquired all the shares of Mingxin Radio and Television held by Harmony Mingxin and Zhuo Rui Investment, and successfully completed the acquisition plan, which well reflects the superiority of the M&A fund financing method.