With a 75% premium, is the privatization of Monster Charging a retreat or a departure?
Recently, Monster Charging, which has been silent for a long time, has once again drawn the attention of the capital market.
On January 6, Monster Charging announced that its board of directors received a preliminary non-binding proposal from a consortium composed of CITIC Capital and the company's management on the previous day. The proposal is to acquire all the outstanding common shares of Monster Charging at a cash price of $0.625 per common share or $1.25 per American Depositary Share. After the acquisition, the consortium will collectively own approximately 16.9% of the company's outstanding and outstanding share capital, but due to the different rights for the same share design, the actual total voting rights reach 64.0%. It is worth noting that the acquisition price in the proposal is a 74.8% premium over the closing price of the company on the last trading day before the proposal date, and a 68.1% and 70.1% premium over the volume-weighted average prices of the past 30 and 60 trading days, respectively.
After the announcement, the capital market reacted. On the opening of January 6, Monster Charging's stock rose sharply and returned above $1. The stock closed up nearly 40% on the same day. Up to now, the stock price is still fluctuating around $1.
So, what is the motivation for Monster Charging's privatization this time? And what kind of impact will privatization have on the participants?
01 From Pursuing Capital Bubbles to Facing Business Reality
The privatization of Monster Charging this time is the result of the joint promotion of internal and external factors, and essentially it is a rational choice for the enterprise to shift from pursuing capital bubbles to facing business reality.
First, from the macro background, in recent years, as China's per capita GDP has exceeded $10,000, the economy has entered a stage of high-quality growth, indicating the continuous development of the Chinese economy. It not only requires the continuous emergence of high-tech enterprises to contribute new increments, but also needs to revitalize the operating efficiency of existing stock enterprises. In view of this, the encouragement and support of the policy level for mergers and acquisitions were concentrated and released in 2024, and the policy support is expected to promote the emergence of a new round of mergers and acquisitions.
Secondly, from the market factor, due to the changes in the general environment and the differences in the valuation systems at home and abroad, the performance of Chinese concept stocks has continued to be sluggish in the past two years, and many companies with a relatively good fundamental situation have experienced a continuous decline in valuation, resulting in a serious discount in the actual valuation of a large number of companies, and a long-term deviation from the reasonable center. Taking Monster Charging as an example, since 2023, the trading activity of the company's US stocks has decreased, and the stock price has remained below $1 for a long time. The identity of a listed company not only has deviated from the basic function of financing, but also cannot bring a capital carnival as before. Instead, in order to maintain this identity, the company has to spend a high cost. Therefore, from this perspective, the cost-effectiveness of the identity of listed Chinese concept stocks is continuously decreasing.
Finally, from the perspective of the industry and the company's own development, after nearly 10 years of rapid expansion, the shared power bank industry as a whole has entered the mature stage from rapid growth, and the industry competition has become increasingly fierce and the concentration has been greatly improved. In 2024, the top 5 accounted for as high as 96.6%. The decline in the industry growth rate, the formation of the business model and the top echelon, have prompted the main driving factors of the industry to shift from scale growth to profit improvement. But at the same time, the regional development within the industry is not balanced. According to the data of iResearch, as of 2023, the shared power bank industry has successfully covered more than 4.04 million service points, of which the penetration rate of points in first-tier and second-tier cities is as high as 44.7%, which is basically saturated, while that in third-tier and below cities is only 22.2%, still with a large growth space.
In order to cope with the industry changes, leading enterprises are accelerating operational optimization and model transformation. Under this trend, Monster Charging has also ushered in a critical strategic transformation, manifested as the transition from the direct operation model to the franchisee model. This is because, compared with the direct operation model, the franchisee model is an asset-light model, which can effectively reduce the enterprise's upfront investment and operating costs, improve operational efficiency and long-term profitability; at the same time, under the franchisee model, the brand can also use the local resources of the agents to achieve rapid coverage and expansion in low-tier cities, and it is easier to occupy the market and form a scale effect.
With the advancement of the transformation, Monster Charging has ushered in positive changes. In 2023, the company achieved a comprehensive turnaround and a significant improvement in profitability. But the pain also followed. After entering 2024, under the combined influence of scale contraction and changes in the calculation method, Monster Charging's revenue has continued to decline, with the revenue decline rates in Q1 and Q2 being 51.7% and 53.7% respectively, which once caused concerns in the capital market. In this context, choosing privatization is more helpful for the company's management to shield the negative emotions of the short-term market and focus on business transformation and long-term development.
02 Is Privatization a Capital Redemption?
An important aspect of Monster Charging's privatization this time is the background of CITIC Capital, one of the acquirers.
CITIC Capital originated from the private equity investment department of CITIC Capital Holdings Limited and is one of the pioneers in domestic mergers and acquisitions investment. Currently, CITIC Capital manages assets of approximately $8 billion and has completed more than 80 investments, covering a wide range of industries such as consumption, technology, and healthcare. The fund has an excellent track record, and well-known cases include McDonald's China, Guilin Pharma, Guanshengyuan, Focus Media, etc. Taking McDonald's China as an example, after CITIC Capital's investment in 2017, it helped the localized development of McDonald's China, and the number of its mainland stores increased by 2.4 times in seven years.
It is precisely because of the outstanding background and track record of the acquirer that some market voices believe that this privatization aims to solve the short-term difficulties of Monster Charging. However, through in-depth analysis, it is found that from the perspective of development prospects, industry status, and the fundamental situation of Monster Charging itself, this privatization is not like an arbitrage exit, but more like a reasonable capital operation for the company's long-term sustainable development.
From the perspective of development prospects and industry status, according to the data of iResearch, the scale of the shared power bank industry in 2023 was 12.6 billion yuan, with a year-on-year growth rate of 25.7%. It is expected that the industry scale will reach 42 billion yuan in 2029, and the compound annual growth rate from 2023 to 2029 is 22%, indicating that the industry space is still broad. And as the absolute leader in the industry, Monster Charging still has the potential to achieve performance that exceeds the industry average in the future. According to the data of iResearch, Monster Charging's market share in terms of GMV in 2024 is 36%, firmly occupying the top position in the industry. Moreover, after years of operation, under the extensive point layout, a large user group, and long-term mental cultivation, the company ranks first in brand exposure and usage preference, and has leading advantages in brand influence, technology, and channels. According to the financial report, as of June 30, 2024, Monster Charging has a total of 1.267 million POIs (point-of-interest) nationwide, covering more than 2,100 counties and above, and the cumulative number of registered users has reached 417 million.
From the fundamental perspective, Monster Charging's current financial performance is relatively stable and has not fallen into a financial dilemma. On the one hand, from 2020 to 2023, Monster Charging's operating cash flow has always remained inflowing, which are 536 million yuan, 227 million yuan, 708 million yuan, and 416 million yuan respectively. And since 2023, the company has maintained Non-GAAP profitability for six consecutive quarters, indicating that the company itself has a strong hematopoietic ability and can fully provide funds for subsequent development; on the other hand, in 2023 and the first half of 2024, the company's cash and cash equivalents, short-term investments, and restricted cash were 3.3 billion yuan and 3.2 billion yuan respectively, with sufficient cash reserves on the books and no signs of shortage of money.
03 Conclusion: A Capital Game for Mutual Benefit
Although the market is filled with different opinions about Monster Charging's privatization, it is undeniable that Monster Charging has regained market attention through this capital operation. More importantly, as the first shot at the beginning of 2025, this privatization also provides more reference value for Chinese concept stocks that will face the same situation in the future.
In the long run, this privatization is more like a capital game for mutual benefit.
For Monster Charging, after privatization, the company's decision-making will be more flexible and efficient, and more suitable for the business promotion in the special period of the current strategic transformation; at the same time, after the introduction of professional investors, it can not only effectively alleviate the current operating situation of Monster Charging, but also help the company obtain more professional assistance, business synergy, and resource integration, which is conducive to the company's long-term sustainable development and also provides more imagination space for future business development and capital operation.
For CITIC Capital, purchasing Monster Charging in the current period of lack of market liquidity and the downturn of Chinese concept stocks is equivalent to purchasing high-quality assets with good cash flow at a reasonable or even low valuation. After the investment, through its own professional operation and resource integration, and business synergy, it can more fully obtain the benefits of the first curve and improve the expected return space.
For investors, the decline of Chinese concept stocks in the past two years has put investors in a dilemma of whether to cut losses or wait. And this high-premium acquisition provides a good opportunity for them to exit.