Huayi, Englight Stray From Film-Making With New M&A
Two of China’s leading filmmakers are in the headlines today, with Huayi Bros (Shenzhen: 300027) and Enlight Media (Shenzhen: 300251) both making mid-sized acquisitions to diversify their operations in the rapidly changing media space. Both companies are taking steps outside their core businesses, reflecting the latest in a series of uneasy marriages between traditional content makers and newer companies involved in an array of content making and media-related services.
In the first case, Huayi is buying a controlling stake in Shenzhen Huayuxun Tech Co, operator of the maizuo.com Internet ticketing platform. The second deal will see Enlight buy a similar controlling stake in game developer and operator Refeng Network Technology.
This new wave of tie-ups has seen media and gaming companies, including both content makers and service providers, clamor to form alliances and make acquisitions to enter each others’ spaces. The big Internet names have also been quite active, with the big 3 of Alibaba, Tencent (HKEx: 700) and Baidu (Nasdaq: BIDU) all making aggressive moves in the space over the last year.
All of these companies sense a huge opportunity, as they look to fill a vacuum being left by China’s slow-moving, state-run traditional media that are having difficulty adapting to the digital age. This kind of diversification has also happened in the west, though in a much more gradual, calculated way. By comparison, the sudden surge of Chinese deals seems quite rushed and less targeted, meaning many of these new deals are likely to experience difficulty and ultimately fail.
All that said, let’s start by looking at the latest deal for Huayi, one of China’s leading independent production houses that has developed a strong reputation for making such films as last year’s smash hit “Journey To The West”. The company has announced it will pay 266 million yuan ($43 million) for 51 percent of Huayuxun. (English article)
The purchase will give Huayi a bigger presence in the Internet services space, and will complement Huayi’s current film-making business. The deal marks the latest in a string of mid-sized acquisitions for Huayi outside its core film-making business. In 2010, the company bought 22 percent of mobile game companies Ourpalm and Guangzhou Yin Han Technology.
Meantime, Enlight Media has announced separately that it will pay 176 million yuan ($28 million) for 51 percent of Hangzhou-based Refeng, which was just founded last year. (English article) Refeng already has its own self-developed game, and Enlight said the pair will use their new alliance to create new games based on its films. The deal is the latest in the online game space for Enlight, whose films include the blockbuster hit “Lost In Thailand.” Last month Enlight announced it would pay 230 million yuan for 20 percent of privately held developer Guangzhou Xianhai Internet Technology. (English article)
None of these recent spate of deals looks too dangerous on the surface, as they are all relatively small and are in areas with some kind of connection to Huayi’s and Enlight’s core businesses. But the broader non-stop series of deals in China’s private media space does seem to be spinning a bit out of control, to the point where companies appear to be making acquisitions simply because they see others making similar moves and don’t want to get left behind.
In terms of these latest 2 deals, Huayi’s doesn’t look particularly shrewd as there’s quite a big difference between film-making and theater operation. Enlight’s 2 recent deals also don’t look that great, since the company would probably be smarter to work with mobile game developers through licensing agreements rather than this kind of equity tie-up. At the end of the day, I don’t see too much potential in these kinds of deals, and expect that most will ultimately end in divorce or failure due to poor structure and choice of partners.
Bottom line: M&A by Huayi and Enlight Media reflect a new wave of acquisitions in the media space, many of which are likely to fail due to lack of synergies and focus.
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