2.02 billion! Kuaishou will sell 100% of Paton's equity to Xiaomi and others

Two months ago, Cross-Border Communication announced that it planned to sell no less than 60% of Paton's equity. The latest news is that Cross-Border Communication plans to transfer 100% of Paton's equity for 2.02 billion yuan, and the transferees include Xiaomi and other companies.

Cross-border Communication plans to transfer 100% equity of Paton for 2.02 billion

Yesterday, Cross-Border Link issued an "Announcement on the Sale of 100% Equity of a Subsidiary and Related Transactions", stating that it plans to transfer 100% of the equity of its wholly-owned subsidiary Shenzhen Qianhai Paton Network Technology Co., Ltd. for RMB 2.02 billion.

The transferees include Patuo Investment, Yongpa Investment, Yongxun Investment, Pachi Investment, Pazhong Investment, Xiaomi, Shunwei, Yiwei Yihang, Maibu Investment, Zhou Min, CDH Futao, CDH Yongfu, Jiajun Nuorong, Juvenile Wisdom, Quantum Leap, Xiyin International, Huangpu Chuangrong, Lanyi Zhenxun, Yuanhe Investment, and Payou Investment, and intend to sign the "Equity Transfer and Capital Increase Agreement of Shenzhen Qianhai Patuo Network Technology Co., Ltd." After the completion of this transaction, the company will no longer hold the equity of the target company.

The transferees mainly include two major lineups, management transferees such as Patuo Investment, Yongpa Investment, Yongxun Investment, and Pachi Investment, as well as new investors such as Xiaomi and Xiyin International.

Among the management transferees, the actual controller of Paton Investment and Patchi Investment is Deng Shaowei, and the actual controller of Yongpa Investment and Yongxun Investment is Liu Yongcheng, both of whom are core members of Paton's founding team.

The new investor has also attracted much attention. When KuaiBo initially stated that it would sell no less than 60% of Paton's equity, many cross-border sellers were quite wary of Xiaomi, one of the transferees. In the words of the sellers, "We were able to handle it before, but now that the big guys have joined, we are afraid that we will be crushed to the ground." Xiaomi's brand + cost-effective strategy is well known in the industry. After it joins Paton, it is likely to cause a dimensionality reduction attack on other sellers in the same field.

Another new investor also caught the attention of cross-border people - Guangzhou Xiyin International Import and Export Co., Ltd., which is the low-key seller SHEIN in the industry. Tianyancha shows that the executive director and general manager of Xiyin International is Xu Yangtian, the founder of SHEIN.

As a top seller on Amazon, Paton's performance and profitability have attracted many investors. In general, the transferee of Paton's equity transfer is strong, and the development prospects after the equity transfer are also worth looking forward to.

Did Cross-Border Communications make a loss or a profit by selling Paton?

Regarding this transaction, the cross-border e-commerce industry and shareholders are more interested in whether Cross-Border Link made a loss or a profit.

It was not easy for Cross-border E-commerce to turn Paton into a wholly-owned subsidiary . From 2015 to 2018, the company completed the acquisition of 100% of Paton's shares in four times with a total of 1.027 billion yuan, hoping to seize the opportunity of the rapid development of cross-border e-commerce. Paton's performance is indeed impressive. From 2017 to 2019, Paton's operating income was 2.425 billion yuan, 3.417 billion yuan, and 3.439 billion yuan, respectively, and its net profit was 191 million yuan, 238 million yuan, and 178 million yuan, respectively; in the 2020 semi-annual report, Paton achieved operating income of 2.047 billion yuan and net profit of 152 million yuan during the period, accounting for 22.53% and 56.09% of Cross-border E-commerce's overall proportion, respectively.

It seems not an exaggeration to say that Paton is the profit engine of Cross-Border Communication, so why did Cross-Border Communication sell such a high-return asset? In February, the Shenzhen Stock Exchange sent a letter of concern to Cross-Border Communication, and the other party officially responded to the reason for selling Paton.

Cross-border Link's performance declined in 2019 and it has faced a severe external financing environment since 2020. This transaction aims to recover cash to fill the working capital gap and repay debts to enhance the company's short-term and long-term debt repayment capacity.

In recent years, the company's capital demand problem has been quite prominent . On the one hand, it is due to the active expansion of the main business. The cross-border e-commerce business needs sufficient operating funds for marketing promotion, inventory turnover, and supply chain construction. On the other hand, the company has successively invested in many high-quality companies in the industry such as Paton, and the operating funds have been converted into investment funds.

In order to solve the problem of capital demand, the company has raised funds through various means such as issuing corporate bonds, bank loans, and shareholder loans. Over the years, external financing has caused the company's debt pressure to gradually increase, and its short-term and long-term debt repayment capabilities have shown a downward trend. At the end of 2018, the end of 2019, the end of June 2020, the end of September 2020, and the end of December 20201, the company's asset-liability ratio was 40%, 57%, 52%, 50%, and 50%, respectively, which were higher than the level of the same industry; the current ratio was 2.09, 1.21, 1.31, 1.34, and 1.32, respectively, and the quick ratio was 0.88, 0.68, 0.73, 0.71, and 0.65, respectively. The current ratio and quick ratio are both lower than the level of the same industry. The company's quick ratio in each period is lower than 1, the company's ability to realize liquidity of current assets is low, and its short-term debt repayment ability is weak.

Cross-border E-commerce faces a severe external financing environment. As of the end of 2020, the company still faces a large liquidity gap and debt repayment pressure, and its subsidiary Global Easy Shopping faces tight funding needs for cross-border e-commerce business and debt repayment.

Debt pressure and funding issues have restricted the company's normal operations and future development. After the completion of this transaction, a large amount of monetary funds will be added to the listed company's book assets, which will help the listed company fill the working capital gap and repay debts to improve the company's short-term and long-term debt repayment ability, enhance the company's capital strength, and optimize the capital structure.

In this case, the sale of Paton was a helpless move. So did Cross-border Communication lose or gain in this transaction? It spent 1.027 billion yuan to buy it and planned to sell it for 2.02 billion yuan. During this period, Paton brought it hundreds of millions of yuan in profits. In the short term, Cross-border Communication received a huge amount of operating funds, but in the long term, it lost a general. The industry has different opinions on this.

After selling Paton, how will Cross-Border Communication develop?

The total assets, operating income and net profit of the three core assets of Cross-border E-Commerce , Global Easybuy, Paton, and Youyi E-Commerce in the first half of 2020 are as follows:

Among them, the combined proportion of the financial indicators of Global Easy Shopping and Youyi E-commerce exceeds the corresponding indicators of Paton. After this transaction, Cross-border still owns two core assets, Global Easy Shopping and Youyi E-commerce, to carry out export e-commerce business and import e-commerce business respectively. This transaction is an asset structure adjustment and does not change the main business layout of cross-border import and export e-commerce.

More importantly, this transaction will help to recover funds to cope with the new competitive situation and enhance industry competitiveness, and will not have a significant impact on the company's future operating performance.

In the announcement, Cross-Border Link stated that with the increase in the penetration rate and market size of export e-commerce, competitors such as Anker Innovations and Zebo Technology have grown and entered the capital market in recent years, and industry competition has intensified. However, the company was under pressure to repay debts in 2020, and the overall investment in the business was limited, which to a certain extent dragged down its development. The gap in business funds has caused the company to encounter bottlenecks in product categories and regional expansion, and its growth has been restricted. In addition, due to the shortage of funds on the marketing and procurement sides, the supplier account period is longer, and more concessions need to be made in the procurement costs to high-quality suppliers to maintain a stable cooperative relationship, which has invisibly increased the company's operating costs.

If the sale of Paton is successfully implemented, on the one hand, it will meet Paton's demand for further development and growth by binding the founding team with equity and introducing investors such as Xiaomi; Cross-Border Link will also make full use of the funds obtained from this transaction, seize the opportunity to enhance competitiveness in brand building, logistics construction and other aspects, continuously improve internal management level, reduce operating costs, increase profitability, improve operating efficiency, improve market competitiveness, reduce operating risks, and maintain its leading position in the industry.

This transaction may be a win-win situation for Cross-Border Link and Paton.

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