Shares of Hollysys Automation Technology have been on the rise recently, as the Chinese automation specialist nears its five-year high after private equity firm Ascendant Capital presented an acquisition offer that sparked a bidding war. The latest move came yesterday with the next bombshell: the rival bidder, a consortium between Recco Control Technology and Dazhen Group, has increased their offer and outbid Ascendant Capital.

Hollysys Automation Technology – Focus on Automation Hollysys was founded in 1993 and, according to its website, provides integrated solutions for industrial automation and rail transportation. Hollysys operates in China and other regions of Asia and has worked on over 45,000 projects in sectors such as energy and petrochemicals as well as high-speed and urban railways, as the website shows. The company currently employs over 5,000 people worldwide. The business is considered research intensive, with an annual expenditure of $70.2 million in their in-house research department.

In the last financial year, which ended on June 30, the company achieved a 9.8% increase in sales to $777.4 million. At the same time, net profit improved by 28% to $106.9 million. Accordingly, the profit margin was 13.6%.

For the current financial year, Hollysys Automation is targeting a revenue growth of between 10% and 20% to $852 to $930 million.

Several attempted takeovers in recent years Around three years ago, Hollysys had already received various takeover offers and successfully defended them. In 2021, Ascendent and Hollysys founder Changli Wang proposed to acquire the company at a price of $23 per share in cash, followed by several offers from other interested buyers, such as Centurium Capital and Boyu Capital.

In August, a consortium of Recco Control Technology and Dazhen Group then reaffirmed its previous offer of $25 per share, or $1.55 billion.

On October 24, Hollysys then announced that its co-chief operating officers, Lei Fang and Yue Xu, had made a competing, non-binding offer of $25 per share, triggering a potential bidding war.

Chinese financial investor collects shares Meanwhile, Chinese private equity firm Ascendent Capital Partners has been buying in and has collected 13.7% of all outstanding shares. Now, on Monday, Ascendant Capital, as the largest individual shareholder, presented a non-binding cash offer of $26 per share. This corresponds to a premium of 26% on the closing price before the takeover announcement. The offer values Hollysys Automation at $1.6 billion. This corresponds to 15 times last year’s profit or twice the company’s turnover.

Consortium counters offer Then came the next coup yesterday: the consortium of Recco Control Technology and Dazhen Group increased its offer by 6% to $26.50. This corresponds to a company valuation of $1.64 billion.

Share price significantly below takeover price Despite the recent share price movement (2023: +30%), the Hollysys Automation share was still trading at $22 yesterday afternoon, well below the purchase offer level of $26.50. The share is still 20% away from the takeover price. Apparently, investors are expressing their doubts that the transaction will eventually take place, which is understandable given the development of the past three years.