"Flash Acquisition" Inquiry Letter! Questions Behind Sapphire's Over 24x Premium M&A of Shanghai Qinli

How can AI performance commitments avoid the risk of declining past performance?

After disclosing the acquisition plan, on March 18, Shapuaisi (603168) closed up 10.01%, hitting the daily limit. It is understood that the company plans to acquire 100% equity of Shanghai Qinli Industrial Co., Ltd. (hereinafter referred to as “Shanghai Qinli”) to bring Shanghai Tianlun Hospital Co., Ltd. (hereinafter referred to as “Tianlun Hospital”) into its fold.

Although investors are optimistic about this transaction, there are still some questions that Shapuaisi needs to answer. First, the transaction involves a high premium, with an assessed appreciation rate of 2,417.87%. Second, this is an related-party transaction, and previously, Shapuaisi had already acquired hospital assets from its controlling shareholder, with the target company experiencing a decline in performance after the performance commitment period. Additionally, the transaction price is 528 million yuan, while Shapuaisi’s cash balance at the end of Q3 2025 was only 101 million yuan. Even if the company takes out a loan to support the acquisition, whether it has the ability to pay remains questionable.

Following the announcement, Shapuaisi quickly received an inquiry letter from the Shanghai Stock Exchange, questioning the reasonableness of the valuation and the achievability of the performance commitments.

Is the transaction valuation reasonable and fair?

The reasonableness and fairness of the valuation are the first issues Shapuaisi faces.

The announcement states that Shapuaisi intends to pay in cash to acquire 100% equity of Shanghai Yihe Medical Management Co., Ltd. (hereinafter “Yihe Medical”) and Shanghai Yanghe Industrial Co., Ltd. (hereinafter “Yanghe Industrial”) held by Shanghai Qinli.

The main purpose of this acquisition is Tianlun Hospital behind Shanghai Qinli. After the acquisition, Shapuaisi will indirectly hold 100% of Tianlun Hospital, making it a wholly owned subsidiary. The hospital’s assets will synergize well with the company’s existing business.

The announcement shows that the transaction uses the income approach for valuation, with the assessed value of 100% equity of the target company at 528 million yuan, net assets of 20.97 million yuan, and an appreciation of 507 million yuan, with a rate of 2,417.87%.

It is worth noting that this is a related-party transaction. The counterparties, Yanghe Industrial and Yihe Medical, are respectively the controlling shareholder of Shapuaisi and an affiliated person of the controlling shareholder.

Economist and new finance expert Yu Fenghui told Beijing Business Daily that from a business perspective, acquiring 100% of Shanghai Qinli through a related-party transaction to indirectly hold Tianlun Hospital can help expand the company’s business scope and enhance market competitiveness if it achieves good synergy. However, the premium of 2,417.87% is unusually high, requiring the company to provide sufficient reasons and explanations to justify the reasonableness and fairness of the transaction.

Yu Fenghui further stated that in M&A cases, premiums exceeding 20 times are uncommon. High premiums are usually due to factors such as the target asset having unique resources or technology that can significantly improve the buyer’s market position; optimistic expectations of future earnings; or the buyer’s willingness to pay extra to enter new markets or industries. However, high premiums also carry risks, such as future earnings falling short of expectations or difficulties in integration, which could lead to investment failure.

In response, the Shanghai Stock Exchange’s inquiry letter asks Shapuaisi to compare comparable transactions’ timing and P/E ratios, explain whether current policies and market conditions differ significantly from comparable transactions, and whether the valuation is comparable. It also requests further analysis of the fairness of the valuation and whether there is any benefit transfer to related parties or harm to the company.

Can performance commitments be achieved?

This transaction includes performance commitments. The counterparties promise that from 2026 to 2028, the net profits of the target company will not be less than 32.4 million yuan, 37.3 million yuan, and 42.65 million yuan respectively, showing significant growth compared to the past two years.

Financial data shows that in 2024–2025, Shanghai Qinli’s revenue is approximately 1.34 billion yuan and 1.57 billion yuan; net profits are about 18.99 million yuan and 27.14 million yuan.

Shapuaisi stated in the announcement that in recent years, with continuous improvement in hospital hardware and operational capabilities, Tianlun Hospital’s revenue and net profit have steadily increased. During the forecast period, the hospital’s income and cash flow are expected to grow clearly, with substantial potential for future cash flow increases.

“After this transaction, Tianlun Hospital will effectively enhance its brand recognition and social influence through capital market operations, and leverage the company’s smooth financing channels to expand its scale and improve service quality, capturing more market share in the healthcare industry. Due to its characteristics, hospitals tend to have stable operations, strong resistance to economic cycles, and good cash flow, which can enhance the company’s profitability and risk resistance, benefiting minority shareholders,” Shapuaisi said.

However, it is known that Shapuaisi previously acquired Taizhou Maternity Hospital and Qingdao Shikang Eye Hospital from its controlling shareholder. After the performance commitment period, both hospitals experienced declines, and the goodwill generated faces impairment risks. As of the end of Q3 2025, Shapuaisi’s goodwill was 336 million yuan.

Investment and financing expert Xu Xiaoheng said that goodwill is often considered a “killer” that can strangle a company’s performance. If the acquired companies perform poorly, it can cause significant losses for the listed company.

The Shanghai Stock Exchange also asked Shapuaisi to analyze the actual operating performance, commitment fulfillment, and impairment testing of the previously acquired Taizhou Maternity Hospital and Qingdao Shikang Eye Hospital during and after the performance commitment period, and to explain whether the performance commitments in this transaction are designed to protect the company’s interests and prevent similar risks.

Additionally, the exchange requested explanations on the revenue-related factors, growth basis, historical performance fluctuations, and operating costs to assess the achievability of the commitments.

How does the large acquisition impact liquidity?

The announcement shows that the transaction price is 528 million yuan, paid through self-owned funds and bank loans.

For Shapuaisi, the required funds are substantial. The company’s Q3 2025 report shows that cash and cash equivalents are about 101 million yuan, and financial assets are about 122 million yuan, totaling approximately 223 million yuan, which is insufficient to cover the transaction price. The payment will be made in five installments, with the first two installments totaling about 370 million yuan.

The Shanghai Stock Exchange also noted the company’s financial situation, asking Shapuaisi to explain the arrangement for raising funds, current available funds, daily operating cash flow needs, bank credit limits, and the progress of acquisition loans, including whether there is a risk of transaction failure due to insufficient funds. If loans are used, details such as loan amount, term, interest rate, and collateral should be provided, along with the impact on the company’s debt ratio and financial expenses. The company should also analyze how this large cash outflow will affect liquidity, debt repayment ability, and future operations.

Furthermore, the exchange inquired about the ownership, operational qualifications, and transitional arrangements of the target assets. The prompt issuance of inquiry letters reflects regulatory concern and caution, aiming to protect minority shareholders’ interests and ensure market fairness, according to Yu Fenghui.

Lin Xianping, Secretary-General of the Cultural and Creative Research Institute at Zhejiang University City College, commented that Shapuaisi’s transaction is a typical high-premium, strongly related-party, highly scrutinized healthcare industry merger. Positively, the company aims to synergize its hospital acquisitions with existing ophthalmology and maternity businesses, improving healthcare layout. If the commitments are fulfilled, it could boost profits. However, risks include underperformance, cash flow safety issues, and uncertainties in hospital asset operation and management integration. Whether the synergy can be realized remains to be seen.

The Beijing Business Daily contacted Shapuaisi for an interview, but as of press time, no response has been received.

Beijing Business Daily Reporter Ding Ning