Summary

Liyang Zhang defines M&A this way: “The essence of M&A is a change in who controls the company.” That usually means transferring more than 51% of the equity or voting rights, along with the power to appoint management, set strategy, and sell control again. Corporate buyers acquire markets, countries, categories, capacity, and synergies; buyout funds acquire companies, reshape their strategy and capital structure, then exit at two or three times their money.
The Zhiyuan deal does not currently qualify as a standard reverse takeover; it looks more like buying a scarce listed platform now and preserving the option to consolidate assets three years later. In Liyang Zhang’s reading, an initial purchase of just over 20% can make the buyer the largest shareholder; adding voting rights pledged by the counterparty may create de facto control. Because listed-company ownership is fragmented, 30% is a common control-change threshold, and deals seeking to avoid triggering the relevant classification may stop at 29.9%. Under Zhang’s summary, injecting assets or conducting a major asset restructuring within 3 years could still be treated as an IPO: “I’ll buy the house first, then renovate it 3 years later.”
VC keeps the founder in the driver’s seat; a buyout fund has to “become the owner” from day one and ultimately answer for the business, the debt, and the exit. Preferred shares, buybacks, and ratchets give VC investments some debt-like protection, but control investors have no such backstop: “Nobody is going to buy this thing back for you. If it doesn’t work, it doesn’t work.” VC seeks one 100x winner out of 10 investments; buyouts seek a high success rate and two or three times the money per deal. The odds are lower, but the strategy can absorb billions of dollars.
LBO returns do not come from telling a story; they come from tightening every screw across cash flow, leverage, growth, and the exit price. Zhang’s example: buy a company earning roughly 10 yuan a year for 100 yuan, fund it with 50 yuan of equity and 50 yuan of bank debt, and repay the debt with 5 years of free cash flow. Even selling it for only 120 yuan 10 years later can, in his framing, produce a 2x return. Mature companies have more stable SOPs and cash flow, so the logical success rate for “not losing money” should be above 80%; he says none of the deals he has handled has lost money.
The value of taking a company private lies in “liberating the productive forces by changing the relations of production,” not merely exploiting market undervaluation. A listed-company turnaround may follow a J curve, with profits falling first; near-term earnings pressure, regulatory inquiries, and minority shareholders can obstruct long-term change. After privatization, boards, management options, and incentive plans become more flexible. Focus Media’s privatization after the Muddy Waters report is his textbook example of “escaping market volatility first, fixing the business, then relisting.”
The hard part is not naming a price; it is using deal structure to find the greatest common denominator among the seller, fund, strategic buyer, management team, banks, and government. Of 10 projects, perhaps only 3 enter full due diligence, 2 reach bank financing, and 1 closes. The hardest issues are often co-investors’ funding certainty, exit philosophy, and the founder’s emotions. “Sincerity is the killer move,” but critical rights such as drag-along must be stated clearly as deal breakers.
The best M&A investors ultimately reduce their edge to two abilities: seeing clearly and getting things done. Seeing clearly means understanding the macro, the industry, the company, the people, and the valuation, while extracting conclusions from public information that others missed. Getting things done means handling financing, legal work, governance, management, and multilateral negotiations. Zhang stresses that exit returns are a blend of alpha and beta; the collapse of a cruise company’s funding chain during the pandemic showed how a macro variable can overwhelm even the finest micro-level execution.
As China shifts from high-speed growth to higher-quality growth, M&A may move from a niche craft into a standard tool for corporate transformation, overseas expansion, and generational succession. For AI founders, Zhang advises first determining whether the buyer needs an agent, multimodal capabilities, a team, or some other irreplaceable asset, then deciding whether to become “the next Elon Musk” or accept a reasonable price. Deals most often get stuck on differences among shareholders from different rounds over cost basis, seniority, and return expectations. Yunqing Investment aims to capture structural opportunities created by geopolitics through case funds and help companies execute acquisitions.

Deep dive

1. M&A Buys Who Ultimately Calls the Shots, Not Just Shares

Liyang Zhang draws the line clearly: “The essence of M&A is a change in who controls the company.” On paper, that usually means more than 51% of the equity or voting rights changing hands. In substance, it means the new shareholder gains the power to appoint management, set strategy, and sell control again in the future.
Corporate M&A and financial M&A pursue different objectives. The former fills gaps in markets, countries, categories, supply chains, or production capacity, and seeks the synergy of “why one plus one is greater than two.” The latter buys a company for 100 yuan, improves it through management, resources, and leverage, then sells it for 300 yuan.
Dual-class shares do not automatically create transferable control. Zhang notes that super-voting rights are often tied to a specific founder: “Because I thought you were Jack Ma, I gave you this interest in Alibaba.” Once transferred to an ordinary financial investor, those rights may lapse automatically.
Extreme governance structures can leave 90% of shareholders without actual control. In some Cayman structures, for example, the board can “reappoint itself” while shareholders cannot replace directors. When shareholder and board interests diverge, control conflicts are no longer determined by ownership percentage.

2. Zhiyuan Takes the Listed Platform First and Buys a Three-Year Option

Asked by Qu Kai whether Zhiyuan was pursuing a reverse takeover, Zhang’s answer was that it “definitely does not constitute a standard reverse takeover at this stage, because it cannot borrow the shell; the law does not allow it.” A more accurate description is that a highly valued startup that cannot yet list independently is first securing scarce A-share platform resources.
In Zhang’s reading, an initial purchase of just over 20% can make the buyer the largest shareholder. If it also obtains voting rights pledged by the counterparty, it may achieve full control. Listed-company ownership is fragmented, so more than 30%-40% usually provides strong control; 30% is also a common regulatory threshold, which is why some transactions deliberately stop at 29.9%.
Based on Zhang’s summary of the rules, relevant assets cannot be injected or a major asset restructuring conducted within 3 years of a control change, or the transaction may be treated as an IPO. The previous period “might have been 5 years.” His analogy: “I’ll buy the house first, renovate it 3 years later, spend 3 years renovating, and move in 3 years after that.”
The option is not limited to future asset injections. The listed company can also issue debt or new shares, and its existing business may develop upstream or downstream synergies with Zhiyuan. But China’s secondary market is heavily governed by regulatory windows: “It’s loose when you buy, but tight when you want to inject assets.” Whether the platform can ultimately be used remains uncertain.

3. Shifting Public- and Private-Market Valuations Bring Control Investing Together with Public Markets

Zhang observes that public-market valuations were once extremely expensive 5 to 10 years ago, allowing a company bought in the private market to make 10x immediately after listing. Today, one argument he hears is that the best companies in the public market may trade at only about 10x PE. If a consumer company is priced expensively in the private market, “why not buy Kweichow Moutai stock instead? Its moat is no weaker than all the first, second, third, and fourth things you’re describing.”
This also explains why some private-market or M&A investors move into hedge funds. But buying shares is not the same as buying control. Public-market net asset values fluctuate sharply, and investors cannot directly drive governance or operational reform as controlling shareholders can. M&A investors would rather own private companies, trading a more stable valuation environment for room to actually reshape the business.

4. VC Sits in the Passenger Seat; Buyout Funds Bear the Full Risk of Ownership

Zhang’s analogy for the two roles is simple: VC backs an industry and a founder, while the founder remains in the driver’s seat and the investor is at most “in the passenger seat.” A buyout investor must enter with “an owner’s mentality”; the professional manager is the operator, but the fund is the owner.
VC can hold preferred shares that rank ahead of common shares in a bankruptcy liquidation, and can agree that if the company has not listed within 5 years, the founder or company will buy the shares back. That creates a degree of debt-like protection. Control investing has no such final backstop: “Nobody is going to buy this thing back for you. If it doesn’t work, it doesn’t work.”
The risk structures are therefore completely different. VC can invest in 10 companies and recover the entire portfolio cost through one 100x winner. Buyouts usually make only two or three times the money per deal, but demand a very high success rate. The compensation comes from capacity: a US semiconductor acquisition or Focus Media privatization can reach several billion dollars, and a 2x return on a billion-dollar deal produces far more absolute profit than a $5M VC investment that rises 10x.

5. Mature Cash Flow Turns M&A into Financial Engineering

Late-stage investors “look at the business and the people, but increasingly focus on the business.” McDonald’s China already has thousands of stores and tens of billions of yuan in sales, with relatively mature SOPs, training, and organizational systems. Profits may fluctuate between RMB400M, RMB500M, and RMB700M, but they generally do not suddenly fall to zero as they might at a startup.
Zhang therefore calls M&A investors engineers. They build a detailed financial model, set the debt ratio, interest rate, and financing terms, and calculate the effects of growth, operational improvement, debt repayment, and exit valuation one by one. “Every screw is tightened”; only then do two or three times the money become more than wishful thinking.
His simplified LBO example is this: a company earns roughly 10 yuan a year, and at 10x PE is worth 100 yuan. The fund contributes 50 yuan and the bank contributes 50 yuan. Using roughly 10 yuan of annual free cash flow, the debt is repaid in about 5 years. Even if the business does not grow and is sold for only 120 yuan 10 years later, his math still produces a 2x return.
On the success rate for “not losing money,” Zhang qualifies his answer: “Logically, it should be above 80%.” His own statement is also limited to saying that “at least none of the projects has lost money”; he does not equate a high win rate with the absence of tail risk.

6. Privatization Gives the J Curve Room to Breathe by Rebuilding Governance

A listed-company turnaround may follow a J curve: profits deteriorate first, while the secondary market, regulators, and minority shareholders immediately apply pressure. Privatization gives a fund more room to absorb short-term changes in exchange for faster decisions and long-term value creation—“fix the company, then list it again.”
Focus Media is the case Zhang cites. The Muddy Waters report caused violent price swings; M&A investors took control and delisted the company from Nasdaq, temporarily removing it from market volatility, public scrutiny, and continuous-disclosure constraints while it searched for a path back to the market.
He summarizes the value of M&A as “liberating the productive forces by changing the relations of production.” One layer is who calls the shots and how quickly decisions can be made under a public or private structure. The other is the distribution mechanism: a private company can give management more substantial options and tie professional managers’ returns to value creation.
Relations of production are difficult to change because a transaction affects the seller’s old shareholders, the new shareholder and its syndicate, strategic buyers, management, employees, banks, tax authorities, and multiple levels of government. Cross-border deals may also involve agencies such as the US IRS. Only after these interests are coordinated can operational reform take root.

7. Replacing Management Is Not the Default; Resetting Incentives Often Works Better

In the cases Zhang has handled personally, management changes occur in roughly 30%-40% of deals; most teams remain in place. Replacement is usually triggered by 3 situations: the old shareholder is preparing to retire; management cannot deliver agreed targets such as 10% annual growth and threatens the LBO’s debt service; or the existing team cannot execute a strategic transformation.
In a London acquisition of a global data company, he retained the original management team but required the managers to invest their own money and “join with skin in the game.” He also changed decisions that had previously required layers of reporting to headquarters so that the board could decide directly. Professional managers shifted from an employee mindset to an owner mindset, and the company was sold about 2 years later for a multiple of the investment.
China’s management talent pool is also improving. Zhang recalls that teams at state-owned enterprises served by McKinsey would still be discussing the business at 2 or 3 a.m. Decades of training at state-owned and foreign companies have produced a growing cohort of professional managers. Operators with real execution ability may also invest alongside the fund, or founders who left 20 years earlier may buy back their old companies together with a fund.

8. The Full M&A Loop Is Find, Invest, Manage, Exit; Funding Is Only the Opening Move

Zhang reduces the process to “find projects, invest, manage, exit.” After sourcing comes evaluation, negotiation, structure design, and closing. Only after closing does the work of setting strategy at the board, configuring management, and designing incentives begin. The loop is complete only when the investment is sold and the return realized.
No M&A investor can be a complete all-rounder, but every investor must understand financial statements and risk, quickly grasp industry dynamics, read people, find the right operators, and use systems to maximize both management performance and company value. “You may not need to master every single thing,” but finance, financing, legal work, and governance cannot be complete blind spots.
Deal sourcing also differs from VC’s industry-wide sweep. In early-stage AI, 100 companies may be raising money at the same time. A mature company must be large enough and willing to give up control, so screening 500 companies may still produce no deal. Zhang prefers to look for opportunities in structural changes such as privatizations, geopolitics, and cross-border capital realignment, then let deals emerge through sustained conversations.

9. Due Diligence Ends When You Understand the Rules Beneath the Table

“There is no end to researching a business,” but investors must quickly identify its core logic and unwritten rules: why franchisees cooperate, how advertisers and upstream and downstream participants split the economics, and what each participant “gets from the pot.” Only by combining that with management, the seller, and industry trends can an investable judgment be formed.
The key to a beauty deal was not a complex model but the stacking of 3 trends: China’s beauty market was still growing, premium beauty was growing faster, and online premium beauty was the “fastest part of the fast.” The target was essentially the industry number one, and Zhang had known the capable, trusted team for years. His view was that “the ceiling may still be 5 or 6 times higher.”
The 2015-2016 mobile-camera-chip deal rested on the judgment that iPhone 7 would adopt dual cameras. Zhang saw Sony’s annual report showing 2 factories being built in Japan and inferred that they were intended to expand iPhone production. Dual cameras could double the market and triple cameras could triple it; at a reasonable valuation, that industry expansion was enough to justify the risk.

10. Deal Structure Turns Zero-Sum Price Bargaining into a Multi-Party Win-Win

Early-stage financing often stops at the lead investor, follow-on investors, and the cap table. M&A may instead separate a gaming company’s IP from its operating entity, with the IP entity providing outsourced services to the operating entity to address Chinese employees and global markets while also resolving licensing and IP ownership. The structure itself becomes part of the value creation.
Zhang believes a pure seller-side price negotiation is inevitably zero-sum, but the other participants can find the “greatest common denominator” through staged exits, different return arrangements, and a gradual transfer of control. The real funnel is brutal: of 10 projects discussed, about 3 enter full due diligence, 2 reach bank financing, and closing 1 is already a good outcome.
Co-investors can sometimes be harder to coordinate than the seller. A billion dollars of equity may require 2 or 3 parties to fund together; any delay by one party can cause the entire buyer consortium to default and pay a break fee. He cites a Chinese semiconductor fund’s acquisition of a Korean asset that ultimately paid damages in the high tens of millions of dollars after approval from US CFIUS failed to come through.
When a co-investor is also the founder, the conflict can be sharper. A financial fund is willing to sell to the highest bidder, while the founder may think a strategic buyer is “too tacky” and refuse to sell at any price. If the deal is forced and ultimately fails, the two sides still have to work together, so the relationship after the exit matters alongside the price.

11. Negotiation Is Not Maximum Pressure; It Is Mapping the Zigzag of Both Sides’ Needs

Zhang’s first principle is that “sincerity is the killer move.” A fund is in the business to make money, so it should explain clearly how value will be created and how the proceeds will be divided. It should also identify who is more urgent and who has more momentum, allowing the party willing to bear the pressure to push forward without placing itself at the center of every conflict.
When acquiring the London data company, the Chinese fund’s offer was not the highest and the seller remained hesitant. After the team landed at Heathrow, it called from the taxi: “We’ve landed. We have 48 hours. Are you going to negotiate or not?” The next morning at 8 a.m., both sides began talks at Freshfields. They completed legal due diligence and convened the investment committee within 48 hours, signing after barely sleeping.
A negotiation course at INSEAD showed him that maximum pressure is not the only method. Once everyone put their scripts on the table, it became clear that his needs might be A and B, while the counterparty wanted A and C or B and D; not every point was zero-sum. “Everyone’s needs are jagged.” The task is to exchange terms with different utility values, not seize every last penny.
But drag-along rights cannot be conceded lightly. When the lead fund finds an exit, it must be able to drag minority shareholders into the sale to deliver 100% of the equity to an industrial buyer such as Procter & Gamble. Zhang states clearly that this is a deal breaker. Other incentives can be exchanged; bluffing is sometimes possible but not necessary. Ultimately, the outcome depends on the cards each side holds.

12. The Highest-Level Skill Is Seeing Clearly and Getting Things Done; Returns Always Blend Alpha with Beta

Zhang condenses competitive advantage into 2 phrases: “See clearly, get things done.” The first means extracting conclusions from public information that others have missed, not trading on inside information. The second means truly coordinating banks, lawyers, CEOs, boards, governments, and other parties so that a judgment becomes a deliverable, operable, and exitable result.
Macro judgment can sometimes matter more than micro execution. A fund that invested in a cruise company before and after the pandemic faced the possibility that a COVID-19 outbreak onboard would leave the ships unable to dock and the funding chain immediately broken. Many people talk about alpha, but a substantial portion of actual exit returns comes from beta.
He uses the Huashan School of Swordsmanship as an analogy: speaking only of alpha is the qi school; speaking only of beta is the sword school. “Neither is right or wrong. Both matter.” His personal style is conservative and he does not chase the hottest themes. The cost is that even after buying Pop Mart, he might sell at 2x and miss the much larger alpha created by its later globalization.
For deal stamina, he recommends works such as Shau-kiu Wei’s Money Games, especially the 2-year negotiation with the government during the acquisition of Korea First Bank. The industry remembers the legendary moments, but the real work is repeated bargaining and repeated redrafting: terms agreed today may be overturned and rewritten tomorrow.

13. China Has Entered the Quality-Growth Phase; AI Founders Should Learn Early How to Sell Their Companies

Zhang believes that the high-speed growth from China’s WTO accession in 2000 through around 2020 created easy money across industries, leaving little appetite for the slow craft of M&A. As the economy shifts from growth rate to growth quality, business transformation, overseas expansion, and generational succession will create more control transactions. “M&A is a craft, like diagnosing patients”; talent improves through accumulated cases.
When facing a potential buyer, an AI founder should first understand the specific value they offer: an agent, multimodal capabilities, a team, or something else. Ideally, the founder should possess a point of differentiation that leaves the buyer with “no other option.” Only then should they decide whether to become “the next Elon Musk” or sell at a reasonable valuation.
Coordinating existing shareholders is harder still. The seniority, cost basis, and dividends of the A, B, and C rounds differ. The last round may demand to recover its investment first, while an earlier round may realize that nothing remains after the waterfall and refuse to sign. A willing buyer and an acceptable price do not mean the deal will clear the shareholder hurdle.
Yunqing Investment was founded in response to the pressure that US-China competition placed on pure-dollar or US-backed funds investing in China. Zhang hopes to work with his partners through case funds to capture reasonably valued structural opportunities and use more than 10 years of lessons from failed attempts to help companies complete acquisitions. In his view, the corporate side’s next major question will be “transform the business or go overseas,” not simply completing another fund transaction.

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