Dr. Zhang Lijun: How the Startup Legend of China Mobile Games and Entertainment Was Created
Your Career and Life Achievement Are as Big as Your Mind
Dr. Zhang Lijun (fifth from right), V1 Group’s Chairman of the Board, Led the listing of China Mobile Games Group on the Nasdaq
On August 11, 2015, China Mobile Games and Entertainment Group, No. 1 mobile game issuer in China and leading developer in the world, publicly announced the completion of its merge with Orient Securities. In 2012, China Mobile Games and Entertainment (CMGE) (ranked 11th among China’s Top 30 Mobile Internet Companies by Forbes in 2015) was successfully listed on the Nasdaq by introduction. In 2015, the Company ended its eventful three-year journey in the US capital market in a splendid fashion, with the parent company V1 Group pocketing a gain of US$298 million (approx. HK$ 2.3 billion) from the disposal of equity interest in CMGE. Managing to obtain enormous financial gains while successfully dodging the plummet of the US stock market, CMGE is nothing short of a startup legend in Internet Plus-era capital market. And the creator of the legend is Dr. Zhang Lijun, Chairman of the Board of V1 Group and former Chairman of the Board of CMGE.
1st Men of “Listing by Introduction” in China
Dr. Zhang Lijun once said, “many legends were born of accidents; it takes persistence and hard work to make it a certainty.” True, no success of any company can be copied. Without Dr. Zhang Lijun’s future-proof vision, outstanding courage, and an innovation-driven pioneering spirit, CMGE will never see its success today, much less becoming the leader of the industry.
In fact, it was in as early as 2009 that Dr. Zhang Lijun, V1 Group’s Chairman of the Board, began to develop the mobile game business. Speaking of the reasons for entering the gaming industry at the time, he explained, “2009 was still dominated by non-smart phones. Back then I believed that mobile games as an important industry mode for consuming fragmented time would be popular among special user groups and become the 1st app on the platform of mobile phone. The first profitable product for our exploit on the Internet must be mobile games.” Based on this understanding, Dr. Zhang Lijun successively acquired KKFun, 3GUU, and OWX. In January 2011, China Mobile Games and Entertainment Group was officially founded, with Dr. Zhang Lijun as its Chairman of the Board, covering the business development and operation of mobile games.
Dr. Zhang Lijun, then Chairman of the Board of CMGE, quickly built the founding team of CMGE: CEO Mr. Mr. Xiao Jian from KKFun had over a decade of experience in China’s mobile game industry; Vice Chairman of the Board Mr. Hendrick Sin, a senior investment expert, had a wealth experience in corporate financing and M&E; Vice Chairman of the Board Mr. Wang Yongchao, founder of 3GUU, had over 15 years experience in China’s mobile game industry; CFO Mr. Zhang Feihu was a senior analysis and fund manager.
Recalling the “Initial Dream” of creating CMGE, Dr. Zhang Lijun was full of battle memories. “Mr. Xiao Jian was very young then. After joining V1 Group, he said he hoped I could lead them to getting listed on the Nasdaq in the US I told him, ‘I promise I will help you realize your Nasdaq dream. First of all, you need to cooperate with top game platforms in the world as well as world-class mobile phone manufacturers.’ Mr. Xiao Jian quickly led the company to work with the world’s second largest chip producer MTK; these cooperation propelled CMGE to the forefront of the industry.”
Dr. Zhang Lijun’s vision and understanding of the Internet industry was accurate. The mobile game industry indeed possessed the power of exponential growth. It had been reported that CMGE’s revenue in 2010 amounted to RMB125 million, with a net profit of RMB40.713 million; it took up 18.7% of market share in 2011, with a total revenue of RMB244 million and a net profit of RMB163 million, representing a profit rate of 67.1%.
Dr. Zhang Lijun, V1 Group’s Chairman of the Board, was honored “1st Men of Listing by Introduction”
In 2012, China’s mobile game industry was burgeoning, with many competitors emerged. Dr. Zhang Lijun stated that “If the company did not go public, it would have a hard time maintaining its leading position, whereas if managed and operated as per the standard of a public company, CMGE would be much more competitive.” However, troubled by the integrity crisis, hindrance from short-selling institutions, low valuation, and variation of Chinese and US accounting and regulatory policies, China Concept Stocks were experiencing a bleak winter in overseas markets. After careful deliberation, Dr. Zhang Lijun, then Chairman of the Board of CMGE, and the management team of CMGE decided to land on the capital market on September 25, 2012 by means of “Listing by Introduction” which required no immediate financing. The stocks of CMGE would be directly distributed by the parent company V1 Group to its holding shareholders, therefore no new shares had to issue to meet liquidity requirements on issuance. The US News outlets hailed CMGE as a success example for China’s capital market of achieving rapid development under special environments by using special strategies, and Dr. Zhang Lijun was therefore named the “1st Men of Listing by Introduction” in China.
Writing about getting listed on the Nasdaq in the US by means of “Listing by introduction”, the media said, “The listing of CMGE’s on the Nasdaq is an ice-breaker for China Concept Stocks to get listed in the US” Dr. Zhang Lijun said, “Listing by introduction was a realistic choice we made under the special circumstance after taking a close look at the environment of the US Capital market. This method was not our creation. It was fairly common in Hong Kong, with about 20 companies got listed using the “Introduction” method in 2011. However, V1 Group was the fearless warrior in using this method to get a Chinese company listed in the US”
As to the purposes of CMGE’s listing, Dr. Zhang Lijun named four main reasons. Firstly, mobile games were already booming in China in 2012, with competitors emerging constantly and new companies developing fast. Without going public, CMGE would have a hard time maintaining its leading position. Secondly, CMGE becoming the first Chinese gaming stock to get listing in the US would be highly conducive to subsequent financing. Getting listed at this juncture was crucial for future development. Further, managing and operating the company as per the standards of a public company would significantly enhance the company’s management capabilities, making the company more competitive. Finally, CMGE would obtain a market valuation, which would underscore the benefits of the management and the entire team, making it easier to attract high-caliber talents in the industry to CMGE while giving more incentives to employees working on mobile games.
As the first mobile game company in China to land on an overseas capital market, CMGE’s potential was quickly recognized by various capital companies, among them two of China’s major sovereign funds, namely Social Security Fund and China Investment, while New World Investment, Zennon Capital and other capital companies also invested in CMGE. As of 2013, CMGE raised a total of US$136 million funding.
“Privatization was A Smart Move”, V1 Group Gained HK$2.3 Billion
According to the financial statements of CMGE, the company’s revenue in 2014 was RMB1.26 billion, representing an increase of 258.3% over RMB353 million in 2013; profit attributable to CMGE in 2014 was RMB232 million, representing an increase of 904.8 percentage points over RMB23.10 million in 2013. As of the end of 2014, the number of total registered users came close to 24 million, with peak monthly distributions reaching nearly 100 million, and the total annual distributions exceeding 700 million. CMGE has been the largest full-platform issuer of mobile games in China for six consecutive quarters, with a market share of 20.1%, and was a game company among full-platform issuers in China with monthly issue flow exceeding 10 million.
Dr. Zhang Lijun, V1 Group’s Chairman of the Board
Commenting on the privatization of CMGE, Dr. Zhang Lijun, V1 Group’s Chairman of the Board, said this was another prudent decision made by taking comprehensive consideration of the market, funds, and long-term development, much as the one to get listed on the US stock market before. After receiving the privatization offer in May 2015, Dr. Zhang Lijun, then Chairman of the Board of CMGE, began to consider privatization operations of CMGE. He believed mobile games would maintain a solid development speed given the ownership of mobile phones in China. However, running a platform intended mainly for Mainland China using the structure of a overseas listing company would become very restrictive. “Because starting from the second half of 2014, China’s A-share market began to develop very fast. Many companies that weren’t performing as well as CMGE were valued much higher than CMGE. Not only must CMGE face pressures from short-selling institutions, but it also had to compete with companies with immense valuation in the A-share market. In the long run this was a disadvantage for CMGE to maintain its leading position. Therefore, by returning to the A-share market, CMGE gained the opportunity to compete fairly with comparable companies in China. Strategically, this was a more rational and reasonable arrangement.”
After careful deliberation, CMGE finally went with Orient Securities. According to Dr. Zhang Lijun, the strike price of CMGE’s privatization was US$22. Looking back, in light of the plummeting share prices in the US stock market and the lackluster A-share market, the privatization of CMGE at this juncture was rather a smart move. In addition to bringing V1 Group an enormous gain, it allowed CMGE the right opportunity to return to the A-share market.
Talking about the privatization process, Dr. Zhang Lijun, V1 Group’s Chairman of the Board, said through the privatization of CMGE, he came to the deeper understanding the human nature played a critical part in the success of a company. “In the course of the M & A, the team became more united. I was very satisfied with the professionalism and moral character of the CMGE team. Although this was a privatization process, the true color of human nature was exposed in the struggle of interests. When it counts most, you win or loss not because of your capability, nor your wealth, but human nature. Your career and life achievement are as big as your mind. The making or breaking of a start-up company hinges on whether the start-up team maintains its passion, patience, and tenacity, whether it is united and full of positivity; success depends on your split-second, human nature-exposing decision at the critical moment; and also future-proof vision--if you fail to understand the law of development of the industry, to see the big picture of the economy condition, or even to gain an outlook by combining the industry development with the economy condition, you won’t be able to make the right decision.”
It is known that as the parent company of CMGE holding 42.94% stake, V1 Group’s initial investment in CMGE was only HK$550 million, the parent company V1 Group pocketed a gain of HK$2.3 billion from disposal of equity interest in CMGE. CMGE has also become a master piece of capital operation for Dr. Zhang Lijun in his many years of internet venture development.
Next “Exposure”: Upgraded Internet Plus
Giving reasons for the disposal of CMGE, Dr. Zhang Lijun, V1 Group’s Chairman of the Board, explained, “The company had a positive view on China’s mobile game market a few years back, and helped CMGE become the first mobile game company in China to be listed on an overseas market. The exponential growth of the industry over these few years verifies the company’s vision. Currently, there are over 10 listed mobile game companies. The competition is exceptionally fierce. This disposal is in line with the company’s decision to pursuit long-term visions and collect large sums of capital for the next exposure.”
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About V1 Group Limited
V1 Group was established in 2005, listed on the Main Board of Hong Kong Stock Exchange in 2006, became the first Chinese video media enterprise listed in Hong Kong. V1 Group Limited was named the “China’s Top 100 Internet Companies” three years in a row from year 2014 to 2016.
After eleven years of rapid development, V1 Group’s main businesses have been fully covered the Internet and mobile terminals. In 2016, V1 Group successfully transformed from the new media industry group into a new economy in the internet industry, with extensive layout in new media, online games, internet healthcare, internet travel, internet education, internet finance and many other fields, which strive to build an internet life circle to solve the basic needs for users. V1 Group is now become an integrated new industry group in internet plus life field.
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