China Mobile pays $620M for controlling stake in security firm
China Mobile has splashed 4.14 billion yuan (US$620 million) on a controlling stake in network security firm Venustech Information Technology Group.
The operator's investment arm China Mobile Capital has acquired 23.08% of Venustech's voting stock through its purchase of 284 million shares at 14.57 yuan each.
For both companies, it is a bet on the stellar growth of China's fast-growing Internet and data security markets.
In a statement to the Shenzhen exchange on Saturday, Beijing-based Venustech said the funds would be used to supplement working capital.
It said the partnership with China Mobile meant it would be able to leverage the operator's brand strength, technology capabilities and sales network. It would aid China Mobile in expanding its footprint in the data security and enterprise businesses, developing industry-leading capabilities and strengthening national security.
Venustech is growing at a rapid clip, with operating income up 42% in the last three years. In 2021, it posted earnings of 862 million yuan ($128.7 million) on revenue of 4.39 billion yuan ($655 million).
Quoting MIIT figures, the company said China's network security industry would be worth more than 250 billion yuan ($37.3 billion) in 2023, with a CAGR of more than 15%.
"Data security, personal information protection, industrial Internet security, IoT security, and the security needs of various smart scenarios such as transportation, energy, and medical care in smart cities will become new sectors that support the expansion and rapid growth of the network security market," it said.
It also stressed the political dimensions of IT and network security business in China.
Information security has become a major government focus, with the passage of a succession of new laws – cybersecurity, data security, personal data security – in the last five years.
"The party and the country attach great importance to cyber security, which has risen to the height of national strategy," Venustech said in the statement.
"The threat situation is becoming more complex and severe," it added.
Not everyone is convinced by the deal, however. One analyst has questioned why the company's founders and co-owners, husband and wife Yan Li and Wang Jia, were so willing to cede control of a company apparently on a steep growth path.
Besides a highly liquid balance sheet, the company had 3.85 billion yuan ($574 million) in undistributed profits.
"With so much money, why not pay big dividends?" the analyst, writing in the Chinagjiang Times, asked.
Venustech's stock closed 2.18% higher Monday after a week's suspension ahead of the China Mobile deal.
China Mobile Capital Co Ltd, the operator's venture and asset management arm, was set up in 2016. It reported assets of 2.46 billion yuan ($367 million) and a net profit of 25.2 million yuan ($3.76 million) in 2021.
It has invested in 80 portfolio companies, including China's biggest handset brand Xiaomi, listed cloud player Ucloud and travel firm Travelsky.
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— Robert Clark, contributing editor, special to Light Reading