DEF: Rising Dragon SPAC to Merge with HZJL, Form Xpand Boom

Rising Dragon Acquisition Corp. announces a definitive merger agreement with HZJL Cayman Limited, creating Xpand Boom Technology Inc., a new publicly traded entity focused on local life services in China.

Summary

• Rising Dragon Acquisition Corp. (RDAC), a Cayman Islands exempted blank check company, will merge with HZJL Cayman Limited (HZJL), a comprehensive solutions provider for local life services businesses in China.
• The transaction will occur in two steps: RDAC will merge into Xpand Boom Technology Inc. (PubCo), a wholly-owned subsidiary of RDAC, with PubCo as the surviving public entity. Immediately after, Xpand Boom Solutions Inc. (Merger Sub), a wholly-owned subsidiary of PubCo, will merge into HZJL, making HZJL a wholly-owned subsidiary of PubCo.
• The aggregate consideration for the Acquisition Merger is $350,000,000, payable in 35,000,000 newly issued PubCo Ordinary Shares, valued at $10.00 per share, to HZJL and its shareholders.
• HZJL's CEO, Mr. Bin Xiong, is entitled to receive up to 20,000,000 additional PubCo Class A Ordinary Shares as earn-out shares if the combined entity achieves revenue targets of RMB300,000,000 in the first fiscal year post-closing and RMB600,000,000 in the second fiscal year post-closing.
• PubCo will adopt a dual-class share structure, with Class A Ordinary Shares having one vote and Class B Ordinary Shares having ten votes. Only Class A Ordinary Shares will be tradable immediately after the Business Combination.
• Upon closing, HZJL shareholders will own approximately 78.03% of PubCo's total issued and outstanding ordinary shares in a no-redemption scenario, increasing to 88.90% in a maximum redemption scenario.
• RDAC public shareholders will own approximately 14.10% in a no-redemption scenario, decreasing to 2.15% in a maximum redemption scenario.
• The transaction is subject to approval by Rising Dragon shareholders on several proposals, including the Reincorporation Merger, Acquisition Merger, Nasdaq listing, and the proposed PubCo Charter.
• HZJL's revenue for the fiscal year ended June 30, 2024, was $12,616,504, with a net income of $1,120,845. For the six months ended December 31, 2024, revenue was $12,880,776, with a net income of $1,433,215.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant dilution for public shareholders, the controlled company structure with concentrated voting power, and the extensive list of risks associated with operating in China and the complexities of a SPAC merger, despite HZJL's stated growth potential and positive financial trends in recent periods.

Positives

• The Business Combination provides HZJL with increased access to capital markets by becoming a publicly traded company on Nasdaq, enhancing its ability to fund growth initiatives.
• The merger is expected to enhance HZJL's market visibility, improve market perception and credibility, and attract new clients and business partners.
• The public listing could create opportunities for long-term value appreciation for HZJL's initial shareholders.
• HZJL operates an integrated business model offering comprehensive solutions (branding, digital tools, supply chain) to local service businesses, which is scalable and adaptable.
• HZJL has an innovative branding solution leveraging social media, a network of over 370 KOLs with 560 million followers, and participation in popular TV shows like 'Founders Glory' and 'OrionStar'.
• The company's proprietary 'JiManMan' online software provides advanced CRM and digital marketing tools, with over 12,000 business users and a distribution network of over 500 dealers across China.
• HZJL has a robust supply chain with over 3,700 food and ingredient suppliers and partnerships with cold-chain logistics providers, offering over 110,000 product categories.
• HZJL has a strong operational track record, demonstrating revenue growth and increased operating income from FY23 to FY24, reflecting effective business strategies to improve profitability.
• The management team of HZJL is described as visionary and experienced, with expertise in e-commerce, digital marketing, and supply chain management.

Negatives

• Rising Dragon's public shareholders will experience significant immediate dilution, with their ownership decreasing from approximately 76.00% pre-merger to 14.10% in a no-redemption scenario, and as low as 2.15% in a maximum redemption scenario.
• PubCo is expected to face significantly higher operating costs as a public company due to increased audit, legal, administrative, and compliance expenses, which could reduce short-term profitability.
• The transition to a public company will add complexity to HZJL's operations, potentially diverting management's attention from core business activities.
• The need for substantial capital and operating expenditures will increase, requiring heavy investment in marketing, infrastructure, technology, and human resources.
• The dual-class share structure, where Mr. Bin Xiong will hold approximately 80.0% to 83.1% of PubCo's voting power, means PubCo will be a 'controlled company' under Nasdaq rules, potentially limiting protections for public shareholders.
• The Sponsor and RDAC's officers and directors have significant financial incentives to complete the business combination, as their founder shares and private units would be worthless if a merger is not consummated, creating potential conflicts of interest.

Risks

• HZJL is an early-stage company with an innovative business model in an evolving market, making it difficult to evaluate its business and prospects and increasing investment risks.
• Intense competition in marketing technology solutions could harm HZJL's business, financial condition, and results of operations if it fails to compete effectively.
• Reliance on proper operation and maintenance of technology solutions and internet infrastructure in China, with any malfunction or capacity constraint potentially having a material adverse effect.
• Flawed or ineffective algorithms and data engines for assessing audience behaviors could materially and adversely affect HZJL's reputation and market share.
• Dependence on suppliers and business partners for quality products and logistic services, with changes, interruptions, or negative publicity potentially affecting operations.
• Failure to maintain and enhance HZJL's brand could impair customer base expansion and harm business, financial condition, and results of operations.
• Loss of any content distribution channel (e.g., Douyin, Toutiao, which accounted for 95% and 5% of media costs in 2023 and 2024 respectively) or changes in contract terms could materially and adversely affect business.
• Adverse effects from changes in China's economic, political, or social conditions or government policies, given that all operations and substantially all assets are located in China.
• Uncertainties and evolvement in PRC regulation of internet-related businesses, including foreign ownership, licensing, and permits, could materially and adversely affect operations.
• The approval and filing with the CSRC or other PRC government authorities may be required for the Business Combination, and there is no assurance of timely or successful completion.
• Cash and assets in PRC/Hong Kong entities may not be available for use outside due to government interventions or restrictions on cash transfers.
• PRC regulatory authorities could disallow HZJL's Cayman Islands holding company structure, potentially causing the value of securities to significantly decline or become worthless.
• Continued U.S. regulatory and legislative focus, including the HFCAA, may adversely affect the market price of PubCo Class A Ordinary Shares and could lead to delisting if the auditor is not inspected by PCAOB for two consecutive years.
• Complying with evolving cybersecurity, information security, privacy, and data protection laws in China may entail significant expenses and potential penalties.
• PubCo's dual-class share structure with different voting rights may adversely affect the value and liquidity of ordinary shares and limit public shareholders' influence on corporate matters.
• The Reincorporation Merger may be a taxable event for U.S. Holders of RDAC Ordinary Shares and Rights, particularly if Section 367(a) of the Code or PFIC rules apply.
• RDAC's independent registered public accounting firm's report contains an explanatory paragraph expressing substantial doubt about RDAC's ability to continue as a going concern if a business combination is not consummated.
• If RDAC cannot consummate a business combination by January 15, 2026 (or July 15, 2026, if extended), the trust account will be liquidated, public shareholders will receive approximately $10.44 per share, and RDAC rights will expire worthless.
• RDAC shareholders may be held liable for claims by third parties against RDAC to the extent of distributions received upon redemption of their shares if RDAC enters insolvent liquidation.
• The fairness opinion obtained by the Rising Dragon board of directors will not reflect changes, circumstances, developments, or events that may have occurred or may occur after the date of the opinion.

Future Outlook

HZJL plans for future growth include expanding market coverage and customer base, particularly in second and third-tier cities and potentially international Asian markets. The company will enhance its digital and AI-driven solutions, including upgrading the JiManMan platform with automation and predictive analytics, and launching new digital applications. HZJL also aims to strengthen its supply chain and product offerings by increasing direct supplier partnerships and investing in smart warehousing and cold chain logistics. Scaling branding and marketing services through social media and KOL collaborations, and investing in human capital and leadership development are also key strategic priorities. The company intends to use future earnings for research and development, new product development, and expanding production capacity, and currently does not plan to declare dividends in the foreseeable future.

Management Comments

• The Rising Dragon board of directors determined that the terms and conditions of the Merger Agreement and the transactions contemplated thereby, including the Business Combination, are advisable, fair to and in the best interests of, Rising Dragon and its shareholders.
• Rising Dragon's management believes their team is well positioned to take advantage of growing acquisition opportunities focused on companies with substantial potential in emerging markets driven by innovative technologies or novel business models.
• HZJL's management believes that expanding its agent network to 580 agents in 2025 is achievable.
• HZJL's management believes the assumptions in the prospective financial information were reasonable at the time the financial information was prepared, given the information HZJL had at the time.

Industry Context

HZJL operates in China's rapidly expanding local life services sector, which is a fundamental pillar of the modern consumer economy. This sector, driven by an online-to-offline (O2O) business model, encompasses food and beverage, transportation, healthcare, home services, retail, and entertainment. Key growth drivers include urbanization, an expanding middle class, advanced digital infrastructure, AI integration, and shifts in post-pandemic consumer behavior towards contactless and personalized services. Government policies, such as the 14th Five-Year Plan, actively support digital service expansion and SME digital transformation. The industry is characterized by super-platforms like Meituan and Ele.me, and is expected to see sustained long-term growth, particularly in lower-tier cities and through AI-driven automation.

Comparison to Industry Standards

• CHFT Advisory and Appraisal Ltd. performed valuation analyses, including discounted cash flow and guideline public company analyses, to assess HZJL's equity value.
• For the guideline public company analysis, CHFT selected comparable companies listed on U.S. exchanges in food distribution, online software, and online marketing industries.
• Comparable companies for 'Supply of Food Products' included Chefs Warehouse, Inc. (CHEF-US), Sysco Corporation (SYY-US), United Natural Foods, Inc. (UNFI-US), and US Foods Holding Corp. (USFD-US), with EV/2027E Revenue multiples ranging from 0.17x to 0.59x (25th percentile: 0.37x).
• Comparable companies for 'Online Software Services' included Salesforce, Inc. (CRM-US), HubSpot, Inc. (HUBS-US), Braze, Inc. (BRZE-US), Klaviyo, Inc. (KVYO-US), and ZoomInfo Technologies Inc (ZI-US), with EV/2027E Revenue multiples ranging from 3.7x to 8.5x (25th percentile: 5.4x).
• Comparable companies for 'Branding Services' included Cardlytics, Inc. (CDLX-US), Interpublic Group of Companies, Inc. (IPG-US), Omnicom Group Inc (OMC-US), Stagwell, Inc. (STGW-US), and Criteo S.A. (CRTO-US), with EV/2027E Revenue multiples ranging from 0.8x to 1.3x (25th percentile: 1.1x).
• CHFT noted that most comparable companies exhibited more mature operations and larger market capitalizations than HZJL, leading to the adoption of a more conservative valuation metric, specifically the 25th percentile EV/2027E Revenue multiple from these comparable companies for estimating HZJL's equity value.
• Based on these analyses, CHFT established a valuation reference of approximately $565 million for HZJL's 100% equity interest using trading multiples, and $506 million to $570 million using discounted cash flow analyses. The aggregate consideration of $350 million was noted to be below this valuation reference.

Management Changes

Corporate Governance

Legal Proceedings

• HZJL is not a party to, and is not aware of any threat of, any legal or administrative proceeding that is likely to have any material and adverse effect on its business, financial condition, cash flow, or results of operations as of the filing date.

Related Party Transactions

• Mr. Bin Xiong, the controlling shareholder of HZJL, and four entities controlled by him, forgave $8,880,805 in amounts owed by HZJL as of June 30, 2024, which was deemed as additional paid-in capital.
• HZJL had various 'due from related parties' balances, representing interest-free loans made to related parties to support their working capital, which were fully settled as of the report date, with no plans for future loans.
• HZJL had various 'due to related parties' balances, representing interest-free borrowings from related parties to support HZJL's working capital.
• Bank borrowings of HZJL totaling $2,150,892 (as of Dec 31, 2024) and $2,311,757 (as of June 30, 2024) were collateralized with properties owned by Mr. Bin Xiong.
• Rising Dragon's Sponsor, Aurora Beacon LLC (controlled by CEO Lulu Xing), purchased 1,437,500 founder shares for $25,000 and 254,375 Private Units for $2,543,750.
• RDAC's officers and directors, including the Sponsor, have agreed to waive redemption and liquidation rights for their founder shares and private units, creating an incentive to complete a business combination.
• RDAC's Sponsor and its affiliates are entitled to reimbursement of reasonable out-of-pocket expenses incurred in connection with business combination activities, and may loan funds to RDAC, which would be repaid upon consummation of a business combination or convertible into private units.

Stakeholder Impact

• Shareholders of Rising Dragon (RDAC) will experience significant dilution of their ownership percentage in the combined company (PubCo), especially in scenarios with high redemptions.
• Public shareholders of RDAC who do not redeem their shares face the risk that PubCo's stock price may trade below the trust value of approximately $10.44 per share post-Business Combination.
• HZJL's existing shareholders will become the majority owners of PubCo, gaining significant control and potential for long-term value appreciation.
• Employees of HZJL will benefit from the continuity of management and the potential for growth initiatives funded by increased capital market access.
• Customers of HZJL are expected to benefit from enhanced digital and AI-driven solutions, strengthened supply chain capabilities, and expanded market coverage.
• The dual-class share structure and 'controlled company' status of PubCo may provide less corporate governance protection for public shareholders compared to companies subject to all Nasdaq requirements.
• The Sponsor and management of RDAC have financial incentives to complete the merger, which could create conflicts of interest with unaffiliated public shareholders.

Next Steps

• Rising Dragon shareholders will vote on the Reincorporation Merger, Acquisition Merger, Nasdaq listing, PubCo Charter, Director Approval, and Adjournment Proposals at the Extraordinary General Meeting on October 20, 2025.
• The Business Combination is expected to occur as soon as practicable following the Extraordinary General Meeting, but only after the registration of the plans of merger by the Registrar of Companies of the Cayman Islands.
• PubCo intends to apply to list the PubCo Class A Ordinary Shares on the Nasdaq Stock Market under the symbol XPD in connection with the closing of the Business Combination.
• HZJL's CEO, Mr. Bin Xiong, is eligible to receive earn-out shares based on the combined entity's revenue performance in the fiscal years following the Closing Date (RMB300,000,000 for the First Record Year and RMB600,000,000 for the Second Record Year).
• HZJL plans to expand market coverage, enhance digital and AI-driven solutions, strengthen supply chain, scale branding and marketing services, invest in human capital, and explore international expansion opportunities.

Key Dates

Recommendation

The proposed merger presents a complex investment case. HZJL demonstrates strong growth potential in China's local life services sector, driven by an integrated business model, innovative branding, and advanced digital solutions. However, the significant dilution for existing Rising Dragon public shareholders, coupled with the controlled company structure and inherent regulatory and geopolitical risks associated with operating primarily in China, introduces substantial uncertainty. While the fairness opinion supports the valuation, the potential for adverse market reaction to the dilution and governance structure, alongside the ongoing scrutiny of China-based companies, suggests a 'hold' recommendation. Investors should carefully weigh the growth prospects against these considerable risks and monitor the post-merger performance and regulatory environment closely.

Keywords

SPAC, Merger, HZJL, Rising Dragon Acquisition Corp, Xpand Boom Technology Inc, Local Life Services, China, Digital Marketing, Supply Chain, Corporate Governance, SEC Filing, Nasdaq Listing, Dual-Class Shares, PCAOB, CSRC, Risk Factors, Financial Performance