By PwC China
Summary of Major Discoveries
- Since 2014, the overseas investment transactions made by enterprises based in mainland China in the medicine field have surged, with the transaction volume climbing by over six times, the transaction amount in the first half of 2017 reaching USD4,353 million (approx. CNY28.95 billion), and the compound annualized growth rate increasing to 85%. Two reasons explain this phenomenon: on the one hand, the booming Chinese M&A market results in a declined number of quality targets with higher valuation, thus domestic enterprises shift their focus to the overseas to acquire target companies at a more proper valuation; on the other hand, the Chinese yuan is under pressure of devaluation in recent years, driving domestic enterprises to acquire overseas assets.
- Private enterprises dominate the overseas medicine M&A market, whose transaction amount in recent three years is as high as 21 times that of SOEs. This is in line with Chinese government’s support of medical cause run by non-governmental sectors, and the increasingly important role of private businesses in the medical and health market.
- In terms of specific industries, different from the medical instrument industry, domestic enterprises prefer to make overseas investment transactions in the bio-pharmaceuticals industry. However, regardless of the segment, domestic enterprises that engage in overseas investments mainly aim at introducing the overseas advanced medical resources or business model into China, to accelerate its domestic strategic layout in the healthcare business, and take the acquired firms as the platform for global expansion.
- In terms of investment destination, Chinese enterprises remain preferring to invest in the healthcare industry of developed regions such as Europe and North America. The major reason is that these countries and regions are equipped with the most advanced medical technologies, platforms and brands in the world, and have immense and mature consumption markets.
- Compared with the overseas M&As by domestic enterprises, foreign companies engage in much fewer transactions in the medicine field in China, with the transaction amount much smaller as well. It demonstrates that in the medicine investment area, “going out” outpaces “bringing in” of overseas resources, and the main reason is that domestic pharmaceutical enterprises have much space to improve their R&D capacity.
- The central government released the Notice on Further Guiding and Standardizing Overseas Investment Directions in August 2017, which as clearly specified that “priority should be given to promoting overseas investment of infrastructure that is conducive to ‘One Belt, One Road’ development and connectivity of surrounding infrastructure”, “investment cooperation with overseas hi-tech enterprises and advanced manufacturing enterprises should be intensified, and setup of overseas R&D centers encouraged”; the Notice has provided a good policy foundation for domestic enterprises to invest in the overseas medicine field, particularly in the countries along the “One Belt, One Road”. Hence, the growth trend in the medicine investment by Chinese enterprises is expected to continue.
- In light of the “One Belt, One Road” strategy, Asia-pacific region is expected to be an emerging investment destination focused by Chinese investors. At the same time, the countries and regions in Europe and North America, domestic investors, especially private businesses, perhaps face greater pressure and challenges in overseas investment. For instance, in acquiring high-tech firms in the sensitive industries, in February 2016, a semi-conductor manufacturer rejected the USD2.6 billion takeover offer of a company under China Resources (Holdings) Co., Ltd., due to the regulatory pressure of American authority.
- Moreover, with the continuous promotion of the “One Belt, One Road” strategy, an increasing number of overseas investors may access China to invest in the medicine field, particularly in the areas that promote development of the pension services in China.
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