Well Lead Starts Overseas M&A: Story of JD Capital’s Investment in the Medical Apparatus Manufacture

2016-12-14

Source: VOM120nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Lately, Well Lead (603309.SH) published its M&A plan for Creative Balloons GmbH (the “CB”), a new material company of Germany, planning to hold 25% of its shares. The move signals Well Lead’s intention of stepping into the global market of high-end medical consumables.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As a leader in the segment of medical equipment, Well Lead went public in 2015. Its products are sold nationwide, entering over 300 first-grade hospitals. Internationally, its products can be found in the markets of many countries and regions, including North America, Europe and Japan.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

JD Capital became the shareholder of the company in 2011, holding 8% of its share with an investment of RMB 33.6 million. Following Well Lead’s listing in 2015, JD Capital started its withdrawal this year, receiving a ROI of nearly 10 fold and an annualized IRR of 50%.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Besides, as the capital partner of Well Lead, JD Capital not only pours money into the company, but formulates strategic goals for its future development, i.e., a dual strategic deployment of “increasing market share in domestic terminal market + improving brand image through exportation.” The merger of CB is an effort JD Capital made in this regard.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


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An industrial bellwether on the cusp of stormnOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“Even a pig can fly in the strong wind” is a famous saying of Lei Jun, founder of Xiaomi Tech. An industrial bellwether like Well Lead, so to speak, is just the one standing on the cusp of storm – global population aging.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to WHO, compared with the figure in 2000, 34 years later, the number of people aged 60 or above is expected to amount to 2 billion, an increase of over three times. The overall medical expense of the elderly comes two to five times that of other age groups. On this account, medical catheter, a kind of basic medical equipment widely used in respirational or urinary operations, treatment, first-aid and nursing, seems to become more and more important.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Currently, the global market of medical catheter has been expanding, with the gross sales volume totaling nearly USD 28.6 billion in 2015. According to a senior researcher from JD Capital’s medical investment team, in the coming five years, the compound annual growth rate of the medical catheter industry can be as high as 9.17%. Notably, the development tendency of the healthcare industry conforms to the basic criteria JD Capital adopts in its industrial judgement: the products are relatively mature; the demand increases steadily; and the possibility of demand shrinking is low. Normally, industries qualifying these criteria have a relatively stable competitive landscape, leading companies enjoying an increasing market share.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As early as 2010, when JD Capital had the first contact with Well Lead, the two parties happened to share the same strategic concept of the medical catheter industry. Cai Lei, president of JD Capital, believes that three things can be essential for an entrepreneur to build a business empire – capital, M&A and network. “Capital”, in the first place, is indispensable to the success of companies and their leaders. “M&A” means that companies and entrepreneurs should be wise in mergers and acquisitions. The utmost objective of Chinese companies in conducting M&As is to become a strong performer in industrial segment domestically, and gain sufficient bargaining power along the industry chain. If a company is to set up a business empire in the industry, merely becoming No.1 in the domestic market through local M&A and M&A within the industry and along industry chain is not enough. Breakthrough at higher levels should be achieved, such as seeking comparative advantage from participating in the “Internet Plus” initiative or establishing an internationalized business network.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Based on the consensus in strategic planning, JD Capital formed in-depth cooperation with the management team of Well Lead, and jointly put forward a dual development strategy for Well Lead. First, under the circumstances where the competitive pattern is dispersed and the level of industrial concentration is relatively low in the domestic medical catheter market, Well Lead should rapidly expand its market share and extend the industrial chain through horizontal and vertical M&As. Second, the company may set about overseas M&As and build up its brand image, with a view to transform itself from a foundry to a high-end manufacturer.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2011, JD Capital formally became a shareholder of Well Lead, since when the company has maintained an average annual profit growth of 15%, under the support and promotion of the dual development strategy. Four years later, Well Lead went public in the Shanghai Stock Exchange.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


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“Two-invoice system” propels terminal market deploymentnOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In April 2016, Chinese government issued the “2016 Major Task List on Deepening the Medical and Health Care System Reform”, in which the “two-invoice system” was introduced. As stipulated in the policy, the circulation of medical products can include no more than two stages, one from producers to intermediaries and the other from intermediaries to hospitals, with one invoice issued at each stage. Besides, the number of first-level intermediaries for each type of medical products should be less than two. While multiple layers of intermediaries might add up prices of medical products in the past, the implementation of the “two-invoice system” can cut down circulation procedures, reduce procurement cost of the hospitals, and thus save expenses for the patients.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to JD Capital’s medical investment team, the “two-invoice system” intensifies competition among intermediaries. In a healthier market environment, strong performers will possess a stronger bargaining power. Besides, with the reduction of intermediaries, the major trend will be that manufacturers enter into downstream hospitals and other terminal markets. With more opportunities to directly contact with terminal markets, the manufacturers will be able to upgrade rules of market competition and get prepared for the future industrial upgrading.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In November 2015, Well Lead stepped into the downstream terminal market. It set up a joint venture for hospital investment management, in an effort to expand such businesses as investment, operation and management of hospitals and blood purifying centers. Through these endeavors, Well Lead fully extended its industry chain toward terminal markets.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“On one hand, such deployment enables Well Lead to skip intermediaries and contact with terminal markets directly, thus saving much cost; on the other hand, it is enabled to receive the demand feedback from terminal markets first-handedly, thus laying a foundation for its future R&D and production of high-value consumables, as well as the enhancement of its brand value,” according to JD Capital’s medical investment team.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


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Overseas M&A, a way to become a global brandnOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The deployment in domestic terminal market equips Well Lead with an improved industrial chain. On this basis, it is able to enter the international market with more strength and a more positive stance. Director of JD Capital’s medical investment team believes that, through overseas brand M&A, the company is expected to realize its great leap from being a “foundry” to a “brand operator”.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Studies show that, in the field of medical catheter, China mainly import high-end products and export low-end ones. Domestic companies engaged in this sector still fall behind their major foreign competitors in terms of production scale, research capability, product quality and performance stability, brand concentration and corporate awareness.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the domestic market, Well Lead assumes absolute superiority, and hence its strong capacity and rich experience accumulated over time; whereas in the overseas market, though its products have acquired 9 US FDA (510K) registrations, 60 European CE product certificates and 21 Canadian product certificates, it has only been initially recognized by foreign counterparts. Therefore, the international deployment of its business network is especially important for it to stand out in the future industrial competition.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In October 2016, Well Lead published its M&A plan for CB. Established in 2007, CB is a technological R&D company dedicated in the R&D and innovative application of new healthcare materials. The technologies it masters can be applied in various fields of medical treatment including respiration, anesthesia, urology and nursing. Besides, with 25 European patents obtained so far, CB boasts leading technological advantages and relatively high brand effects. Through this round of M&A, Well Lead is supposed to joint hands with CB and promote the application of new materials in the field of medical products.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Regarding the overseas M&A strategy of Well Lead, director of JD Capital commented that: “There are two ways for a company to grow, namely internal accumulation and external expansion. At present, China is experiencing the upgrading of its industrial structure, with different industries rapidly integrated into the process of globalization, and vertical M&As along the industrial chain, inter-industrial mixed M&As and cross-national M&As continuously increasing. Therefore, the overseas M&A launched by Well Lead is inevitable. In the future, JD Capital will, by taking advantage of its overseas resources and business network, continuously support Well Lead’ in the implementation of its overseas M&A plans and help it develop from a domestic industrial bellwether to a world leader in the field of medical catheter.”nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It was also introduced that, JD Capital came out with the “bellwether plan” this year. The idea is to buy or hold shares of bellwethers or quasi-bellwethers in certain industries, help them raise funds in the capital market, expand market share through horizontal M&As, improve bargaining power in the industry chain through vertical M&As, realize international operation through cross-border M&As, and improve core competitiveness through new platforms such as the internet. All this will allow a company in the order of RMB 1 billion to grow to RMB 10 billion or even RMB 100 billion, thus becoming an industry bellwether in its real sense both home and abroad.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“Well Lead is one of the partners of JD Capital in its ‘Bellwether Plan’. With the support and guidance of government policies, we will gather resources by virtue of the ‘Bellwether Plan’, run a whole industrial chain encompassing insurance, medical care and elderly care, and thus safeguard people’s health in an all-round and full-cycle manner. Meanwhile, we believe that, driven by the ‘Bellwether Plan’, more shares growing more than ten folds in their value like the one of Well Lead will emerge, and bring forth large returns for the fund’s investors,” said the director of JD Capital.nOP九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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