Jiuding Capital Upgrades Investment Mode in Pharmaceutical Industry
2013-07-23
Recently, with an interval of less than one month, with the help of merger investment and debt investment, Jiuding Capital has completed two-time investments in Hainan Tianhuang Pharmacy Co., Ltd. What was the tale behind it? What about its logic? Under the circumstance of the hindrance of IPO, followed by the delisting through merging Banghe Pharmaceutical with Shanghai RAAS, the change of Jiuding Capital’s mode of investment in Hainan Tianhuang Pharmacy indicated that Jiuding Capital, which has been deemed to focus on Pre-IPO equity investment business previously, has begun to attach more importance to diversified modes like merger in project withdraw, and to transform in mode of investment.
In April this year, partner of Jiuding Capital Lei CAI has publicly expressed that, “National Pre-IPO Era” characterized by “High Profit, Big Fortune, Quick Acting” came to an end. The investment institutions without any competitive edges will be washed out by market. “Traditional Pre-IPO business still has considerable market space and opportunities in a long time. Currently, such business is facing some obvious problems. Firstly, investable targets during the mature period decrease gradually. Secondly, the barrier of such business is relatively low, so its competition is relatively fierce, which will result in the significant reduction of expected return on investment. In other words, traditional equity investment business has entered the shallow of competition.” Lei CAI further explained.
As for PE business during the red-sea period, how does Jiuding Capital deal with? Lei CAI expressed that “Capital is the essential attribute of PE. Capital is classified into financial capital and industrial capital. The outstanding characteristics of the financial capital are mobility and passivity, while the core characteristics of the industrial capital are long term and initiativity, that is, long-term business philosophy and initiative participation in operation, decision-making and management. Traditional Pre-IPO business has obvious financial capital attribute and slight industrial capital attribute. The upgrading direction of the equity investment business is to enhance the ability of industrial capital in the premise of keeping PE’s financial capital attribute.”
The investment in Tianhuang Pharmacy seemed to be the specific practice for Jiuding Capital’s thought on the upgrading and transformation of the investment business. Tianhuang Pharmacy is a manufacturer of antibiotic drugs. “Under the circumstance of limiting the antibiotic drugs, we took a fancy to Tianhuang Pharmacy’s countertrend growth ability in independent pricing. But Tianhuang’s product was relatively single, so its anti-risk ability and growing ability were limited. We hoped to perfect Tianhuang’s product lines through extensional expansion, which can make our investment safer and our return on investment higher.” After making a plan for Tianhuang’s growth path, Jiuding Capital started another work in the process of the first-round investment in Tianhuang: to choose some proper merger targets for Tianhuang Pharmacy. Jiuding Capital rapidly started its nationwide business system. Soon, we found out a pharmaceutical enterprise, which agreed to transfer the controlling stake and was suitable for Tianhuang’s merger. “This enterprise’s good medicine varieties can enrich Tianhuang’s product lines. Moreover, the both parties can make a synergistic effect in the marketing systems, thus realizing sharing and optimization.” Soon, Jiuding Capital performed the due diligence for merger target and the investment negotiation with Tianhuang.
Partner of Jiuding Capital Wu Qiang told the reporter. Prior to Jiuding Capital’s capital increase, it was unimaginable for Tianhuang to purchase this enterprise. “Many institutions have bid higher prices than Jiuding Capital for Tianhuang. If we couldn’t help Tianhuang acquire this enterprise successfully, we even had no opportunity for the first-round investment opportunity. To purchase this enterprise, Tianhuang and Jiuding Capital fit in easily with each other.” One month after the first-round investment, Jiuding Capital performed the second-round equity investment in Tianhuang, and also provided a debt financing. The second-round capital was used in purchasing the target company.
“This was an attempt and exploration for our new investment thought. For the high-quality enterprise to be invested, the investment institution must grasp the value-creating ability, involve in the project with industrial investment thought in the beginning, hold corporate shares and assist the enterprise in purchasing or integrating the like enterprises or upstream and downstream enterprises. Only with such ability can PE firm enhance competition threshold and obtain relatively-high profit, and can some high-quality projects obtain investment opportunity.” Lei CAI summarized.
“Such case has created Jiuding Capital’s several “firsts”: first to complete the second-round capital increase, first to complete both merger and investment simultaneously, and first to realize equity plus debt.” Medicine Investment Director of Jiuding Capital Li Guoxing told the reporter.
Jiuding Capital thought that, according to Pharmaceutical Industry “12th Five-Year Plan” Development Planning and the requirements of new edition GMP, the pharmaceutical industry is facing the major reform of “industrial transformation and technology upgrading”, with huge investment opportunity in merger. So far, Jiuding Capital has invested nearly 40 enterprises in the pharmaceutical sector, and contacts with hundreds of pharmaceutical projects each year. In the transformation of Jiuding Capital’s investment business, the pharmaceutical industry investment plays an important role.
During July 20th-21st, more than 100 members from Jiuding Capital’s teams gathered in the suburb of Beijing, and discussed the upgrading and transformation of corporate investment business. “Equity investment and merger investment in the industrial operation put forward some higher requirements on our talent structure, so we must optimize our existing teams and introduce some leading talents with richer experienced and resources in adaption to the upgrading of our businesses.” It is learned that Jiuding Capital has come into contact with some well-experienced management and operation experts in the pharmaceutical industry, of whom 1-2 experts were expected to join in Jiuding Capital recently. “In Tianhuang’s merger for the target enterprise, they provided many valuable professional opinions and suggestions. We need such talents to support the upgrading and transformation of our investment businesses with our existing teams” Jiuding Capital told the reporter.
Lei CAI ever mentioned in his public speech, “The businesses of PE and VC institutions will be developed in accordance with the international practice. PE industry in Europe and America, through tens of years of development, finally forms two types of institutions: one for merger, and another for VC.” In the beginning of the year after the investment team was divided into VC team and PE team, Jiuding Capital’s upgrading and transformation are moving towards their designed direction.