chinese domestic hospital m&a review and outlook … in terms of deal value by location,...

Chinese domestic hospital M&A Review and Outlook

2012 to 2016

www.pwccn.com

April 2017

PwC

Foreword — explanation of data shown in this presentation

• The data presented in the report is informed by data compiled by Zero2IPO Research, and Thomson Reuters, with PwC analysis unless otherwise stated.

• Zero2IPO Research and Thomson Reuters only disclose deals that have been officially announced. Deals that have been announced may not have been completed at the time of writing.

• The details and value of a number of deals are not disclosed, this potentially impacts the representativeness of the trends and forecasts in the report. In particular, due to sensitivity of information for certain hospitals, deal details are frequently not made public.

• The volume figures for deals within this report refer to the number of deals announced, whether or not a value is disclosed for the deal.

• The value figures for deals presented in this report refer only to those deals where a value has been disclosed (referred to in this presentation as “disclosed value”).

• The term “Domestic” refers to Mainland China.

• The terms “Foreign” or “Outbound” refer to deals in which companies from Mainland China acquire companies based in Hong Kong, Macau, Taiwan or other foreign countries or regions.

• To account for the impact of foreign exchange rates, deal values from 2012 to 2015 were adjusted based on the 2016 average RMB/USD exchange rate.

Chinese domestic hospital M&A Review and Outlook • 2012 to 20162

April 2017

PwC

Foreword — explanation of data shown in this presentation

• The presentation adheres to the following clarifications;

- Hospital: a healthcare institution providing patient treatment, with specialized staff, and equipment. Hospitals in this presentation include general hospitals and specialized hospitals. The latter category includes dentistry, plastic surgery, obstetrics, and ophthalmology clinics.

- Other healthcare institutions: all other healthcare institutions except hospitals (as indicated above), including physical examination centers, senior centers, and rehabilitation centers.

- Healthcare consumer e-commerce: web-based platforms that offer healthcare services to the public, including health education, online healthcare records, disease risk evaluation, medical online consultation, electronic prescription, remote doctor consultation, treatment and rehabilitation.


April 2017

PwC

Overview of the healthcare industry


April 2017

PwC

Investments in the healthcare industry have risen substantially in both deal volume and value, with deal value hitting a new record high in 2016. Investments in large healthcare management enterprises and vertical integrations within the industry remained in the spotlight in 2016. Investments by large corporations have accelerated the expansion of the healthcare M&A market. Additionally, outbound healthcare M&A hit a record high in 2016.

Deals in Healthcare industry from 2012 to 2016


Section 1 — Overview of the healthcare industry

80 deals in which deal value remains undisclosed are not included in the value figures in this analysisSource: Zero2IPO Research, Thomson Reuters, and PwC analysis

843 2,150 6,013 4,785

16,126

-

30

4,607

1,926

13,451

132

39

794 10,038

5,388

-

401

4,029

261

10,496

14

26

34

48

106

- 1 9

7 3 3 5

8

30

50

3

13 13

12

30

-

20

40

60

80

100

120

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2012 2013 2014 2015 2016

Nu

mb

er o

f D

eals

Dea

l val

ue:

RM

B in

mill

ion

Other medical institutions

Healthcare E-commerce platforms

Foreign hospitals

Domestic hospitals

Domestic hospitals in volume

Foreign hospitals in volume

Healthcare E-commerce platforms involumeOther medical institutions in volume

April 2017

PwC

By hospital location


April 2017

PwC

In terms of deal value by location, domestic hospital M&A are larglely concentrated in Beijing, Guangdong, Zhejiang, and Jiangsu. Regarding deal volume by location, Sichuan, Shandong, Shanghai, and Guizhou, experienced more dynamism in the hospital M&A market, with significant increases in deal volume. Most cross-border acquisitions occurred with Australia and Hongkong, while future indications point to wider coverage spanning other countries with abundant healthcare resources.

7

• The volume and value of domestic hospital investments are concentrated in Beijing, Zhejiang, Jiangsu and Guangdong where healthcare reforms have been initiated with practical models, facilitating many successfully completed deals.

• The largest outbound deal in 2016 was China Resources Group’s acquisition of 50-70% of shares in GenesisCare, the largest Australian cancer and hematology provider, for AUD1.7 billion.


Section 2 — By hospital location

Deals by location (2012 - 2016)

JILIN

LIAONINGHEBEI

TIANJINBEIJING

NEIMONGOL

XINJIANG

XIZANG

QINGHAI

YUNNAN

SICHUAN

GANSU

NINGXIA

SHAANXI

CHONGQING

GUIZHOU

GUANGXI

GUANGDONG

TAIWAN

FUJIAN

SHANXI SHANDONG

JIANGSUHENAN

HUBEI

HUNANJIANGXI

ZHEJIANG

SHANGHAIANHUI

HAINAN


Number of deals

%Deal value

(RMB in millions)

%

Domestic 228 92% 29,918 60%BEIJING 47 19% 10,606 21%GUANGDONG 22 9% 2,577 5%ZHEJIANG 15 6% 2,493 5%JIANGSU 20 8% 2,485 5%ANHUI 9 4% 2,111 4%HUBEI 8 3% 2,006 4%SICHUAN 10 4% 1,815 4%HEILONGJINAG 4 2% 1,345 3%LIAONING 9 4% 1,059 2%SHANDONG 17 7% 976 2%JIANGXI 5 2% 511 1%SHAANXI 4 2% 443 1%SHANGHAI 17 7% 433 1%GUIZHOU 11 4% 411 1%HUNAN 4 2% 116 0%OTHER 26 10% 529 1%Outbound 20 8% 20,014 40%AUSTRALIA 3 1% 13,375 27%PORTUGAL 1 0% 3,316 7%HONGKONG 12 5% 2,807 6%ISRAEL 1 0% 432 1%GERMANY 1 0% 40 0%CANNADA 1 0% 30 0%SOUTH KOREA 1 0% 14 0%Total 248 100% 49,931 100%

April 2017

PwC

By hospital type and investor type


April 2017

PwC

407 952

3,698 3,975

7,280

205 1,008

2,149 721

6,089

231 190

166

89

2,758

4 6

16

27

41

8

16 16 18

59

2 4 2 3 6

-

10

20

30

40

50

60

70

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016

Num

ber

of d

eals

Dea

l val

ue:

RM

B in

mill

ion

General SpecializedHealthcare management enterprise General in volumeSpecialized in volume Healthcare management enterprise in volume

The gradual increase of domestic hospital deals since 2013 has paved the way for the upsurge in both volume and value in 2016. Investments in healthcare management enterprises surged in 2016. Investments in general hospitals doubled in both size and volume from 2015 to 2016. Investments in specialized hospitals also reached a new record high in 2016, with disclosed deal value over RMB6 billion.

Deals in domestic hospitals from 2012 to 2016 (by hospital type)

9

Section 3 — By Hospital type


Chinese domestic hospital M&A Review and Outlook • 2012 to 2016 April 2017

PwC

Specialized hospital chains with easily replicable business models and low-risk profitability proved the most attractive targets for investors. Dental and obstetric hospitals were the most popular targets within this category of hospitals. Concurrently, ophthalmology and plastic surgery hospital chains have drawn greater attention in recent years due to their effective business models and practical expansion plans, leading to a substantial increase in deal size in 2016.

Deal size by domestic specialized hospitals types from 2012 to 2016

10




-200

-5

- - - - - - -

719 33

-46

25 80

50 10 25 20

-

28

1,510

-113

358 90

- -

23

-

29

377

152

90 -

13

-90

- - - -

2,111 856

1,540

707 15

- -85

-

15

- -

500

1,000

1,500

2,000

2,500

3,000

3,500

Obstetrics Dental Plastic Surgery Ophthalmology Oncology Orthopaedics Rehabilitation ChineseMedicine Otolaryngology Cardiology Diabetes

Dea

l Val

ue:

RM

B in

mill

ion

2012 2013 2014 2015 2016

April 2017

PwC

The deal size of non-rated hospitals (including mainly specialized and small-scaled general hospitals) surged in 2016. Level II and III general hospitals with stable cash flows and high operating levels proved the main focus for domestic hospital investors in 2016, with a two-fold increase in both deal value and volume.

Deals in domestic hospitals by hospital level from 2012 to 2016

11




284 988 457 1,425

4,363 123 105

949

2,383

4,187

- --

102

-

1,057 4,607

875

7,576

2 6 5

7

15 2

4

8

16

26

-1

-2

-

10

15

21 23

65

-

10

20

30

40

50

60

70

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016

Num

ber

of d

eals

Dea

l val

ue:

RM

B in

mill

ion

Level III Level II Level I Non-rated

Number of Level III Number of Level II Number of Level I Number of Non-rated

April 2017

PwC

Investments in private and public hospitals have risen substantially in 2016, hitting new record highs in deal volume and value. With more deals in specialized hospitals, deal value of private hospitals plunged to RMB8.7 billion in 2016, doubled the size in comparison to 2015; public hospital investments also saw more activity in 2016, reaching a disclosed deal value of RMB7.4 billion.

Deals in domestic hospitals from 2012 to 2016 (by hospital type

12




- - - 844

7,411

843

2,150

6,013 3,941

8,715

1 3 4 4

34

13

23

30

44

72

-

10

20

30

40

50

60

70

80

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016

Num

ber

of d

eals

Dea

l val

ue:

RM

B in

mill

ion

Public Private No. of public No. of Private

April 2017

PwC

Following a muted year of 2015, investments in specialized hospital chains and high-end clinic chains bounced back in 2016; healthcare management enterprises have been more engaged in integrations within the industry, which consequently resulted in an upsurge in the deal size of private hospitals in 2016.

Deals in domestic private hospitals from 2012 to 2016

13




407 952

3,698 3,130

1,115 205

1,008

2,149

721 4,842

231 190

166

89

2,758

3 5

13

23

9 8

14 15

18

57

2 4 2

3 6

-

10

20

30

40

50

60

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2012 2013 2014 2015 2016

Num

ber

of d

eals

Dea

l val

ue:

RM

B in

mill

ion

General hospital Specialized hospital

Healthcare management enterprise Number of general hospital

Number of specialized hospital Number of healthcare management enterprise

April 2017

PwC

M&A activities in public hospitals have been increasingly dynamic in 2016, with more strategic investors getting involved. Disclosed public hospital investors are mainly large healthcare management enterprises and conglomerates with years of experience in the healthcare industry. The targets are general hospitals, most of which are Level II Grade A hospitals. Further, driven by government policies, numerous Level III hospitals have become new targets for listed companies optimizing and extending their industrial chain.

Investments in domestic public hospitals from 2012 to 2016

14



Source: Zero2IPO Research, Thomson Reuters, and PwC analysis

-

5

10

15

20

25

30

35

2012 2013 2014 2015 2016

Num

ber

of d

eals

Non-rated

Level III

Level II

Level I

Level III Grade A

Level II Grade A，Level II Grade CLevel III Grade A

Level II Grade A

Non-rated

Level II Grade A

Level III Grade A,Level IIIGrade B

Level II Grade A，

Level II Grade CLevel I Grade A

April 2017

PwC

Strategic investors and financial investors both favored the healthcare industry, with A-share listed companies making up a substantial number of strategic investors since 2014. The strong confidence and interest in healthcare industry led to a progressive increase of deal activities initiated by strategic investors, which resulted in a total deal value of RMB10.9 billon in 2016, tripled in deal size comparing to that of 2015. In addition, disclosed deal value by financial investors rose to RMB5.2 billion in 2016, due to the increase of large-scale investments in healthcare management enterprises and large specialized hospital chains.

Deals in domestic hospitals from 2012 to 2016 (by investor type)

15


Section 3 — By investor type

Chinese domestic hospital Review and Outlook • 2012 to 2015

412 923 3,208 3,800

10,886

431 1,228

2,805 985

5,240

5 12

18 25

88

9 14

16 23

18

-

10

20

30

40

50

60

70

80

90

100

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016

Num

ber

of d

eals

Dea

l val

ue:

RM

B in

mill

ion

Strategic investment Financial investment

Strategic investment in volume Financial investment in volume

April 2017

PwC

As the healthcare providers riding the waves of reform in a more dynamic M&A market, many large healthcare management enterprises have become increasingly active in hospital investment; multi-business enterprises and companies seeking cross-industry investment opportunities remain the major players in hospital M&A; strategic investors who are interested in healthcare industry and looking for horizontal integrations are mostly A-share listed companies, driven by their strategic business development plan, have made more investments in hospitals.

Value of strategic investment deals in domestic hospitals from 2012 to 2016 (by investor’s industry)

16

32 deals in which deal value remains undisclosed are not included in the value figures in this analysis Source: Zero2IPO Research, Thomson Reuters, and PwC analysis

Section 3 — By investor type


-724 1,210

1,786

4,253

123 26

265 1,125

1,395

--

183

250

108

289 172

1,551

640

5,129

-

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016

Dea

l val

ue:

RM

B in

mill

ion

Healthcare management enterprise

Medical equipment

Pharmaceuticals

Multi-business enterprise

April 2017

PwC

Healthcare exits


April 2017

PwC

Healthcare listings favored the HKEx and NEEQ over the last four years

Analysis of healthcare IPOs from 2012 to 2016

18

Section 4 — Exit of investments in healthcare industry



1,821 257

-

153 47

8,270

5,485

20 - -

4

5

-

1 1

6

5

1

- - -

1

2

3

4

5

6

7

-

2,000

4,000

6,000

8,000

10,000

12,000

HKEx NEEQ SME Board NASDAQ HKGEM

Num

ber

of D

eals

Dea

l val

ue:

RM

B in

mill

ion

Listed hospitals in value

Other listed medicalinstitutions in value

Other listed medicalinstitutions in volume

Listed hospitals in volume

April 2017

PwC

IPOs and equity transfers have been the most prominent exit strategy for healthcare investments. The return on investment of disclosed deals ranged from 2 to 8 times bigger.

Exit of healthcare investments and the average return multiples(according to investee companies)

19


Section 4 — Exit of investments in healthcare industry


Exit ways Investment amount Exit number Return multiples

IPO 295 3 2-8 times

Equity Transfer 100 1 2.5 times

IPO 420 1 Not disclosed

Equity transfer 429 9 Not disclosed

IPO Not disclosed 15 Not disclosed

Equity transfer Not disclosed 8 Not disclosed

Backdoor listing Not disclosed 10 Not disclosed

Repurchase Not disclosed 1 Not disclosed

Total 1,244 48

April 2017

PwC

Outlook


April 2017

PwC

Outlook for 2017

• As the government continues to introduce plans to encourage investments in the healthcare industry along with healthcare reforms, the merger and acquisition market is expected to become more dynamic, with a consistent rise in deal activities. Stand-alone hospitals and clinics will find it hard to survive without external capital funding. In order to retain and attract customers, large healthcare management enterprises are currently striving to acquire healthcare institutions that offer complementary advantages.

- Strategic investors are continuing to hold strong interest in the healthcare market, and financial investors are willing to pour more money into the industry. Large-scale deals will likely be made in the near future, including hospital group or high level stand-alone hospital acquisitions.

- Enterprise investors in China are actively seeking overseas acquisition targets, and more investors have shown interest in overseas healthcare institutions. In the near future, the cross-border hospital M&A market is expected to become more dynamic. More large-scale cross-border transactions are expected to be carried out in different ways. In addition to traditional acquisitions, establishing new hospitals and joint ventures will become increasingly common, with the investment focus shifting to areas with more of a technology focus, such as rehabilitation and tumour treatments.

• There will also be growing interest in healthcare company IPOs. An increased number of healthcare service providers with abundant resources are expected to file for domestic and overseas listings in the near future.

• As the development in new technology and web-based solutions changes the traditional landscape of the healthcare industry, future investors will be given more opportunities to invest creatively.

21

Section 5 — Outlook


PwC

Data compilation methodology and disclaimer

Statistics contained in this presentation and the accompanying press release may vary from those contained in previous press releases. There are three reasons for this: Zero2IPO research and Thomson Reuters historical data is constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has excluded certain transactions which are more in the nature of internal reorganizations than transfers of control; and exchange rate data has been adjusted.

22

• Acquisitions of private/public companies resulting in change of control

• Investments in private/public companies (involving at least 5% ownership)

• Mergers• Buyouts/buyins (LBOs, MBOs, MBIs)• Privatisations• Tender offers• Spinoffs• Splitoff of a wholly-owned subsidiary when 100% sold via IPO• Divestment of company, division or trading assets resulting in

change of control at parent level• Reverse takeovers• Re-capitalisation• Joint Venture buyouts• Joint Ventures• Receivership or bankruptcy sales/auctions• Tracking stock

Included Deals

• Property/real estate for individual properties• Rumoured transactions• Options granted to acquire an additional stake when not 100% of

the shares has been acquired • Any purchase of brand rights• Land acquisitions• Equity placements in funds• Stake purchases by mutual funds• Open market share buyback/retirement of stock unless part of

a privatisation• Balance sheet restructuring or internal restructuring• Investments in greenfield operations• Going private transactions

Excluded Deals

Section 5 — Outlook


Thank you

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2017 PricewaterhouseCoopers Consultants (Shenzhen) Limited. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

chinese domestic hospital m&a review and outlook … in terms of deal value by location,...

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