In 2024, the first takeover in the medical industry occurred, and Mindray Healthcare (300760) announced that it would take control of Huitai Healthcare (688617), the leading electrophysiology company on the Science and Technology Innovation Board.

Mindray acquires Huitai Healthcare and enters the cardiovascular field

On the evening of January 28, Mindray Healthcare (300760) announced that it plans to acquire about 14.12 million Huitai shares held by Huitai's controlling shareholders and other shareholders through its wholly-owned subsidiary Shenmai Control, accounting for 21.12% of Huitai's total share capital. The transfer amount is about 6.65 billion yuan. The transaction capital is all from Mindray's own capital.

After the transaction was completed, Shenmai Holdings and its co-actor, Zhuhai Tongsheng, held a total of about 16.46 million shares of Huitai, accounting for 24.61% of Huitai's total share capital. At the same time, Cheng Zhenghui, the original actual controller of Huitai promised to voluntarily, permanently and irrevocably relinquish the voting rights enjoyed by 10% of Huitai Healthcare's shares on and after receiving the full share transfer price. At that time, Huitai's controlling shareholders will change to Shenzhen Control.

Regarding the acquisition of Huitai into new fields such as electrophysiology and cardiovascular intervention, Mindray Healthcare said: Based on the experience of top international medical device companies, high-value consumables are one of its main sources of profit. In the global medical device market, the cardiovascular sector ranks second only in size after in vitro diagnosis.

Therefore, one of the company's important development strategies is to continuously build and enrich the consumables business, and this acquisition will help the company achieve its strategic goals.

The transaction had a consolidated valuation of 30.2 billion yuan, and the transfer price was 471.12 yuan/share, corresponding to Huitai Medical's closing price premium rate of 25% on January 26. Refer to the average price premium rate of 23% for the previous 60 days.

Regarding related premiums, Mindray Healthcare stated: 1) In this acquisition, Mindray Healthcare determined the purchase price based on the future development direction of the industry. The acquisition will generate 65-70 billion dollars in goodwill, but whether the value will be reduced in the future depends on the company's operations. The company is confident that a better synergy will be formed between Mindray and Huitai; 2) This is a premium acquisition of a controlling interest, and it is international practice for a controlling interest acquisition to have a premium. According to relevant statistics, the average premium rate for the acquisition of controlling interests in the international medical industry is around 34%.

As can be seen from Huitai Healthcare's shareholder list for the 2nd and 3rd quarters of 2023, Mindray's share purchase of Huitai Healthcare's shares in the secondary market began in the 2nd quarter of '23. (The funder of Zhuhai Tongsheng is Mindray)

Mindray Healthcare said to Wall Street News and Insight Research that the acquisition was not an emergency. The company has been investigating Huitai for almost a year, and Mindray is very optimistic about the company's entire product line layout.

Huitai Healthcare's main revenue comes from electrophysiology and coronary pathway businesses

Huitai Medical's main business structure is electrophysiology+coronary access+peripheral intervention+OEM/ODM. Among them, electrophysiology and coronary pathway businesses. In 2022, revenue of 290 million yuan and 570 million yuan was achieved respectively, accounting for 24.1% and 46.8%.

According to Mindray estimates, the global accessible market space of electrophysiology exceeds 10 billion US dollars, the global market space for coronary access and peripheral vascular intervention products exceeds 20 billion US dollars, and the global market space for coronary access and peripheral vascular intervention products exceeds 15 billion yuan, and the growth rate of these businesses is significantly faster than in other device fields. Currently, the market is mainly controlled by overseas manufacturers, and domestic manufacturers have huge potential for growth.

Huitai Healthcare (688617) previously announced that it is expected to achieve net profit attributable to owners of the parent company in 2023 of RMB 510 million to RMB 565 million, an increase of 42.45% to 57.81% over the previous year. Net profit attributable to owners of the parent company after deducting non-recurring profit and loss was RMB 445 million to RMB 504 million, an increase of 38.38% to 56.78% over the previous year.

As of the report for the 3rd quarter of 2023, Huitai Healthcare (688617) had a cash and cash equivalent balance of $452 million at the end of the period.

Regarding the future development of Huitai after the acquisition, Mindray stated in Insight Research: On the basis of Huitai's independent development, the two companies will jointly formulate integrated plans for various aspects of business development strategies, R&D and marketing systems, which will enable Huitai to continuously improve the competitiveness of its products in the global market and accelerate Huitai's overseas expansion.

Mindray has initiated many mergers and acquisitions in recent years

Mindray Healthcare went public in 2018, raising 5.752 billion dollars. Since the listing for more than 5 years, there has been no fixed increase in financing, with cumulative dividends of 20.981 billion yuan. The controlling shareholder has no record of reducing holdings in the secondary market.

Over the years, Mindray Healthcare has formed three major business areas centered on life information and support, in vitro diagnosis, and medical imaging. As of the 3rd quarter report of 2023, the company's revenue was 27.3 billion yuan, an increase of 17% over the previous year. At the same time, the company maintains an annual R&D investment of about 10%, which helps the company to continuously enrich its product line.

In addition to the three core businesses, the company also focused on cultivating the four major seed businesses of minimally invasive surgery, veterinary medicine, AED (automated external defibrillator), and orthopedics. In 2022, the total revenue of the company's four major seed businesses was about 2 billion yuan, accounting for more than 6% of the company's total revenue, of which minimally invasive surgery achieved a year-on-year increase of more than 60%.

It is worth mentioning that in terms of epitaxial mergers and acquisitions, the company has initiated many mergers and acquisitions over the past few years. In particular, the IVD business is the most active in mergers and acquisitions, and it has also become the fastest growing sector among the three major segments of the company. However, frequent acquisitions over the past few years have not had a negative impact on the company's cash flow.

The company successively completed diagnosis of Hyptide Biotech and Desai in the IVD field from 2021 to 2023. The merger and acquisition of these two leading international companies accelerated the company's voice in upstream IVD raw materials and the layout of overseas supply chain platforms.

Regarding the impact of Mindray Healthcare's cash flow, Insight Research suggests that this acquisition using 6.65 billion yuan of own capital had little impact on Mindray's own cash. As of the company's 3rd quarter report of 2023, the company's balance of cash and cash equivalents exceeded 16.5 billion dollars, and the book capital was close to 20 billion yuan.

The medical industry has experienced a cold winter for three years, but at the beginning of 2024, along with the acquisition of Huitai Healthcare, an A-share medical device leader, the dawn of industry recovery is just around the corner.