As the old saying goes: "If you don't send it in the coming year, you will see the eighteenth of La".
On China's vast North China Plain, the eighteenth day of the lunar month is the birthday of the legendary "kiln prince" who is in charge of coal kilns and coal factories. In the old age, every day on this day, the mine owners and factory directors will "achieve the dojo and give relief, and the fasting master is pious, incense and worship", so that everything can be fine in the production and life of the coming year.
And the people who watch the excitement take advantage of the good mood of the rich bosses, set up stalls in the periphery to sell, set up a stage to sing, and earn some New Year's money for themselves - over time, this day began to be firmly linked to the "wealth", the "praying for wealth" of the mine owners became a supporting role, and the "kiln prince temple fair" where the people made a fortune together became the protagonist, and the simple and beautiful wishes spread throughout Shanxi, Hebei and Beijing's Fangshan and Mentougou areas.
And this year's "Lap 18" is in a more specific way. On January 28, 2024, Mindray Medical announced that the company intends to acquire 21.12% of the shares of Huitai Medical through its wholly-owned subsidiary, Shenmai Holdings, by way of agreement transfer.
At the same time, Shenmaikong will also transfer all 0.12% of the general partnership interests of Zhuhai Tongsheng held by Chenyi Hongqi, and in addition, its concerted actor Zhuhai Tongsheng currently holds 3.49% of the shares of Huitai Medical, after the completion of the overall transaction, Shenmaikong and its concerted actors will hold a total of 24.61% of the equity of Huitai Medical and become the controlling shareholder, and the actual controllers will be changed to Li Xiting and Xu Hang of Mindray Medical.
It is worth noting that, according to the announcement, the acquisition will be completed at a price of 471.12 yuan per share - and as of January 26, Huitai Medical's closing price on the science and technology innovation board is 360.53 yuan - a premium of more than 30%, which means that the overall scale of the acquisition will reach 6.652 billion yuan.
Based on this calculation, through this acquisition, the exit amount of Qiming Venture Capital will reach about 1.576 billion yuan, and the exit amount of Liu Xiaodan and her Chenyi Capital will be about 440 million yuan, totaling more than 2 billion yuan.
This price is "generous" enough to enable Mindray Medical to complete its controlling stake in Huitai Medical and realize the layout of related tracks in the vascular field, while helping Qiming and other old shareholders to earn billions of yuan. If the narrative is more ambitious, it also contributes a high-quality example of "M&A exit" for the VC/PE industry, which is deeply troubled by "difficulty in exiting" and "difficulty in reducing holdings" after IPO.
The "Revenue Generator" of Science and Technology Innovation Stocks
The two sides of this super merger and acquisition are almost a pair of "good couples".
Founded on June 17, 2002, Huitai Medical's main business revolves around electrophysiology and vascular interventional medical devices, including electrophysiology catheter delivery systems, radiofrequency ablation catheters, vascular interventional and OEM/ODM, etc., which are recognized as "unique scenery tracks".
According to the data compiled by the "Blue Book of China's Medical Devices (2023)", the scale of China's medical device market has increased from 370 billion yuan in 2016 to 983 billion yuan in 2022, with a compound annual growth rate of 17.69%, while the global medical device market size has only increased from 387.3 billion US dollars in 2016 to 552.8 billion US dollars in 2022, with a compound annual growth rate of only 6.11%.
Among them, the field of vascular interventional devices where Huitai Medical is located is the largest market segment in high-value medical consumables, winning 32.41% of the whole track.
According to the "Blue Book", the market size of China's vascular interventional devices has grown rapidly from 24.8 billion yuan in 2016 to 49.1 billion yuan in 2022, with a compound annual growth rate of 12.06%, and boldly predicts that "driven by factors such as population aging, China's vascular interventional device market will be in a stable growth stage for a long time".
Mindray Medical is the "head of the head" in the field of domestic medical devices, with its main business covering three major fields: life information and support, in vitro diagnostics, and medical imaging, with a total market value of more than 320 billion yuan.
Half a year before the proposed acquisition of control of Huitai Medical, they had just acquired a 75% stake in the German in vitro diagnostic brand DiaSys at a price of 115 million euros (equivalent to about 900 million yuan), and planned to continue to increase their capital by 30 million euros (equivalent to about 237 million yuan) after the completion of the transaction to support business development.
It can be said that from this point of view, Mindray Medical's attack on Huitai Medical is neither a surprise nor an accident, at best, it is "the battle tyrannosaurus beast meets the steel Garruru" - it is ready to merge and evolve. What's more, from the historical perspective of development, Huitai Medical's performance in the capital market can be called "income generator" and "return expert".
In April 2020, Huitai Medical submitted a listing application in anticipation, and the data described the value-added potential of the "medical device" industry in detail:
From 2014 to 2019, Huitai Medical completed multiple rounds of financing, and its valuation skyrocketed from 800 million yuan in the angel round, and in a round of equity transactions in August 2019, the valuation reached a stage peak.
At that time, the shareholder Yingtu Investment transferred its 11.99% stake in Huitai Medical to Nantong Fuxing, Qiming Rongke, Qiming Rongying, Qihua Phase III, Orient Securities Fuxiang, Nantong Huihui and Nantong Huishi with a valuation of 1.6 billion yuan, or 54.34 yuan per share, at a distribution of 4.24%, 2.57%, 1.38%, 0.86%, 0.31%, 1.25% and 1.38%.
The transaction also finalized the final shareholding structure before the IPO: Cheng Zhenghui, chairman of Huitai Medical, and Cheng Ling and his son held a total of 43.37% of the shares, and Qiming Venture Capital held about 25.82% of the shares (Qiming Weichuang + QM33 + Qihua Phase III + Qiming Rongke + Qiming Chuangzhi + Qiming Rongying), Orient Securities Capital (Orient Securities Huixiang + Orient Securities Fuxiang, holding about 4.92%), Shanghai Huizhen (general partner Dai Zhenhua + Nantong Huizhen + Nantong Huishi + Nantong Huihui, holding about 6.36%).
And what needs to be highlighted is that the executive director and general manager of Yingtu Investment is Cheng Zhenghui. It can be said that this round of equity transfer not only allowed Yingtu Investment to cash out hundreds of millions of yuan, but also allowed Qiming and other institutions to get more shares of Huitai Medical at a relatively low price, which can be called "opportunity sharing" and "future co-creation".
A few months later, Huitai Medical also fulfilled the myth of the first revenue generation as promised: on January 7, 2021, Huitai Medical was officially listed on the Science and Technology Innovation Board, with a share ratio of 25% and an issue price of 74.46 yuan per share, and finally completed the total fundraising of 1.241 billion yuan, with a market value of nearly 5 billion yuan.
According to CVsource's investment data, the largest institutional shareholder, Qiming, has a single fund with a book return of more than 365%. Orient Securities Capital, which entered the market after the A round, also achieved a book exit return of 169.79%.
On the day of listing, Huitai Medical's share price closed up 256.01%, with a market value of more than 15 billion yuan. After the IPO, Qiming's shareholding ratio was slightly reduced to 19.36%, and the exit amount exceeded 300 million, not only with book returns, but also with a slight reduction, and the stock exchange capital also withdrew from 1.23% of the equity.
It's just that I guess that Qiming and other investment institutions have not carried out large-scale reductions in order to avoid large fluctuations in stock prices, while continuing to be optimistic about listed companies and supporting the management of listed companies.
In April 2022, Huitai Medical's share price hit a new low since the IPO, although it was still much higher than the issue price, but in June 2022, Huitai Medical still announced that the company intends to use self-raised funds to repurchase shares for "employee incentives" in a centralized bidding transaction, with a repurchase price of no more than 270 yuan per share, and a repurchase amount of not less than 50 million yuan and no more than 100 million yuan.
The buyback officially ended on April 4, 2023. According to the final announcement, the average transaction price of the entire repurchase plan is 192.40 yuan per share, and the total number of shares traded is 311808 shares, 0.47% of the total equity, and the total amount is 59.9905 million yuan.
During this period, Huitai Medical's share price rose from the lowest point of 139.92 all the way to the level of more than 350 yuan, becoming one of the most praised "100-yuan conscience stocks" on the Science and Technology Innovation Board, which is the so-called second income-generating myth.
The super merger and acquisition is the third income-generating myth of Huitai Medical, and it not only avoids the stock price fluctuations caused by the secondary reduction, but also has a considerable degree of premium over the current stock price, so that Qiming and other investment institutions have achieved rich exit returns, the DPI data is better, and LPs can also get a "return money", which is equivalent to giving a shot of strength to the current primary market where it is difficult to IPO and more difficult to reduce holdings.
Among them, the "Share Transfer Agreement I" shows that the father and son of the family transferred a total of more than 9.17 million shares this time, with a transfer consideration of about 4.322 billion yuan. Cheng Zhenghui and Cheng Ling, as the party with the largest number of shares transferred in this transaction, is quite understandable, after all, the father and son have the largest total number of shares, and they also transferred the right to control the company in the future.
"Dai Zhenhua + Shanghai Huishen + Shanghai Huiyu" transferred a total of nearly 660,000 shares for a transfer consideration of about 315 million yuan, and Qiming (Qihua Phase III, Qiming Rongke, Qiming Rongying, QM33) transferred a total of more than 3.34 million shares for a transfer consideration of about 1.576 billion yuan.
According to the Share Transfer Agreement II, Yangzhou Hunxu, a subsidiary of Chenyi, will transfer 935,070 shares of Huitai Medical (accounting for 1.4% of the total shares), with a transfer amount of about RMB 440 million.
Of course, the "good couple" also needs to be "finalized", and the deal is still subject to regulatory approval. According to Mindray's announcement, the transfer of the agreement still needs to be approved by the Anti-Monopoly Bureau of the State Administration for Market Regulation and other relevant departments, so the specific business integration and strategic layout are far from the actual development stage.
A "universal patch" that is difficult to quit
As mentioned at the beginning, the biggest highlight of this transaction is actually the beautiful exit of Qiming, Orient Securities and Chenyi through "mergers and acquisitions".
A common topic in the past two years is that the high interest rate of the US dollar has led to the fact that equity investment is becoming less and less "welcome", especially in the later rounds, excluding the Chinese and Indian markets, the number and scale of global IPOs have been reduced, and the global VC/PE industry is experiencing an unprecedented "difficult exit" dilemma:
Let's start with Europe.
In 2023, the total number of exits completed by the private equity market in Europe will be $286.9 billion, a slight decrease of 1.1% compared to 2022, which looks still unsatisfactory, but the overall size of mega exits of more than $1 billion accounted for 58.9% of the total exits.
Excluding these cases, the decline in the European market's report card will widen to 25% year-on-year – which seems to mean that Europe's "decency" over the past year has largely been supported by "cold rice" like Arm.
Look at the United States again.
In 2023, the U.S. private equity market shrank by 29% in assets, while the overall exit size also fell by 25%, marking the third consecutive year of decline.
In line with this, the U.S. private equity industry has invested in more than 11,000 companies, with a median of 4.2 years of equity holdings and a median of 6.4 years of exits – both of which are record highs.
Then there's the Southeast Asian market.
In 2023, Southeast Asia, a recognized emerging market, has experienced a serious "D round shortage", and Preqin, a third-party data agency, has found that from the end of 2019 to the end of October 2023, the average transaction size of seed round financing cases occurring in the Southeast Asian market has increased by 112%, and the average transaction size of Series A financing has increased by 31% in the same period; Series B funding rose 87%; The proportion of Series C funding was 53%, but the average deal size decreased by 50% for Series D and subsequent exits.
Preqin concludes that "people are increasingly reluctant to participate in later rounds due to fear of discounted valuations".
Under such a premise, in fact, a considerable number of practitioners are firmly optimistic about M&A transactions as a supplement to IPOs, becoming the "exit responsibility" of the VC/PE industry at this stage, and then "trying to revitalize assets under limited circumstances".
And that prediction was partially fulfilled in 2022: as of mid-November 2022, there were more than 210 mergers and acquisitions of start-ups across the U.S., more than in any year before 2021, according to Pitchbook.
And then...... And then there will be no then. After 2022, people reviewed and found that although the number of M&A transactions in 2022 increased, the total transaction value fell by almost 60% according to 2021, falling back to the level of 2017. In 2023, the number of M&A transactions and the total size of M&A transactions have simply declined, and the number has fallen to the level before 2013, and the total transaction size is also lower than in 2013.
No one knows exactly why, but concerns about the uncertainty of the development environment, the continuation of the interest rate hike cycle, and the intensification of antitrust scrutiny all seem to have a significant impact, and they do not seem to be the key to solving the problem.
Vanessa Larco, a partner at NEA, said she has faced a lot of incomprehensible "deal rejections" in recent years: "The giants are no longer willing to accept a startup that is burning money...... But for a large company, the cost of one or two million per month is actually basically an acceptable error that can be rounded off. ”
Aly Simons, a partner at Debedien & Plendium who handles M&A cases, said acquirers who can afford to spend money are looking at their "balance sheets and share prices."
Coupled with the fact that valuations are currently "discounted" by a large number of companies (especially those that have completed multiple rounds of funding before 2022), even if the overall size of M&A cases increases in 2024, complex shareholder appeals coupled with more savvy acquirers will only lead to "small-scale deals" in the M&A market, and the "recovery" time is still unknown.
Therefore, from this point of view, the "not unexpected" merger and acquisition of Huitai Medical initiated by Mindray Medical is "very timely", and they jointly proved two things with a large enough data and a fairly enforceable transaction:
"M&A transactions" do have the ability to share the role of IPOs and become one of the mainstream exit channels in the VC/PE industry in the future, and in the case that the track and products are in line with the benchmark, "M&A transactions" can well complete the function of asset appreciation, rather than being limited to a series of problems caused by "revitalization of non-performing assets" or "lack of shareholders".