In 1998, Medtronic was faced with a fateful choice:
1. Give up diversification and return to the main business, focusing on heart rhythm management business.
2. Give it a go and regain growth through mergers and acquisitions.
At that time, Medtronic was already a leader in the heart rhythm management industry, and had built high technical and patent barriers in the field of medical devices. But at the same time, the pacemaker market in the heart rhythm management industry has grown to single digits, and Medtronic is in dire need of new growth businesses.
At such a crossroads, Medtronic managers eventually resisted the pressure and chose to take advantage of the high valuations of the stock market at the time to begin the acquisition.
From the second half of 1998 to 2001, Medtronic spent a total of $13.3 billion to expand the two areas of surgery and diabetes, and strengthened the cardiovascular business.
In the years since, Medtronic has embarked on a "spree" of mergers and acquisitions, covering heart rhythm management, coronary arteries, aortic and peripheral vessels, heart valves, spine surgery, otolaryngology, nerve stimulation, surgical technology, and diabetes.
More classic is that in January 2015, Medtronic acquired Covidien Medical for nearly $50 billion in cash and equity. It is this most high-profile merger and acquisition in the history of medical devices that has directly established Medtronic's position as a global leader in medical devices.
According to the 2023 Global Top 100 Medical Device Companies list released by Medical Design & Outsourcing, Medtronic once again ranked first in the world.
Looking back on the past, this company born from a garage can become a global supergiant, and it is inseparable from key mergers and acquisitions. Zoom in a little more, not only Medtronic, but also Johnson & Johnson, Danaher, Olympus, Stryker, GE, Siemens...... The history of the development of global medical device giants is almost always a history of mergers and acquisitions.
01
Mindray made a move
Now, history is repeating itself.
On January 28, Mindray Medical (300760.SZ) announced that it plans to use 6.65 billion yuan of its own funds to realize the acquisition of control of Huitai Medical (688617.SH), a medical device company listed on the Science and Technology Innovation Board, through the method of "agreement transfer + voting rights", and quickly lay out the subdivision track in the cardiovascular field.
If the full acquisition plan is successfully implemented, Mindray Medical will hold a total of 24.61% of the shares of Huitai Medical through its subsidiary Shenmai Holdings and its concerted actor Zhuhai Tongsheng, becoming the largest shareholder of Huitai Medical.
This is a "big deal". It is understood that the comprehensive cost of this acquisition is about 450 yuan per share, which is about 25% higher than the latest closing price of Huitai Medical.
It is worth mentioning that the acquisition of control at a premium is also a common operation in the capital market. Referring to the control transfer cases with a transaction size of more than 1 billion yuan on the Shanghai and Shenzhen stock exchanges since 2021, the average premium rate has reached 30%, of which the average premium rate of medical-related cases has reached 33%. Referring to the cases of transfer of control in the non-pharmaceutical healthcare field in overseas markets with a transaction size of more than US$500 million in recent years, the average premium rate has also reached 34%.
In addition, from the perspective of Mindray Medical's cash flow, as of the end of September 2023, the company's monetary fund balance was 19.667 billion yuan, and the transaction volume was less than 1/3 of the book funds, which did not pose much pressure.
More importantly, judging from past cases, Mindray Medical's acquisition of Huitai Medical aims to enter the cardiovascular track as an industrial party, rather than making financial investments based on the market conditions of the capital market.
Previously, the list of the top 100 global medical device companies released by Medical Design and Outsourcing, a third-party website for medical devices, showed that with its revenue data for fiscal year 2022, Mindray Medical has ranked 27th in the industry.
This can't help but make people curious, why did the domestic medical device leader spend a lot of money at this time to carry out this industry-renowned acquisition?
02
A win-win
To answer this question, you must first understand Huitai Medical.
According to public information, Huitai Medical has focused on the cardiovascular track for many years, and has achieved a solid position in the domestic cardiovascular market monopolized by foreign brands, such as cardiac electrophysiology, coronary access, peripheral vascular intervention, etc., and has mastered the full line of R&D and production capacity from upstream raw materials to products, and is a leading enterprise in the domestic cardiovascular field.
Among them, in the field of electrophysiology, Huitai Medical's electrophysiology electrode catheter and controllable radiofrequency ablation catheter, as well as the floating temporary pacing electrode catheter approved for marketing in 2020, are the first domestic products in China to obtain relevant registration certificates, and have been recognized as national key new products by the Ministry of Science and Technology. In the field of vascular intervention, Huitai Medical has been involved in two major subdivisions: coronary access and peripheral vascular intervention, and a number of R&D products have filled the gaps in domestic clinical practice.
Strength is also reflected in performance. In 2023, Huitai Medical is expected to achieve a net profit attributable to the parent company of 510-565 million yuan, a year-on-year increase of 42%-58%. Its share price has also been stable at more than 300 yuan per share for a long time, ranking first on the Science and Technology Innovation Board.
Behind this is a big blue ocean market. According to the China Cardiovascular Health and Disease Report 2022 released by the National Center for Cardiovascular Diseases, there are 330 million people suffering from cardiovascular diseases in China, and 2 out of every 5 deaths are due to cardiovascular diseases.
Cardiovascular health problems are severe, which provides a broad application space for related high-value consumables. According to the data of the industry research report, the global market size in the cardiovascular field has reached 56 billion US dollars, which is converted into about 400 billion yuan! The Chinese market size has also exceeded 50 billion yuan, ranking second in both the global and domestic medical device markets, second only to the field of in vitro diagnostics.
Considering the background of "aging", the market growth rate in the cardiovascular field may be one of the fastest growing areas of medical devices in the future!
It can be said that Mindray Medical wants to cut into this big market, and Huitai Medical is one of the few high-quality targets.
Looking at the world's top 10 medical device companies, more than half are dominated by high-value consumables, and Medtronic's main business is high-value consumables.
Looking back on the past, in the three tracks of life information and support, blood cells, and ultrasound, Mindray Medical, a "latecomer", surpassed giants such as GE, Philips, and Siemens.
So, in the next few years, will Mindray be able to surpass Roche, Johnson & Johnson, Medtronic, and Abbott in the three larger tracks of chemiluminescence, minimally invasive surgery, and cardiovascular?
It's something to look forward to.
On the other hand, for Huitai Medical, although it has been deeply engaged in the cardiovascular track for many years, it is undeniable that the company's products represented by electrophysiology still have a certain gap with imported products in terms of technology because they started far later than imported brands, and it is urgent to strengthen the company's R&D capabilities and overseas sales.
The financial report shows that in the first three quarters of 2023, its R&D investment will be 2.811 billion yuan, accounting for 10.3% of operating income, a year-on-year increase of 23.3%. As of the end of last year, Mindray had more than 4,400 R&D personnel, with strong product engineering and system integration capabilities.
Through Huitai, Mindray can master the R&D and production capacity of the cardiovascular track from upstream raw materials to products, which can help Mindray supplement the industrial chain and cut into the 400 billion blue ocean. Through Mindray, Huitai will receive multi-faceted support in terms of strategy, R&D, channels and funding.
It can be said that this is a "win-win".
03
"Self-research + mergers and acquisitions" to create an ecological engine
From Mindray's perspective, M&A is much more than just scaling up.
Different from other high-tech industries, the medical device field is characterized by high industry concentration and strong power.
A careful review of Mindray's expansion history shows that behind each of their mergers and acquisitions is a well-thought-out strategic layout. Technological breakthroughs, replenishment of product lines, expansion of business lines, and development of overseas markets...... These M&A processes are complex and have long trade-offs, but in the end, they must be cut down and simplified and attack quickly.
In 2008, it acquired the life information monitoring business of Datascope (D&P) in the United States and became the third largest manufacturer of monitors (the other two manufacturers are GE Healthcare and Philips Healthcare).
In the same year, it acquired Artem (Altama) of Sweden to obtain anesthetic gas detection technology, and continued to expand the overseas life monitoring business market.
From 2011 to 2012, Mindray Medical acquired Shenzhen Shenke Medical, Suzhou Wison Technology, Zhejiang Greenland, Changsha Tiandiren, Hangzhou Guangdian, Beijing Prismha, Shanghai Yiguang, and Shanghai Changdao, further expanding the IVD business segment.
In 2013, Mindray acquired Zonare, a leading ultrasound diagnostic system in the United States, and launched the high-end color ultrasound product Resona7 in 2015 through systematic integration, achieving a breakthrough in domestic high-end color ultrasound.
In 2021, Mindray further acquired HyTest Biotech, a world-renowned company in the field of IVD raw materials, to achieve independent and controllable core technologies in the field of IVD raw materials.
In 2023, Mindray Medical once again completed the acquisition of DiaSys Holdings in Germany, successfully building a global supply chain platform for in vitro diagnostic products, and laying the foundation for the full internationalization of IVD business.
A series of actions are aimed at obtaining technical resources as the main goal, and improving their competitiveness in the high-end device industry with high barriers and long R&D cycles, so as to successfully break through the high-end market.
It can be said that Mindray's pursuit has never changed.
It is the ultimate pursuit of consistent core technology.
The implicit reality behind this is that in the medical device industry, a complete and self-contained product ecology is a moat.
Today, many of Mindray's product lines are at the forefront of the industry. For example, Mindray is the world's third-largest brand of monitors, anesthesia machines, and blood cell analyzers, and ultrasound, defibrillators, ventilators, and lightbed towers are among the top 10. In the Chinese market, Mindray has been the No. 1 brand in many fields such as monitors and defibrillators for many years.
Mindray has the most comprehensive product line in the same industry in China. What's more, these products of Mindray are interconnected and self-contained.
For example, when talking about the next hospital customer, Mindray can provide a complete set of medical device service solutions for the other party, because all of Mindray's own products are developed and manufactured, the synergy and fit between the products are greatly enhanced, and Mindray can also provide a complete set of after-sales services.
This kind of product ecological layout has brought a cluster effect to Mindray Medical.
The same is true for the acquisition of Huitai Medical, which will provide a significant opportunity for Mindray Medical to quickly enter the blue ocean of cardiovascular products.
In this way, Mindray Medical has embarked on a path of "self-development + mergers and acquisitions". Self-developed core technologies, integrated product ecology, mergers and acquisitions to absorb some technologies, and helped the double leap of products and channels.
It is the ultimate R&D coupled with precise mergers and acquisitions that has helped Mindray Medical become the leader of the domestic industry.
04
The goal is the sea of stars
No mergers and acquisitions, no giants.
In the medical device industry, this sentence has been proven time and again. Since its establishment more than 70 years ago, Medtronic has grown from a small workshop to a giant with revenue of more than 200 billion yuan and a total market value of nearly one trillion yuan.
Medtronic's development history is actually a microcosm of the development of medical device giants. In this industry, the emergence of a new technology can often open up a market segment. But space in a single market is often limited, so when the industry matures, M&A becomes the first choice for leaders to maintain a competitive edge.
Behind Mindray's choice, there is a bigger consideration. In 2022, Li Xiting, chairman of Mindray Medical, once expressed a view:
The United States is also engaged in medical reform, and it should be said that it is much more difficult and expensive to see a doctor than in China. And China, at most two or three days will do it for you.
The reason why it is so fast is because we have a batch of domestic equipment to replace imported equipment, so that our equipment technology is good, the quality is good, so that more people can enjoy the life care brought by scientific and technological progress.
In the past 30 years, Made in China has completed the accumulation of technology and cultivated industrial talents, which is the foundation for the take-off of high-end precision manufacturing industry. The same quality, price and service advantages of Chinese equipment have instantly become the consensus of practitioners.
Nowhere is this more evident than in Mindray. In the United States, which has the highest threshold for medical technology and the most stringent technical regulations, Mindray's products have entered more than eighty percent of IDN medical alliance customers, and have established long-term cooperative relations with many large IDN medical alliances. As a representative of China's medical devices going overseas, Mindray Medical continues to enter the global high-end market with its excellent products.
In terms of global market rankings, Mindray ranked 36th, 31st, and 27th in 2020, 2021, and 2022, respectively, and its ranking has been improving year by year, and it is constantly moving towards the top 20 in the industry.
The global medical device market is expected to exceed $580 billion in 2025 and will increase to about $719 billion in 2029. At present, the annual revenue of the world's top 1 medical device giant exceeds 30 billion US dollars, while Mindray Medical's annual revenue has just exceeded 30 billion yuan, and there is huge room for growth.
It is conceivable that after this merger, the medical device giant from China will take a step towards the center of the world stage.