Shanghai Pharmaceuticals has agreed to buy Cardinal Health’s China drug distribution business for $557 million, winning a highly competitive auction in a move that will will greatly expand its presence nationwide.
The deal will also help Shanghai Pharma, China’s third-largest drug distributor, become a leading importer of foreign medicine into the entire world’s second-largest drug market.
Including shareholder loans, the deal gives Cardinal’s business in mainland China in addition to Hong Kong an enterprise value of $1.2 billion, equivalent to about 15 times its earnings before interest, taxes, depreciation, in addition to amortization (EBITDA) for the year ended June.
By comparison, Shanghai Pharma, which is usually backed by the Shanghai government, trades at 11 times EBITDA.
Cardinal Health put its China business up for sale in July amid worries that will the country’s upcoming drug distribution reform could slow its growth. The sale drew keen interest through state-backed Chinese pharmaceutical companies in addition to private equity firms.
“This specific was a very competitive bidding process as a target like This specific is usually very rare inside the market,” David Liu, head of M&A at Shanghai Pharma told Reuters on Wednesday.
Warburg Pincus in addition to a consortium led by Cardinal China’s management team were also among bidders inside the final stage of the auction, said two people with knowledge of the matter, declining to be identified as they were not authorized to speak to the media.
Warburg Pincus declined to comment while representatives for Cardinal China did not immediately respond to a request for comment.
Beijing introduced a so-called “two-invoice” procurement system in January on a trial basis as part of an overhaul of the country’s fragmented healthcare sector aimed at streamlining the distribution chain.
Under the completely new system, anticipated to be fully implemented in 2018, drug manufacturers can only work with just one distributor that will directly supplies products to healthcare facilities such as hospitals.
The overhaul is usually anticipated to reshape China’s drug distribution landscape in addition to squeeze margins for distributors lacking links to big manufacturers in addition to healthcare facilities in China.
Cardinal’s China business is usually the 8th largest drug distributor inside the country, operating 14 direct sales units in addition to 17 distribution centers that will cover 322 cities in addition to 11,000 medical institutions, Shanghai Pharma said in a statement.
This specific generated 25.5 billion yuan ($3.85 billion) in revenue for the last financial year, compared with 22.6 billion yuan a year earlier.
Executives through Shanghai Pharma also told Reuters that will the company is usually looking to acquire more than 3,000 domestic retail stores in a drive to expand its retail network to 5,000 within 5 years.
Morgan Stanley in addition to China Merchants Securities advised Shanghai Pharma on the deal, which is usually subject to an anti-monopoly review by China’s Ministry of Commerce.