Mindray Turns Focus to Home With M&A
I’ve written lots about the huge potential for drug makers with China’s ongoing overhaul of its healthcare system, but medical device makers are also seeing big opportunities, as evidenced by 2 new M&A deals by Mindray Medical (NYSE: MR) to put more focus on its home market. The shift reflects not only the big potential of the China market, but also uncertain prospects in traditionally strong markets in Europe and North America, as spending there slows due to economic uncertainty. In Mindray’s latest moves at home, it announced it has acquired a controlling stake in a Hunan maker of microbiological analysis products, complementing one of its own product lines. (company announcement) That announcement follows a similar one 2 weeks ago, when Mindray bought a controlling stake in a medical imaging products maker in coastal Zhejiang province, again complementing one of its product lines. (company announcement) Terms weren’t disclosed for either deal, meaning the transaction values were probably relatively small, probably less than $20 million. I like this approach of small, strategic acquisitions in complementary product categories for a number of reasons. First and most importantly, they will help Mindray to diversify its product line, while also greatly expanding its customer base through the addition of these two companies. Equally important, the 2 new acquisitions are both in less developed, domestically focused cities, meaning the bulk of their customers are probably inside of China, where they are well positioned to take advantage of Beijing’s mutibillion-dollar overhaul of its healthcare system that will see it set up thousands of clinics nationwide to provide basic affordable care to the hundreds of millions of Chinese who now lack access to such services. A quick look at Mindray’s latest results show that it gets about 43 percent of revenue from its home China market, and the rest from abroad. But its China sales are growing much faster, rising more than 35 percent in the third quarter versus 26 percent growth for the rest of the world. Unlike many other US-listed China firms whose shares have plunged this year, Mindray’s shares have actually held up relatively well, reflecting its more solid prospects going forward, which look even better with these latest strategic purchases.
Bottom line: Mindray’s recent string of small, strategic acquisitions looks like a smart strategy to diversify its products and find new opportunities as China overhauls its healthcare system.
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