Merger And Acquisition Of Chongqing Pharmaceutical Group

Since 2019, the pace of channel expansion of Chongqing pharmaceutical group has been accelerated.

Recently, humanwell pharmaceutical announced that it plans to transfer 70% of the equity of Sichuan Renfu to Chongqing pharmaceutical group at a price of 362 million yuan, which is the third large-scale merger and acquisition of Chongqing pharmaceutical group after the introduction of Chinese medicine. Prior to the acquisition of 32% equity of Shaanxi Tianshi Pharmaceutical Group and Tianshi Pharmaceutical Group, it intends to complete the equity transfer agreement with Tianshi Pharmaceutical Group in February 2020.

"Previously, the overall scale of Chongqing pharmaceutical group was not outstanding. At the moment when pharmaceutical circulation enterprises stress scale effect, it is expected that it will further develop large-scale thinking after introducing Chinese medicine from the shareholder level." On August 10, a person close to the heavy Pharmaceutical Group said in an interview with a reporter from the 21st century economic report that at present, it is still in the period of centralization bonus enjoyed by the distributors, and the circulation enterprises with regional advantages have the power of local expansion, but it is also difficult to realize the coverage of the whole country.

According to the plan of Chongqing pharmaceutical group, the company will continue to lay out blank areas and accelerate the sinking of regional network in the future.

According to the prospectus of the third phase of ultra short term financing bonds in 2020, after the completion of the acquisition of tianshli project, five market regions will be added, namely Tianjin, Beijing, Shandong, Shanxi and Guangdong, and efforts will be made to promote equity investment and M & A projects in seven blank regional markets of Heilongjiang, Hebei, Jiangsu, Zhejiang, Fujian, Guangxi and Shanghai, so as to realize as soon as possible the equity investment and M & A projects except Hong Kong, Macao and Taiwan 31 provincial administrative regions have a full coverage of pharmaceutical business networks, and will speed up the implementation of secondary market investment and M & A, and quickly seize the regional market share based on the current efforts to build provincial platform companies such as Sichuan, Henan, Ningxia, Shaanxi and Jiangxi.

As an important subordinate enterprise of Chongqing chemical medicine group, Chongqing pharmaceutical group is an important part of its layout, which also means that in the future, the group will get greater support in strategic planning, business management, capital, etc. IC photo?

Rapid expansion

According to the above announcement, Sichuan Renfu, the subject of the transaction, was established in 2005 and is a typical regional pharmaceutical circulation enterprise. The company has more than ten holding subsidiaries, covering all kinds of medical and health institutions at all levels in Sichuan Province. According to the audit report, in the first quarter of 2019 and 2020, Sichuan Renfu achieved 3.067 billion yuan of operating revenue and 602 million yuan of net profit of 91.402 million yuan and 9.865 million yuan of net profit respectively. By the end of the first quarter of this year, the total assets of Sichuan Renfu were 2.357 billion yuan, the net assets were 380 million yuan, and the total liabilities were 1.977 billion yuan.

"According to the agreement, Chongqing pharmaceutical group will also undertake nearly 1 billion yuan of interest bearing liabilities of Sichuan Renfu, and the valuation is actually about 1.36 billion yuan. Judging from the performance of Sichuan Renfu in recent two years, the valuation is somewhat high." They said so.

However, judging from the strategic intention of the national distribution of heavy Pharmaceutical Group, the idea of rapid M & A expansion is not difficult to understand. According to the latest announcement of tiansheli, the anti-monopoly review has been approved, which means that more than half of the acquisition of tiansheli marketing by focus Pharmaceutical Group has been completed.

"If the acquisition of tiansheli marketing is intended to expand the blank market, then the acquisition of Tiansheng pharmaceutical and Sichuan Renfu is intended to further consolidate the market advantage in Southwest China." The acquisition of Chongqing Shengxian Pharmaceutical Group in the market share of Sichuan Shengxian is more important than that of other regions.

According to public data, Chongqing pharmaceutical group has set up subsidiaries in all districts and counties in Chongqing. In 2019, the company achieved sales revenue of 24.018 billion yuan, 2.429 billion yuan, 961 million yuan and 4.400 billion yuan respectively in hospitals above level 2 (including level 2), primary medical institutions below level 2, retail pharmacies and downstream pharmaceutical wholesalers. In Chongqing, it accounted for 8.455 billion yuan, accounting for 8.855 billion yuan in the main business area. In contrast, the main business income in Sichuan is only 3.036 billion yuan, accounting for 9.54%.

As the heavy medicine group opened the prelude of national distribution, its regional characteristics are weakening. According to the annual investment reports of China Pharmaceutical Group in 2020, China Pharmaceutical Group has completed 31 projects in 2020. With the expansion of business in other regions, the proportion of the company's wholesale revenue in the total wholesale revenue in Southwest China will drop to 72.55% in 2019, and the proportion of Chongqing's revenue in the core region will drop to 54.88%.

China integrity International believes that the company's pharmaceutical wholesale business has maintained the leading position in Southwest China, and the terminal coverage rate of core areas has been further improved; with the continuous layout of the national marketing network, its competitiveness in the field of pharmaceutical circulation is expected to be further improved. The mixed reform of shareholders may help the company to strengthen the cooperation with Chinese medicine, realize the sharing of pharmaceutical varieties and market, and the procurement cost is expected to be reduced, which has a certain synergistic effect, but the effect of cooperation needs to be observed.

Sequelae of merger and acquisition

The group is facing many difficulties in rapid expansion.

Although the pure sales and distribution business is in a stable development range, the gross profit margin of its retail business sector will decrease slightly in 2019 due to the impact of fierce competition and price reduction of some drugs. Although the expansion of business scale has formed a certain supplement to the company's profits, in the first quarter of 2020, due to the impact of the new crown pneumonia epidemic on the pharmaceutical industry, the overall revenue scale and operating gross profit margin of the heavy pharmaceutical group decreased.

In addition, heavy medicine group also encountered the sequelae of rapid expansion. Due to the continuous expansion of its business scale, the level of employee compensation, handling and transportation expenses and various management related expenses are on the rise. In 2019, the sales and management expenses increased year-on-year. Due to the rapid increase of debt scale, the financial expenses increased by 78.44% in the same period.

According to the group's bond issuance instructions, by the end of 2017-2019 and the end of March 2020, the total current liabilities of Chongqing pharmaceutical group were RMB 8.885 billion, RMB 11.868 billion, RMB 16.112 billion and RMB 18.375 billion, accounting for 97.57%, 91.21%, 92.13% and 91.04% of the total liabilities, respectively. The scale of current liabilities is increasing year by year, and it is still facing great debt repayment pressure in the future.

What's more, premium M & A is often accompanied by high goodwill. By the end of 2017-2019 and March 2020, the amount of goodwill of Chongqing pharmaceutical group was 159 million yuan, 732 million yuan, 776 million yuan and 910 million yuan respectively, accounting for 5.65%, 20.88%, 17.06% and 18.61% of non current assets respectively.

"If the profitability of the merger and acquisition of heavy Pharmaceutical Group declines, the high amount of goodwill will face the risk of impairment." The above-mentioned person analyzed to the reporter that under the background of increasingly strict supervision on goodwill by regulatory agencies, this kind of risk urgently needs to accelerate the pace of resource integration.

However, the entry of Chinese medicine may speed up the development of heavy Pharmaceutical Group. In September 2019, Chongqing Huayi, the indirect controlling shareholder of Chongqing pharmaceutical group, launched the mixed ownership reform; on December 25 of the same year, Chongqing Huayi transferred 49% of its shares in the health industry company to China Pharmaceutical and its controlling shareholder, China general technology. At present, the registration change has been completed.

In the strategic planning of Chongqing chemical medicine, the future will focus on the development of pharmaceutical industry. As an important subordinate enterprise, Chongqing pharmaceutical group is an important part of its layout, which also means that the group will get more support in strategic planning, business management and capital in the future.

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