KKR'S Cornerstone And Hony: Who Is In Charge Of The Retail Market Of 100 Billion Drugstores

Shen Junhan, researcher of the 21st century innovation capital research institute   Beijing Report

      Recently, the official announcement of a large transaction in the field of pharmaceutical circulation has aroused people's attention to the pharmacy retail industry.

On May 13, cornerstone capital announced that it would transfer all its 100 million health shares to a large well-known private equity investment institution. This transaction is the largest holding type merger and acquisition transaction in the field of pharmaceutical circulation in China in recent years.

      It is understood that all billion health was initiated and established by cornerstone capital in 2016, which is also the first creative holding merger and acquisition investment of cornerstone capital. Over the past five years, cornerstone capital has devoted a lot of efforts to the 100 million health projects. It has successively invested nearly 3 billion yuan, and has sent many people to participate in the operation of the company.

At the end of October 2017, all 100 million Health announced that it had obtained several billion yuan of round B financing, led by Hony investment. After this round of financing, Hony investment has become the second largest shareholder of 100 million health. This transaction, Hony investment will also hold 100 million health shares to sell together.

The 21st century economic reporter has learned from insiders that KKR, an international PE giant, is the buyer of 100 million healthy products“ Chain drugstores are real estate with good cash flow and large scale, which is suitable for PE investment. At the same time, by comparison, the pharmacy retail industry in the United States has a high degree of integration. For us dollar PE, it has confidence and space for further integration and improvement by purchasing corresponding assets in the Chinese market. " Another PE industry personage said to the reporter.

Behind the deal is capital's long-term positive outlook on the broad retail market of pharmacies. According to the statistical data of MI Nei net and prospective industry research institute, from 2012 to 2019, the drug sales of retail pharmacies in China increased from 226.8 billion yuan to 419.6 billion yuan, with an average annual compound growth rate of 9.2%. In recent years, the growth rate of drug sales in retail pharmacies has declined, but the overall growth rate is still high and stable, and the market development space is broad.

In this large market with a scale of over 400 billion, Yifeng pharmacy, ordinary people, Da Shenlin, Yixintang and other listed companies have appeared. According to the 21st century economic report, the above-mentioned head pharmacy chain enterprises have the participation of investment institutions in the early stage of establishment or after IPO.

For example, Yifeng pharmacy obtained the early investment of today's capital as early as 2008 and 2009; Yixintang was jointly invested by Hony investment and Junlian capital in June 2010; In 2015, Dasein was jointly invested by CDH investment and Morgan Stanley; After IPO in 2015, people will introduce Fangyuan capital and Chunhua capital in 2019.

In addition, some investment institutions even go out in person to deeply participate in the incubation and operation of the company, such as the 100 million yuan launched by cornerstone capital and Gaoji under Hillhouse. Under the agitation of capital, what is the market competition pattern of pharmaceutical retail industry? Who can laugh to the last in the competition?

Cornerstone invested 3 billion yuan to "cultivate" 100 million healthy KKR, and completed the new fund raising before taking over the offer

Cornerstone capital was established in 2001, and the scale of assets under management has exceeded 55 billion yuan. Adhering to the concept of "centralized investment and key service", cornerstone capital dares to invest heavily in promising track, and even conduct holding investment. 100 million health is one of the main cases of cornerstone capital's holding investment. To be more precise, it is a creative holding merger and acquisition investment.

In 2014, cornerstone capital invested in the full value pharmacy of the mobile medical project. Wu Xinghua, the founder of the company, previously served as the CEO of Haiwang Xingchen, the "first stock of drugstores". During the investment, cornerstone and Wu Xinghua had in-depth exchanges with the pharmaceutical retail industry. Subsequently, based on the research on the pharmaceutical retail industry and the recognition of Wu Xinghua team, in 2016, cornerstone capital invested 1 billion yuan and Wu Xinghua team quickly established a 100 million health.

In recent years, with the rapid development of "capital + Management + mechanism" mode, all billion health has successively acquired retail pharmacies such as jishengtang in Nantong, Jiangsu Province and Yizheng pharmacy in Wenzhou, Zhejiang Province. In addition to the acquisition, all billion health has also accelerated the pace of opening new stores in the past two years. At present, there are about 2500 directly operated pharmacies in the whole country, which is the top ten pharmacy chain enterprises in China.

Regarding the current operation of the company, Chen Shuyan, director of cornerstone capital investment department and vice president of all billion health, once said in an interview that the company's current development situation is good, the main business data has entered the first camp of pharmaceutical chain industry, and has planned to land in domestic or overseas capital markets.

As the cornerstone capital of the company's founding shareholder, he has devoted a lot of efforts to the health project of 100 million yuan. The company has invested nearly 3 billion yuan and sent many people to participate in the company's operation. Cornerstone has also opened a financing platform for all billion design. In August 2017, all billion health obtained a billion yuan round B financing led by Hony investment, and Hony became the second largest shareholder of all billion health.

Under the agitation of capital, pharmacy retail industry has gradually formed four mainstream factions- Visual China

Why did cornerstone capital choose to sell 100 million health shares at this time? Lin Ling, vice chairman of cornerstone capital and chairman of all billion health, said publicly: cornerstone capital is not pessimistic about the development of pharmaceutical chain industry and the future of all billion health. This sale is more based on the consideration of the investment period of the fund. In the future, cornerstone capital will continue to increase the investment in healthy and large consumption industries.

The buyer of the deal is KKR, known as the "king of Wall Street acquisitions.". A PE industry insiders on the 21st century economic report analysis said that KKR's bid may be based on various considerations.

First of all, from the macro environment, the US dollar has released water, and many US dollar funds have raised a lot of funds. In April this year, KKR announced the completion of the fourth Asian fund raising, becoming the largest private equity fund in the Asia Pacific region, with a fund size of $15 billion. In accordance with past practice, KKR Asia funds generally invest 1 / 4 to 1 / 3 of the Chinese market. In this way, the fund will add about $4 billion or more to KKR's investment in China“ After the "dry powder" is ready, we naturally hope to find high-quality assets to invest as much as possible.

Secondly, KKR is no stranger to the medical and health industry, and there has been a layout of M & A investment in the Chinese market. In September 2018, KKR announced the establishment of a new hospital investment management platform company Renkang investment in China. Renkang investment will introduce top medical resources and management experience with KKR through acquisition, hospital expansion and integration, so as to improve the service capacity and operational efficiency of medical service providers in the platform. At that time, KKR also announced that Renkang investment had acquired a majority stake in China hospital management company and Tianyi management company.

Thirdly, chain drugstores are real estate with good cash flow and large scale, which is suitable for PE investment. In contrast, the pharmacy retail industry in the United States has a high degree of integration. For us dollar PE, it has confidence and space for further integration and improvement by purchasing corresponding assets in the Chinese market.

Hillard, CDH and Chunhua compete to enter the retail market of 400 billion drugstores and take the lead in M & A

KKR's acquisition of 100 million health is just the tip of the iceberg. In the retail market of China's drugstores with a scale of over 400 billion, there are already large PE institutions such as Hillhead, Dinghui and Chunhua.

According to the statistics of 21st century economic report, many institutions have participated in the investment of drugstore retail enterprises in the past ten years. Some of them choose to cooperate with leading enterprises, while others choose to enter the board by themselves and set up a chain platform based on merger and acquisition.

For example, Yifeng pharmacy obtained angel investment from today's capital when it was first established in 2008. In 2009, today's capital successively invested round a and round B in Yifeng. In 2015, Yifeng officially IPO; Yixintang was jointly invested by Hony investment and Junlian capital in June 2010, and was listed in 2014; In 2015, Dasein obtained the joint investment of CDH investment and Morgan Stanley, and then IPO in 2017; After IPO in 2015, people will introduce Fangyuan capital and Chunhua capital in 2019; Examples of personal participation include the 100 million yuan Gaoji launched by cornerstone capital.

The hot pursuit of capital is mainly due to optimistic about the scale effect and profit space brought by the substantial increase in the chain rate of pharmacy retail industry. It is understood that China's drugstore retail market has long been characterized by low industry concentration. In recent years, although the relevant values have improved, compared with the mature markets such as the United States and Japan, it is still at a low level, and there is a large space for integration in the future.

According to the data of the State Food and drug administration, by the end of 2020, there were more than 550000 pharmacies in China, and the drug retail chain rate increased from 36.57% in 2013 to 56.50% in 2020. At the same time, according to the research report data, the market share of domestic top 10 chains increased from 13.56% in 2015 to 20.22% in 2019.

However, the chain rate of drugstores in the United States has increased from less than 40% in 1990 to 87% in 2019. The market share of top 3 drugstores is close to 90%, and that of Japan's top 10 chain drugstores reaches 70%. Therefore, the integration of domestic drug market is just beginning, and there is still a huge space for head chain pharmaceutical enterprises to improve market share. Moreover, due to the high degree of standardization of drugs, the expansion of chain drugstores can also reduce the purchase cost, management and operation cost, and form the scale effect.

The expansion of chain drugstores usually includes new stores, merger and acquisition, and franchise. Merger and acquisition is a very important way. According to an analysis of the 21st century economic report by a pharmaceutical industry insider, the main reason is that the total number of domestic pharmacies has been relatively saturated. From 2011 to 2020, the total number of domestic pharmacies remained at 40.5 million, and the overall situation of slow growth was maintained.

"Pharmacies have a certain service radius, either near residential areas or beside hospitals. Existing pharmacies have established coverage, so it's not easy to open a new store in the right place, except in the new urban area. When the incremental dividend is less and less, the expansion of chain drugstores is on the path of stock integration. " He said.

At the same time, for small and medium-sized pharmacies, there is also the power to be acquired. It is understood that with the implementation of the new version of GSP and the increasingly strict regulatory policies, the software and hardware input costs of monomer pharmacies and small and medium-sized chain drugstores enterprises are increasing. In addition, with the increase of human costs and rent costs, as well as the lack of purchasing bargaining power, the operating pressure of monomer pharmacies and small and medium-sized chain drugstores enterprises is increasing. When their own profitability is insufficient, it is undoubtedly a better choice to be acquired by industry leaders.

Therefore, in the drugstore retail industry dominated by M & A, there is naturally a heat of capital participation in the industry integration. In addition, with the improvement of digitalization and informatization, pharmacies will not only be traditional pharmacies, but also mean community service centers within a radius of 2 km, which also have a large space for development.

Who will rise and fall in the future?

Under the agitation of capital, pharmacy retail industry has gradually formed four mainstream factions. First, the large-scale state-owned wholesale and retail enterprises represented by Sinopharm, Huayao and Shangyao, as the three giants in the field of pharmaceutical circulation, originally have rich industrial product resources and perfect logistics distribution system, and have resource advantages in the development of pharmacy retail business.

Second, private enterprises starting from regional stores, such as ordinary people, Yifeng, Da Shenlin, Yixintang, etc; Third, the rising stars launched by capital mainly focus on merger and acquisition, such as cornerstone, 100 million yuan under Hillhouse and Gaoji; Fourth, the layout of online and offline retail pharmacies controlled or shared by Jingdong, Tencent and Ali.

The 21st century economic report reporter found that the enterprises of these four schools have their own advantages, and the private drugstore chain enterprises with high capital participation are particularly attracting people's attention“ Now many leading private enterprises have gone public, and there are also investment institutions behind the standing team support. In the future, the industry will be more opportunities for companies in the secondary market to integrate. " An insider told the 21st century economic reporter.

It is understood that in addition to several listed companies, such as ordinary people, Yifeng, Da Shenlin and Yixintang, there are also chain pharmacy enterprises planning to go public such as Hunan Huairen and Shandong Shuyu civilian. The above-mentioned people believe that the industry as a whole is expected to have about a dozen listed companies in the future.

For private drugstore chain enterprises, the key to the development lies in the refined management of stores and the integration of supply chain resources after expansion. If the enterprise focuses on the merger and acquisition of stores in a certain area and expands steadily, the management cost is low, and it is easier to realize profit. However, if M & A is carried out in a decentralized way across the country, the company will face profit pressure and management difficulty will be higher.

Take the common people and Yifeng, a listed company, as an example. By the end of 2020, the common people have built a marketing network covering 22 provinces, with a total of 6533 stores, including 4892 Direct stores and 1641 franchise stores. In 2020, the net profit attributable to shareholders of listed companies will be about 621 million yuan, up 22.09% year on year.

By the end of 2020, Yifeng has opened 5991 chain stores (including 635 franchise stores) in Hunan, Hubei, Shanghai, Jiangsu, Jiangxi, Zhejiang, Guangdong, Hebei and Beijing. In 2020, Yifeng's net profit attributable to shareholders of listed companies will be about 768 million yuan, with a year-on-year increase of 41.29%.

In contrast, although the number of stores of Yifeng is less than that of ordinary people, the company's net profit is higher than that of ordinary people due to relatively centralized operation, and the growth rate of net profit is almost twice that of ordinary people.

Due to the high degree of product standardization of chain drugstores, some PE institutions have also been attracted to operate the drugstore chain platform by themselves, such as the emergence of 100 million yuan and Gaoji. The advantage of PE is that it is good at M & A integration and capital operation, and can help brand to carry out M & A expansion. At the same time, the fund usually has a duration and faces exit pressure from LP. Relatively speaking, the company with evergreen fund has a longer endurance time to do it.

In addition, with the rise of medical e-commerce, drug retail platforms with online and offline resources such as Jingdong health, Ali health and Dingdang kuaiyao are also gradually emerging. Especially last year, under the influence of the epidemic situation, its scale has been further developed.

For Jingdong health and Ali health, with the flow entrance and logistics resources support of the original e-commerce system, drugstore retail has a comparative advantage. Taking Jingdong health as an example, from 2017 to 2019, medicine and health products contributed more than 80% of the revenue of JD health. In 2020, the business segment generated nearly 17 billion yuan of revenue, with a year-on-year growth of more than 70%.

However, the development of Dingdang fast medicine is still facing certain challenges. Because drugs are not as high-frequency as takeout after all, instant distribution and self-built logistics will cause high cost pressure. Moreover, the network of offline pharmacies has been relatively perfect, and offline pharmacies have also been settled on platforms such as meituan and famo. On the whole, there is a greater pressure to participate in the competition.

To this end, Dingdang fast medicine in the national expansion, but also in the value-added services. Yang Wenlong, founder and chairman of Dingdang fast medicine, said that the capital would be mainly used to speed up the city layout of the company's strategic project "thousands of cities and ten thousand stores" when the company completed a 1 billion yuan round of B + financing last year. At the same time, on the basis of consolidating the "fast medicine" and "fast medicine" services, Dingdang fast medicine has established personal health big data, combined with AI and other high-tech means to launch innovative services such as "rapid inspection", "fast insurance" and chronic disease health management, and has built a "medical + drug + Inspection + insurance" health ecology with many insurance companies such as Taikang, the shareholder.