The King of Cash Flow Becomes the Performance Burden of Hospital Mergers and Acquisitions of Listed Companies

category:Finance
 The King of Cash Flow Becomes the Performance Burden of Hospital Mergers and Acquisitions of Listed Companies


This part of hospital assets once brought short-term performance growth to Jimin Pharmaceutical. However, the prospects are not long. The hospital performance of Jimin Pharmaceuticals pre-acquisition target is far from the original commitment. In addition, a hospital purchased by Jimin Pharmaceutical Co., Ltd. was in trouble because of many debt disputes and the original shareholders refused to fulfill their debt compensation commitments.

Economic Observer reporters noted that since this year, the hospital assets acquired by listed companies such as Innovative Medical (002173.SZ), Star General Medical (now renamed Yingkang Life, 300143.SZ) have appeared one after another. Among them, the performance commitment of hospitals can not be fulfilled, and some of the underlying assets are even in the status quo.u201c Out of control.

Behind a series of high performance promises and failures to meet expectations, there has also been controversy. The CEO of a large general hospital group in China told the Economic Observer, Many companies use three, four or even higher market sales rates to evaluate, which is certainly not a reasonable range, contrary to the nature of medical and business laws.

Performance of core assets is not up to standard

Jimin Pharmaceutical entered the capital market in early 2015. At the beginning of its listing, its main business was to produce and sell large-capacity injections and irrigants. Because of the policy environment of limited transfusion, limited resistance, limited fee, the infusion market is shrinking gradually, and the influence of bidding and bargaining policy makes the profit of Jimin Pharmaceutical face pressure. Li Xianyu, the actual controller of Jimin Pharmaceutical Co., told the Economic Observer in July 2018 that we should firmly develop the big health industry and determine the development ideas with medical and health services as the core.

These merged hospitals once brought short-term performance growth to listed companies. In 2017, Jimin Pharmaceutical Net Profit increased 29.32% year on year, and in the first half of 2018, net profit increased 42.10% year on year. Relevant financial reports of the company also bluntly stated that the acquired hospital assets were included in the consolidated statements of the company during the reporting period, and the medical service income and net profit of Ezhou Second Hospital increased greatly.

Hospital assets, once an important performance support for Jimin Pharmaceutical, have now become hot potato: performance has not been completed and performance compensation has been delayed. Jimin Pharmaceutical announced on August 2, 2019 that because the performance of gamblers has not fulfilled their performance compensation commitments, the company has filed a lawsuit against Zhejiang Nelmet Knitting Garment Co., Ltd. (hereinafter referred to as Nelmet), the former shareholder of the subsidiary Ezhou Second Hospital.

In December 2016, Jimin Pharmaceutical signed the Agreement on Equity Transfer and Capital Increase with Nelmet, the shareholder of Ezhou Second Hospital, Wang Jiansong, Ye Xiaoqing and Ezhou Jiahe Medical Technology Co., Ltd. (hereinafter referred to as Jiahe Medical Co.) to purchase 80% of the equity of its target hospital for a total price of 208 million yuan. At the same time, the two sides increased their investment in the same proportion. Jimin Pharmaceutical and Nelmet increased their investment by 136 million yuan and 34 million yuan respectively, totaling 170 million yuan.

Nelmet promised that the non-net profit deducted by Ezhou Second Hospital from 2017 to 2019 would not be less than 23 million yuan, 26.45 million yuan and 28.43 million yuan, respectively. However, after Ezhou No. 2 Hospital successfully fulfilled its performance commitment in 2017, the net profit deducted in 2018 was only 104.178 million yuan, less than half of the original performance promised.

Unfulfilled performance commitments are also made by Baishui Jimin Hospital. In February 2018, Jimin Pharmaceutical purchased 60% of Baishui Jimin Hospital held by Zhao voters with a self-financing fund of 126 million yuan. Baishui Jimin Hospital, which was included in the financial reports of listed companies, realized non-net profit deduction of 6.29 million yuan in 2018, only about one third of the performance commitment.

Jimin Pharmaceutical said that after the completion of the annual audit report in 2018, the company consulted with Zhao voters, the performance promisor, about performance compensation. Zhao voters believed that the acquisition cost of the company was only 126 million yuan, and that the amount of compensation is far greater than the acquisition cost. The compensation clause is too harsh and objected to. After many consultations between the two sides, the compensation scheme is difficult. In order to carry out the promotion. After many times of communication and consultation, the two sides reached an agreement and signed the formal Equity Repurchase Agreement on June 3. The total repurchase price is 139 million yuan.

Is it due diligence or dereliction of duty? What is the original control?

Jimin Pharmaceutical said that the Second Hospital of Ezhou was a limited liability company funded by Nelmit on July 22, 2016, and the registration authority was Ezhou Bureau of Industry and Commerce; the Second Hospital of Ezhou (private non-enterprise unit) was a private non-enterprise unit established on December 3, 2003, and the registration authority was Ezhou Bureau of Civil Affairs. After the establishment of Ezhou No. 2 Hospital, the operating assets of Ezhou No. 2 Hospital (private non-enterprise units) were purchased and reasonable consideration was paid. The relationship between them is not restructuring or inheritance, but a completely different civil entity.

It is worth mentioning that Jimin Pharmaceutical said in the announcement that when it purchased Ezhou Second Hospital, Dacheng Law Firm hired by the company conducted the necessary due diligence investigation and checked the Enterprise Credit Report issued by the Credit Inquiry Center of the Peoples Bank of China and the loan provided by Ezhou Second Hospital on the basis of major creditors rights and debts. List and loan agreement, and communicate with the financial person in charge of the subject matter of the transaction and other relevant personnel. Further, Wang Jiansong, the actual controller of the subject matter of the transaction, also promised to have no undisclosed contingent liabilities and other guarantees.

According to the announcement of Jimin Pharmaceutical Disclosure, Wang Jiansong assured that Except for the debts disclosed above, Ezhou Second Hospital and Ezhou Second Hospital (private non-enterprise units) have no other debts due to the events before January 4, 2017. The above-mentioned debt essentially refers to Wang Jiansongs personal debt, which has nothing to do with the company.

Wang Jiansong also promised, I will settle Chen Wangjuns debts as creditors by August 30, 2019, and the remaining debts will be settled by December 30, 2019.

Despite the troubles of Ezhou Second Hospital, Jimin Pharmaceutical still has to continue to invest in real gold and silver. Jimin Pharmaceutical announced on July 6 that the companys application for private A-share issuance in 2018 was approved by the SFC. Jimin Pharmaceutical will raise no more than 449 million yuan. Of the net amount after deducting the issuance fee, about 319 million yuan will be used to invest in the new project of Ezhou Second Hospital, and the rest of the funds will be used to repay bank loans.

Up to now, Jimin Pharmaceutical has directly controlled four general hospitals, Boao Hospital, Ezhou Second Hospital, New Friendship Hospital and Baishui Jimin Hospital. The cumulative cost of developing medical and health services has exceeded 1.1 billion yuan.

The market sales rate is generally on the high side.

The upsurge of hospital mergers and acquisitions began in 2014. The report released by PricewaterhouseCoopers shows that, driven by policy dividends and capital, the scale of hospital mergers and acquisitions has been expanding from 2014 to 2016, and the disclosed amount of hospital transactions has jumped from 6 billion yuan to 16 billion yuan. Over the next two years, the amount of transactions disclosed declined to 15 billion yuan and 14.4 billion yuan, respectively. The merger and acquisition of hospital investment has entered a period of adjustment.

I think its crazy to describe the hospital investment in those two years. A senior person in the field of hospital investment told the Economic Observer.

After the craziness, the mergers and acquisitions of hospitals by the listed companies did not bring considerable economic benefits to the enterprises concerned, nor did they meet the performance commitment of the acquisition. Since this year, the hospital assets acquired by listed companies such as Innovative Medical and Star General Medical have successively failed to meet the performance standards. The failure of performance commitment of hospital investment has become a common phenomenon, and some of the underlying assets are even out of control.

Behind a series of high performance promises and performance failures, the CEO of a large general hospital group in China sees that capital is irrational. He told the Economic Observer, Many companies use three, four or even higher market sales rates to valuate, which is certainly not a reasonable range, contrary to the nature of health care and business rules.

It is understood that the hospital valuation, the industry mainly has cost + premium, P/E ratio PE and P/S ratio PS three modes. Cost Price + Premium model is generally applicable to hospitals that are not yet open or have just started operation; PE model is suitable for hospitals that have been operating normally for several years and have relatively stable business income and profits; PS model is suitable for hospitals with certain business income but not yet profitable.

A senior executive of a listed company involved in medical services told the Economic Observer, It is reasonable for hospitals to have a price-earnings ratio valuation of 10 to 15 times. However, in the previous upsurge of hospital mergers and acquisitions, the price of hospitals has risen sharply and the valuation has been stirred up relatively high. As the tide recedes, the current 15-fold valuation is relatively high. Many listed companies acquire high hospital valuations. Among them, the PE value of Baishui Jimin Hospital is about 30 times on the eve of merger and acquisition; when Qiqihar Jianhua Hospital was acquired by thousands of pearls (now innovative medical treatment) in early 2016, PE value was about 20 times; and the PE value of Chongqing Huajianyoufang Hospital Co., Ltd., acquired by Star General Medical Department in 2018, was as high as 53 times.

In addition, the integration and operation of hospitals is not easy. An insider told the Economic Observer that hospital personnel, management, policy changes and other factors will affect hospital operation and revenue. For example, in 2017, Beijing began to implement thezero-plus drugrequirement that the growth of medical expenses should not exceed 10% of last years, and that the proportion of drugs and consumables should be reduced to 30% and the proportion of consumables to 20%. All of these have a great impact on hospital income.

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Zhang Bin Economic Observer Reporter, Capital Market Dept. Reporter specializes in biomedicine, new energy, high-end manufacturing, new materials, listed companies reporting, good at company news analysis, in-depth investigation. News leads can be reached by email: [email protected] Source: Responsible Editor of Economic Observation Network: Yang Bin_NF4368

Journalist of Zhang Bin Economic Observer

Journalist of Capital Market Department

Focus on biomedicine, new energy, high-end manufacturing, new materials, listed companies report, good at company news analysis, in-depth investigation. News leads can be reached by email: [email protected]