Lepu Medical Announces Participation in RMB 1 Billion Healthcare-Focused M&A Fund

Recently, Lepu Medical (300003.SZ) announced that the company, together with the professional investment institution Suzhou Lepu Suyi Consulting Partnership (Limited Partnership) (“Lepu Suyi”) and other limited partners, has established Suzhou Lepu Suyi Equity Investment Partnership (Limited Partnership) (the exact name shall be subject to industrial and commercial registration, hereinafter referred to as “Suzhou Lepu” or the “Partnership”). The total fundraising scale of the fund is RMB 1 billion, of which Lepu Medical intends to contribute no more than RMB 200 million from its own funds.

Partners' Capital Contributions, sourced from the official website of Lepu Medical

Following the establishment of Suzhou Lepu, Lepu Suyi shall serve as its general partner/executive partner, and Suzhou Yipu Equity Investment Fund Management Co., Ltd. (“Yipu Investment”) shall be engaged as the manager.

This fund is positioned as a healthcare industry M&A fund, primarily investing in sectors such as medical devices and healthcare services. Its investment focus is mainly on the medical device and equipment industries, supplemented by the pharmaceutical and healthcare service sectors. In terms of investment stages, it prioritizes growth-stage projects, while also considering mature or early-stage opportunities.

Lepu Medical stated that the market is currently in a downturn. The company aims to address market challenges by building an innovative ecosystem for the medical industry, fully integrating resources from various parties to create synergies. This strategy will facilitate the integration of the company’s industrial resources, optimize and upgrade its business structure, and sustain its leading position in the medical sector.

As a leading enterprise in China’s cardiovascular implant and interventional field, Lepu Medical has demonstrated significant technological advantages and market influence through its comprehensive product portfolio covering the entire PCI procedure workflow—including imaging diagnostic equipment, functional balloons, and stents—as well as the continuous launch of innovative products such as drug-coated coronary balloon dilation catheters and disposable intracoronary shockwave catheters. Meanwhile, in the field of structural heart disease treatment, Lepu Medical has achieved important breakthroughs with the commercialization of products like bioresorbable occluders.

Reviewing the development history of Lepu Medical, the company has successfully entered multiple segments of the cardiovascular industry’s full value chain—such as cardiac pacemakers, heart valves, and angiography equipment—through a series of strategic acquisitions, further consolidating its market position. Statistics show that since its listing in 2009, Lepu Medical has completed more than 30 M&A transactions, with a total amount exceeding RMB 6 billion.

Lepu Medical’s M&A Events (Partial)

Despite Lepu Medical’s numerous achievements in technological innovation and market deployment, its 2023 annual report disclosed a significant year-on-year decline in both operating revenue and net profit attributable to shareholders of the listed company during the reporting period. Specifically, the company recorded total operating revenue of RMB 7.980 billion, a decrease of 24.78% year on year; net profit attributable to shareholders amounted to RMB 1.258 billion, down by 42.91% year on year, marking the lowest annual performance since 2019; net profit after deducting non-recurring gains and losses stood at RMB 1.123 billion, a year-on-year decrease of 47.60%; and net cash flow from operating activities was RMB 990 million, representing a 64.51% decline compared with the previous year.

Entering 2024, the downward trend in Lepu Medical’s performance has not been effectively curbed. From January to September, the company reported operating revenue of only RMB 4.785 billion, a year-on-year decrease of 23.55%; net profit attributable to shareholders of the parent company amounted to just RMB 803 million, representing a year-on-year decline of 40.70%.

Industry insiders have analyzed that the primary reasons for Lepu Medical's decline in performance lie in the dual impact of centralized procurement policies and market competition. Specifically, revenue from Lepu Medical's medical device segment decreased by 10.5% year-on-year in the first three quarters, mainly dragged down by centralized procurement policies and a high base effect in its in vitro diagnostics business.

Meanwhile, the challenges brought about by Lepu Medical's M&A strategy are becoming increasingly prominent.

On one hand, the debt scale remains persistently high. From 2020 to the first half of 2024, Lepu Medical’s total liabilities were RMB 7.619 billion, RMB 8.425 billion, RMB 8.114 billion, RMB 7.525 billion, and RMB 7.856 billion, respectively. On the other hand, high goodwill has become an unresolved risk factor. Lepu Medical’s growth has been driven by mergers and acquisitions, leading to a cumulative increase in goodwill year after year, which climbed to RMB 3.948 billion by the first half of 2024.

To alleviate financial pressure, Lepu Medical has actively pursued diversified financing channels in recent years. From a private placement of RMB 3.18 billion in 2020, to convertible bond financing of RMB 1.638 billion in 2021, and further to strategies such as spinning off subsidiaries for listing and issuing Global Depositary Receipts (GDRs), these measures have effectively improved Lepu Medical’s capital structure. By the end of 2023, the asset-liability ratio had decreased to 30.07%, largely mitigating the debt repayment risks arising from large-scale mergers and acquisitions prior to 2019.

Compared with traditional M&A models, Lepu Medical has structured its business expansion through the establishment of M&A funds. This strategy not only mitigates information asymmetry and enables risk sharing through cooperation with private equity (PE) firms, but also cleverly leverages financial leverage to effectively alleviate the company’s capital pressure. Meanwhile, by leveraging the screening and restructuring capabilities of PE institutions, Lepu Medical can directly acquire high-quality targets, significantly enhancing M&A efficiency.

According to incomplete statistics, Lepu Medical has established 10 M&A funds since 2014. These funds primarily focus on healthcare sectors such as medical devices, mobile health, biopharmaceuticals, and health services, aiming to acquire cutting-edge technologies, high-quality resources, and distribution channels.

For instance, the “Lepu-Minhe Global Precision Medicine Innovation Investment Fund” was established to invest in the U.S.-based company Quanterix and acquire its ultra-high-precision protein detection technology; the “Shanghai Xingze Xinghe Investment Management Center (Limited Partnership)” was set up to rapidly enter high-potential innovative drug sectors at the forefront of pharmaceutical R&D—such as small-molecule targeted therapies, recombinant proteins, and autoimmune disease treatments—by participating in investments through this fund, leveraging capital linkages. It is evident that Lepu Medical’s investments are all directed toward the healthcare industry, focusing on companies with promising future profitability and forming strategic investment layouts in key areas.

Lepu Medical's Participation in the Establishment of an M&A Fund (Partial)

Lepu Medical’s participation takes two primary forms. In the first, it acts solely as a limited partner (LP), providing capital without engaging in the fund’s day-to-day operations, which are managed by a private equity firm serving as the general partner (GP), as seen in the “Shenzhen Zhenghong Healthcare Venture Capital Fund.” In the second, it jointly establishes a fund management company with a private equity firm, with this GP entity responsible for the daily operation and management of the merger and acquisition fund, exemplified by the “Lepu Ginkgo Healthcare M&A Fund.”

In terms of the management model for M&A funds, each fund has established an Investment Decision Committee, and related-party transactions were avoided during the investment and establishment processes. Decisions on project investment and exit require approval by more than half of the members of the Investment Decision Committee. Notably, in the establishment of the “Lepu-Goldstone Healthcare Industry Investment Fund,” the investment decision committee member nominated by Lepu Medical holds veto power over investment matters. As of 2021, Lepu Medical had equity stakes or controlling interests in 49 companies, gradually completing its strategic layout in biopharmaceuticals, high-end diagnostic and treatment equipment, high-value consumables, and precision medicine.

The establishment of this fund not only provides Lepu Medical with opportunities to acquire new technologies, expand its product portfolio, and enter new fields, but also continues to provide leveraged financial support to help the company achieve its strategic goal of building an integrated “pharmaceuticals–medical devices–mobile health–medical services” platform.