Aibo Medical Acquires Demei Medical with Over 3x Premium to Expand into Sports Medicine

(Source: Beijing Business Today)

Ophthalmic Instrument LeaderEyebright MedicalEyebright Medical Intends to Enter the Sports Medicine Field through M&A. One month after disclosing its investment intention, Eyebright Medical released a detailed acquisition plan on February 26, proposing to acquire 68.31% of Delta Medical (Chongqing) Medical Technology Co., Ltd. ("Delta Medical") for 6.83 billion yuan. The transaction price represents a premium of more than three times over the net asset book value.

Eyebright Medical's latest announcement shows that after the payment of the first installment of the equity transfer, the equity of Delta Medical involved in this transaction will complete all industrial and commercial change registrations. Eyebright Medical will enjoy all rights and interests as a shareholder of the target company. Delta Medical will become a holding subsidiary of Eyebright Medical and be included in the company’s consolidated financial statements.

The announcement shows that Delta Medical is one of the leading enterprises in the field of sports medicine in China. Its core products cover all-suture anchors, interference screws, ultra-strong sutures, shaver blades, arthroscopy cannulas, 4K ultra-precise camera systems, and adjustable braces, etc. Among them, sports medicine implants are the main source of income, accounting for about 80% of the revenue.

As a leader in ophthalmic devices, Eyebright Medical's products currently cover three major fields: ophthalmic surgical treatment, myopia prevention and control, and vision care, providing one-stop solutions for ophthalmic surgery, refractive error correction, and optometric consumption. In the first half of last year, the combined revenue from intraocular lenses, contact lenses, and orthokeratology lenses accounted for nearly 90%, at 43.86%, 30.06%, and 15.14%, respectively.

Eyebright Medical stated that, by acquiring a controlling stake in the target company through this acquisition, it aims to broaden its layout in the medical and health field. The synergy with the target company in R&D, manufacturing, sales channels, etc., will further enhance the company's performance and shareholder return levels.

Regarding the payment method for this transaction, Eyebright Medical mentioned that the consideration for this transaction will be paid in cash, which will result in a certain scale of net cash outflow for the company. Part of the transaction funds are expected to come from bank acquisition loans, with the loan ratio estimated at 70%-80% of the transaction price, which is expected to add a certain amount of interest-bearing debt at the consolidated financial statement level of the company. Eyebright Medical plans to use its own funds to repay the loan principal and interest in installments, which is expected to increase certain financial expenses annually, possibly impacting the company's profits to a certain extent. Regarding this situation, a relevant person in charge of Eyebright Medical told Beijing Business Today reporters: "At present, the company has relatively sufficient own funds, and the repayment situation is also good. In theory, it has the ability to pay the full amount with its own funds. However, if paid in full, it may still have a certain impact on the company’s daily operating capital arrangements. Considering that the country has introduced corresponding preferential and subsidy policies for acquisition loans, if used properly, the issue of financial leverage is not significant."

It is worth mentioning that this transaction will bring about 500 million yuan of goodwill to Eyebright Medical.

According to the valuation conclusion, as of October 31 last year, Delta Medical's net asset book value was 242 million yuan, the assessed value was 1.074 billion yuan, with an increase of 832 million yuan in assessed value and a growth rate of 343.29%. After negotiation by all parties involved in the transaction, Delta Medical’s overall valuation is approximately 1 billion yuan. Eyebright Medical stated that the price of the target assets in this transaction is based on the "Valuation Report," comprehensively considering factors such as the advanced nature of the target company’s core technology, business development trends, historical operating performance, future profitability prospects, etc., fully referencing the valuation levels of comparable companies in the industry, and combining the synergistic value of this transaction, determined after negotiation by all parties involved in the transaction.

"The final transaction price we determined is less than the assessed value, so we believe the pricing of this transaction is relatively reasonable," said a relevant person in charge of Eyebright Medical.

Due to a certain premium, it is expected that approximately 500 million yuan of goodwill will be formed upon the completion of this transaction. As of the end of the third quarter last year, Eyebright Medical's goodwill amounted to 191 million yuan. Following this acquisition, its goodwill will be further increased. In its announcement, Eyebright Medical warned of risks, stating that if the target company’s future operating performance fails to meet expectations due to changes in the market environment, national policy adjustments, or its own factors, the company may face the risk of goodwill impairment.

An Guangyong, an expert from the Credit Management Committee of the All-China Mergers and Acquisitions Association, stated that companies should regularly assess their assets, promptly conduct goodwill impairment tests, and ensure that financial statements reflect true value.

Regarding the issue of goodwill, the relevant person in charge of Eyebright Medical responded to Beijing Business Today reporters, stating that from the perspective of the company's current overall asset situation, the risk of goodwill is not high. In addition, goodwill impairment mainly depends on the future operating conditions of consolidated companies. In the future, the company will ensure good operations and hopes not to convey related risks to the market.

Reporter Ding Ning from the Beijing Business Journal