KDL Medical Acquires 51% Stake in Guangxi Owin to Accelerate Channel Integration and Drive Growth

VCBeat has learned that on the evening of August 6, listed company Kindly Medical (603987.SH) announced that its wholly-owned subsidiary in South China, Zhuhai Kindly Medical Device Co., Ltd. (“Zhuhai Kindly”), would serve as the acquiring entity for this transaction. Zhuhai Kindly has entered into agreements with multiple shareholders of Guangxi Ouwen Medical Technology Group Co., Ltd. (“Guangxi Ouwen”) regarding capital injection and equity transfer. The shareholders involved include Zhu Fangwen, Hu Minfei, Ouwen New Era, Ouwen New Resonance, and Huaige Gongxin, among others.

Under the agreement, Zhuhai Kindly intends to increase its capital in and acquire a 51% equity stake in Guangxi Ouwen through an all-cash transaction. The total transaction value is approximately RMB 318 million, with completion expected in the third quarter of 2019. More than eight months after the listed company first disclosed its investment intention in November 2018, the merger and acquisition plan has finally been finalized.

It is understood that this transaction features numerous highlights, which are summarized as follows:

Audited by BDO China Shu Lun Pan CPAs, Guangxi Ouwen Medical Technology Group Co.,Ltd. reported annual revenue of RMB 561 million and net profit of RMB 46.4279 million in 2018. In the first quarter of 2019, the company generated revenue of RMB 139 million and net profit of over RMB 8.06 million. Based on Guangxi Ouwen’s valuation and the counterparty’s committed net profit of RMB 59.8 million for 2020, the dynamic price-to-earnings (P/E) ratio is calculated at 9.39x, which is significantly lower than that of listed companies in the medical device distribution industry.

The transaction involves a capital injection of over RMB 62 million, providing Guangxi Ouwen Medical Technology Group Co., Ltd., a company in the medical device distribution sector, with ample financial support. This will help accelerate its business expansion and effectively reduce its asset-liability ratio, thereby achieving its performance commitments and ensuring safe operations.

Meanwhile, after excluding the portion from capital increase and the equity portion from the exit of financial investors, the parties making performance commitments—including the founders and key business executives of Guangxi Ouwen Medical Technology Group Co., Ltd.—collectively sold only a relatively small stake equivalent to approximately 27.5% of the post-transaction equity. Following this transaction, Guangxi Ouwen still holds equity equivalent to 49% of the post-merger entity and has pledged it to Shanghai Kindly Enterprises Development Group Co., Ltd. as collateral for the fulfillment of its performance commitments. This demonstrates the confidence of Guangxi Ouwen’s shareholders in the company and aligns the interests of Shanghai Kindly with those of Guangxi Ouwen.

This transaction features a rare five-year performance valuation adjustment mechanism (VAM). Guangxi Ouwen Medical Technology Group Co., Ltd. committed to achieving net profits of no less than RMB 52 million, RMB 59.8 million, RMB 68.77 million, RMB 75.65 million, and RMB 83.22 million for the years 2019 through 2023, respectively. During the performance commitment period, Guangxi Ouwen’s cumulative committed profits exceeded RMB 330 million, effectively covering the consideration paid by Shanghai Kindly Enterprises Development Group Co., Ltd. for this transaction. This demonstrates the company’s confidence, as a regional leader, in adapting to policy changes within the medical device industry landscape.

Furthermore, the transaction structure is designed such that the consideration payable (including all capital injection amounts) at the closing of the merger and acquisition, after deducting the intent money already paid in December 2018, amounts to RMB 178 million. The remaining consideration of approximately RMB 120 million will be paid in installments over the five-year performance commitment period. Should Guangxi Ouwen Medical Technology Group Co., Ltd.’s actual profits for any given period fall short of the committed profits, Shanghai Kindly Enterprises Development Group Co., Ltd. shall be entitled to make corresponding deductions from the unpaid equity consideration. This arrangement significantly alleviates the short-term financial pressure on Shanghai Kindly Enterprises Development Group Co., Ltd. arising from this acquisition.

This transaction marks Shanghai Kindly Enterprises Development Group Co., Ltd.’s first large-scale inorganic expansion through M&A since its listing three years ago. The acquisition will accelerate Kindly’s channel deployment in the Chinese market and further advance the implementation of its proposed “agency distribution + logistics + third-party supply chain services” business model.

Upon completion of the acquisition of Guangxi Ouwen Medical Technology Group Co., Ltd., Shanghai Kindly Enterprises Development Group Co., Ltd. will see initial results in its channel layout in South China. This move will lay a solid foundation for increasing the market share of existing puncture medical device products in Guangxi and the broader South China region, as well as for promoting future new products—including the specimen collection product line of Ruiqi Technology, a New Third Board company recently targeted for acquisition—and will generate significant business synergies.

It is understood that Guangxi Ouwen was established in Nanning on June 6, 1999. The company has set up subsidiaries or branches in all 12 prefecture-level cities across the Guangxi region. It serves as an executive director and vice-president unit of the Guangxi Medical Device Industry Association, as well as the president unit of its Business Operations Branch. As one of the larger and more professional medical device operation service providers in Guangxi, it is also among the few provincial-level providers offering comprehensive, multi-departmental medical device solutions.

Currently, Guangxi Ouwen Medical Technology Group Co., Ltd. has approximately 600 employees. Its newly established Yongning Base covers an area of 30 mu, featuring a 24,000-square-meter, five-story modern logistics center, a 7,200-square-meter, nine-story office building, and a 3,500-square-meter, five-story staff dormitory and canteen complex.

Guangxi Ouwen Medical Technology Group Co.,Ltd. primarily focuses on meeting the clinical needs of hospitals by providing a full range of medical devices required by terminal clinical departments, as well as offering in-hospital logistics extension services for medical device consumables (SPD). In addition, Guangxi Ouwen holds qualifications for third-party centralized distribution and logistics services for medical devices. Currently, Guangxi Ouwen maintains strong cooperative relationships with the majority of Grade III tertiary and Grade II secondary hospitals within Guangxi Province.

Under the current domestic industry environment in China, the operation and management of medical device consumables still adopt the traditional supply-production-sales model. The industry is generally characterized by single-product distributorships, a lack of robust terminal service teams, and relatively low market concentration.

According to public information, Guangxi Ouwen is a professional medical device operations service provider that rarely integrates full-category medical device products, including basic consumables, IVD reagents, orthopedics, and medical equipment. It has the advantage of a complete sales network coverage and marketing team at the provincial level, as well as a modern, informatized, and efficient logistics management system.

Guangxi Ouwen’s business boasts advantages such as acting as an agent for major brands, offering a full range of product categories, and achieving comprehensive coverage across all channels and clinical departments. It can analyze the current status and needs of medical institutions to provide tailored solutions that optimize product structures, enhance management efficiency, and reduce hospital operating costs. These efforts have effectively increased the concentration of medical device and consumable suppliers for hospitals at all levels, aligning with national policies and the industry’s future trend of “cost control and reduction.”