Will M&A and Integration of New-Model Clinics Become the Mainstream Trend? —— Penguin Almond's Acquisition of Yu Ying Technology

Recently, VCBeat (WeChat ID: vcbeat) learned that Penguin Almond Group officially announced on November 28, 2018, the formal acquisition of Yu Ying Technology and its Beijing Shui’an Youlin Clinic.

Meanwhile, founder Yu Ying and her team joined the Penguin Almond Group, assuming the roles of Chief Medical Operations Officer and Vice President, primarily responsible for patient medical service quality management, general practice training systems, as well as medical products and medical content development.Yu Ying will also leverage her extensive experience in operating medical self-media to comprehensively enhance Penguin Almond’s cross-platform medical service operational capabilities.This acquisition has successfully bolstered Penguin Almond’s position in the healthcare services sector since its merger.

Wang Shirui, CEO of Penguin Almond, stated, “Dr. Yu Ying’s concepts regarding medical service operations and family medicine align closely with Penguin Almond’s development strategy, which is the core driver behind this collaboration. We look forward to Dr. Yu Ying’s joining us to elevate Penguin Almond’s cross-platform medical services to new heights.”

In fact, cases of mutual mergers and acquisitions among such new types of clinics have occurred more than once. To this end, VCBeat has interviewed numerous entrepreneurs and investors to uncover more stories behind these M&A transactions and explore whether clinic mergers and acquisitions will become the mainstream trend.

Yu Ying is a familiar name to many. She carries numerous labels, such as Weibo influencer, internet-famous physician, and professional manager. During her two years at Amcare Healthcare, Yu Ying achieved remarkable success—generating annual outpatient revenue of RMB 18 million and serving over 2,000 outpatient visits per month. For a nascent high-end clinic, these achievements are truly outstanding.

She subsequently left Amcare and founded Shui’an Youlin Clinic. This venture aligns with the national tiered diagnosis and treatment policy, establishing a chain of community clinics aimed at the general population with the goal of managing residents’ health. This approach is fully consistent with the philosophy of Penguin Outpatient, a subsidiary of Penguin Almond Group: “Leveraging technology to make high-quality healthcare and medical services accessible to all.”

Yu Ying stated that she would leverage her years of insights into healthcare, including an understanding of the public’s “essential needs,” the requirements for family medical care, and her extensive experience in clinic operations, to lead the Penguin Almond team in enhancing outpatient service quality. She aims to establish a comprehensive training system for family doctors, gradually build a professional medical service team that embodies the Penguin Almond brand, and perfect the business closed loop for Penguin Almond’s medical content.

Furthermore, Penguin Almond has attracted more than 10 physician groups to sign agreements with its Almond Clinics. It has established close collaborations with physician groups such as the Zhang Qiang Physician Group, the Woyi Obstetrics and Gynecology Renowned Physicians Group, the Sichuan-style Physician Group, and the Tianfang Yetan Physician Group. Among these, the Zhang Qiang Physician Group has achieved efficient and stable cooperation in five major cities: Chengdu, Shenyang, Guangzhou, Shenzhen, and Nanjing.

Speaking of mergers, since Almond Doctor and Penguin Doctor merged in August this year to establish the new group company “Penguin Almond Group,” they have been laying out an online-offline integrated comprehensive health service system. In just four months, they acquired another new type of community clinic, demonstrating truly rapid development.

Currently, Penguin Almond Group maintains China’s largest network of multi-site practice studios for physicians and ambulatory surgery centers, having provided high-quality online-to-offline (O2O) medical services to over 10 million patients. As a new type of primary care clinic infrastructure, Penguin Doctor has established and deployed 26 clinics in Beijing, Chengdu, Shenzhen, and Hong Kong, including the Shui’an Youlin Clinic. Meanwhile, Almond Doctor has built and commenced operations at seven central outpatient and ambulatory surgery centers in Guangzhou, Shenzhen, Shanghai, Chengdu, Shenyang, and Nanjing.

Penguin Almond Group has pioneered an innovative clinic model combining “General Practice Clinics + Ambulatory Surgery Centers,” which systematically addresses physicians’ needs and distributes patient volume in a progressive manner, achieving comprehensive coverage of routine disease diagnosis and treatment, thereby establishing an effective logical closed loop.

Over the next three years, Penguin Almond Group plans to self-build 30 central clinics and 300 chain clinics, reaching 30 cities across China.Yu Ying’s timely joining has been a significant boost to Penguin Almond, marking the opening of a new chapter in its exploration of innovative medical services. More strategic initiatives will follow, leading the improvement of services across the entire non-public healthcare system.

Mommy Knows, a pediatric clinic chain based in Shenzhen, has previously mentioned equity investment as part of its clinic expansion strategy. According to Liang Liang, founder and CEO of Mommy Knows, the company established a dedicated Business Enablement Division this year to focus on expanding activities such as taking equity stakes in clinics and acquiring clinics.

Liang Liang stated that mergers and acquisitions of new-type clinics will become the mainstream trend in the future. In 2014, following the surge in mobile health, the clinic sector experienced a wave of new openings. After several years of development, industry consolidation is inevitable, with ongoing integration among clinics to form stronger alliances.

In 2017, Mommy Knows invested in and took an equity stake in a pediatric clinic in Guangzhou. The clinic spans 1,000 square meters and is located adjacent to the Guangzhou Women and Children’s Medical Center, offering a prime location. With excellent resources and state-of-the-art facilities, the clinic represented a highly attractive investment opportunity.

However, the clinic lacked an operational team, which delayed its opening. Through referrals from acquaintances, Liang Liang visited the clinic’s shareholders multiple times to express his interest in acquiring a stake. By leveraging Mami Zhidao’s infrastructure—including R&D capabilities, systems, and teams—the clinic was able to launch rapidly. This allowed the original clinic to quickly gain technical, team, and system support, leading to a swift improvement in business performance. For Mami Zhidao, this also facilitated rapid expansion into the Guangzhou market.

Therefore, the two parties quickly reached an agreement. This integration, characterized by complementary advantages, achieved a synergy of strengths and expanded their influence.

After joining, Liang Liang leveraged the full suite of capabilities from Mommy Knows to unify the clinic’s systems and establish standardized service protocols. He also devoted substantial time and effort to training physicians and staff, ensuring the clinic’s successful launch and smooth operational rollout.

Reflecting on the equity participation process, Liang Liang believes that the collaboration proceeded smoothly. Key considerations include clearly defining rights and responsibilities during early-stage negotiations, establishing a clear organizational structure and procedural mechanisms in later-stage management and operations, and ensuring rigorous implementation.

Liang Liang stated that sharing common values is the most important factor, making such a partner worthy of collaboration. All parties need to share a common vision and goals; otherwise, effective cooperation would not be possible. On this basis, roles and responsibilities should be clearly defined, and continuous alignment fostered, to jointly realize “healthcare with warmth.”

“I believe there are not many suitable targets for the mergers and acquisitions of comprehensive outpatient departments (new-type clinics), as their site selection and standardization fail to meet the requirements, but there are abundant opportunities in primary hospitals,” said He Haiyang, Founder and CEO of Johnson Medical Group.

Johnson Healthcare, founded in 2014, is a community-based healthcare chain group that prioritizes families, leverages corporate health security, and promotes primary care at the community level. It provides Chinese families with high-quality, convenient, and safe general practice consultations and family doctor services. The company has completed its Series B+ financing round, with investors including Legend Capital, Qiming Venture Partners, Dehui Capital, and the Modern Service Industry Development Fund.

He Haiyang believes that primary-care hospitals present significant opportunities, a conclusion he reached after acquiring four general outpatient clinics.He believes that even after acquiring integrated outpatient clinics, one cannot avoid incurring redundant renovation costs. Generally speaking, clinics with a poor reputation are not suitable for acquisition, while high-quality targets are unwilling to be acquired; most are small, family-run practices with narrow-minded perspectives.

In contrast, Tier-1 hospitals differ in that they can achieve business synergy with comprehensive outpatient departments, represent mature acquisition targets, and offer substantial growth potential. “We have opened four Tier-1 hospitals, which have generated synergies with our comprehensive outpatient services and are experiencing rapid development.” Therefore, the company will no longer pursue acquisitions of targets lacking synergistic value. He believes that five years from now will be an opportune time to acquire comprehensive outpatient departments, and he will also move to acquire suitable Tier-1 hospitals if such opportunities arise.

In the process of selecting targets, He Haiyang believes that location is the top priority. The target must not overlap with their existing clinics, must be profitable, meet their standards, require no renovation, and have a strong team of physicians.

Compared to operating physical entities, he focuses more on leveraging IT connectivity for holistic empowerment and adopting an asset-light management model.Namely, comprehensive empowerment, site selection, operations, traffic, efficiency, branding, procurement, family physician training, membership systems, supply chain management...In terms of B-side operations, He Haiyang admitted that they have always been in a profitable state.

It is reported that Johnson Medical has been committed to developing standardized, replicable solutions. The details are as follows:

First, standardization of the consultation process, i.e., the user experience map.The healthcare journey is a relatively long chain that includes appointment registration, consultation, prescription issuance, and follow-up, ultimately forming a closed loop.

Second, the standardization of medical quality is the lifeline of healthcare institutions.Healthcare institutions differ significantly from other industries, such as clothing stores, hotels, and laundries, where services are delivered directly to consumers without intermediaries. In contrast, healthcare delivery involves physicians as intermediaries; physicians are providers of professional services and decision-makers responsible for delivering standardized diagnosis and treatment.

Physicians occupy a critical position as the intermediary between healthcare institutions and end-users, making their role particularly significant. However, physicians are not standardized industrial products, making it difficult to achieve uniform standardization. As physicians are central to the standardization of medical quality, supportive systems are needed to help them achieve broader standardization across multiple dimensions, such as qualifications, training, management, and effective evaluation frameworks.

Third, the standardization process for new store site selection is critically important.“Once the clinic location is determined, the surrounding customer base is essentially fixed; in other words, the number of households and residents in the neighboring communities will not change significantly. ‘Our preferred locations are new first-tier cities, national central cities, or developments by branded real estate developers,’ said Wan Kun, Vice President of Johnson Medical.”

Regarding next year’s plans, He Haiyang stated that no new branch clinics will be constructed, with the focus shifting to optimizing the operations of existing stores.

Regarding the M&A of clinics, Xu Dan, Investment Director at Tongjiang Capital, believes that it is more about innovation and integration in business models, perhaps even a form of self-rescue. The core of community healthcare lies in light diagnosis and consultation; without this fundamental element, everything else is insignificant.

Furthermore, community outpatient clinics are not a capital-intensive industry, where financial muscle alone determines success. The Tencent and Almond Doctor models cannot be transformed overnight; their distinct corporate DNA and cultures require time to prove their viability. In healthcare services, any discussion is futile unless the issue of trust is addressed.

Qi Fei, Investment Director at Legend Capital, stated that operating standalone clinics is no easy feat, making a merger a rational choice for both parties. Moreover, the value of integrating teams exceeds that of merely acquiring physical outlets. The greater challenge ahead lies in post-merger integration and whether operational efficiency can be enhanced.

Zhao Qiang, CEO of Zhibei Pediatrics, believes that clinic acquisitions should be evaluated on a case-by-case basis. Clinics with high-quality medical resources are well worth acquiring, as their operations can be significantly improved through efficient management systems.If the value of the clinic’s medical team is excluded, only the market and strategic value of its location remain. Furthermore, as restrictions on clinic licenses are relaxed, the value of acquiring clinics through mergers and acquisitions diminishes significantly.

Moreover, the premium pricing power associated with market selection and strategic value is limited. Additionally, if a clinic has been in operation for an extended period, its existing customer base may hold certain value. However, clinics targeted for acquisition are typically those struggling to survive; therefore, for enterprises planning to establish chain operations, mergers and acquisitions are not the preferred option. He believes that in the future, chain clinics will only need to obtain a single license to operate throughout the entire province.

From a long-term perspective, Zhong Peng, co-founder of Dr. Ander, believes that it is unrealistic to build all stores independently if one aims to develop a chain network. Currently, Dr. Ander’s clinics are focusing more on establishing standardized models and personnel training. Mergers and acquisitions will certainly be considered in the future.

From the perspective of Chengdu’s community clinic ecosystem, there are few new-style clinics; most are traditional ones, often operated as husband-and-wife shops or by physician-owners. If such a clinic enjoys a prime location and solid operational performance, it is unlikely to accept acquisition; if its performance is poor, taking it over would become a hot potato.

Most of the currently active new-type clinics were established between 2015 and 2016. Leveraging capital support, they have adopted internet-based thinking in clinic operations. These clinics aim to reduce marginal costs through the borderless nature and traffic advantages of the internet, thereby creating a closed-loop healthcare service model. As clinic operations directly serve end-user patients, they test the operators’ comprehensive capabilities and require competing with public hospitals for patient acquisition.

On the other hand, the establishment of medical consortium networks by public hospitals, which facilitates seamless referrals from tertiary Grade A hospitals to community health service centers, naturally attracts more patients. After all, people’s healthcare-seeking habits have long been centered on public institutions rather than private ones, and changing this status quo is difficult.

Therefore, Zhong Peng stated that the key to survival for new-type clinics lies in staying afloat, rather than focusing on how many outlets to open. This is because opening a single clinic involves challenges in operations and patient acquisition, and these same challenges persist even when operating 100 locations. If each clinic incurs a monthly loss of RMB 100,000, ten clinics would result in a monthly deficit of RMB 1 million. Without substantial financial backing, no one can fill this void.

Without adequate funding or advanced diagnostic and treatment capabilities, how should new-type clinics proceed? Future clinics will inevitably focus on managing common conditions. With the implementation of zero-markup drug pricing, revenue models reliant on medication sales and diagnostic tests will become obsolete. Therefore, enhancing medical services is the viable path forward.Zhong Peng stated, “I believe there will be significant opportunities in providing medical services to B-end clients in the future, as purchasing medical services is becoming a trend among enterprises, public institutions, and government entities.”