Will iKang and Meinian Onehealth Merge? Data Analysis and Strategic Implications

On November 29, Meinian Onehealth Healthcare, which went public via a reverse merger with Jiangsu Sanyou, announced that it plans to join a buyer consortium formed by Shenzhen Ping An Decheng Investment Co., Ltd., Taiping Guofa (Suzhou) Capital Management Co., Ltd., Huatai Ruilian Fund Management Co., Ltd., Beijing Sequoia Kunde Investment Management Center (Limited Partnership), and Cathay Private Equity Fund, among others. This consortium is preparing to participate in the privatization of iKang Healthcare Group.

The preliminary offer price for the proposed privatization transaction to be submitted by the buyer consortium is US$22 per American Depositary Share (ADS), or US$44 per ordinary share. This purchase price represents a premium of approximately 23.6% over the US$17.80 per ADS proposed in the non-binding preliminary privatization offer submitted by the consortium consisting of Zhang Ligang, Chairman of iKang Healthcare Group, and FountainVest Partners.

On the evening of November 29, Zhang Ligang published an open letter on iKang Guobin’s official WeChat account, stating, “I oppose any malicious competition and all forms of unfair competition that attempt to hinder iKang’s development or disrupt market order.” He added, “My resolve to complete the privatization with FountainVest Partners remains unchanged, and I will not sell any shares owned or controlled by me to any third party.”

“iKang has the capability to maintain its independent development, and such independence is absolutely beneficial, with no downsides, to fostering healthy market competition and safeguarding customer interests,” said Zhang Ligang, expressing his confidence in iKang’s privatization and its future.

On November 30, Yu Rong, Chairman and CEO of Meinian Onehealth, issued an open letter stating that their sincere efforts to communicate over the past two months had gone unanswered and had even encountered personal, emotionally driven resistance. Meanwhile, Zhang Ligang stated that the privatization offer for iKang Guobin is currently proceeding as normal.

However, from the perspective of a healthcare industry analyst, Meinian Onehealth’s tender offer is a common competitive business tactic that leverages capital markets to constrain rivals.

Each side sticks to its own version of events. What grudges and grievances lie behind this dispute? And what are the respective intentions of the two parties?

iKang Guobin’s Privatization Aims to Accelerate Domestic M&A Pace

Had Ciming Health Checkup not failed twice in its IPO attempts, the landscape of China’s health checkup market might look quite different today. Prior to 2012, Ciming led both Meinian Onehealth and iKang Guobin in terms of the number of offline checkup centers, annual revenue, and profits. The two years during which Ciming was preoccupied with its listing efforts coincided precisely with a period of rapid growth for Meinian Onehealth and iKang Guobin, with Meinian Onehealth expanding at the fastest pace.







In 2012 and 2013, investment firms such as The Carlyle Group and Ping An Insurance injected over RMB 600 million into Meinian Onehealth. Leveraging this substantial capital infusion, Meinian Onehealth rapidly acquired other health checkup providers, expanding to more than 100 outlets and becoming the largest health checkup company in China.

On April 9, 2014, iKang Healthcare Group officially listed on the NASDAQ and began trading, raising approximately USD 153 million in its initial public offering (IPO) and becoming China’s first publicly traded company in the health checkup sector. In response, the management of Meinian Onehealth announced its own IPO plans, a move widely interpreted by external observers as being “pressured into action by iKang’s U.S. listing.”

On September 2 this year, iKang Healthcare Group announced its privatization, less than two years after its listing on the NASDAQ. Zhang Ligang, Chairman and CEO of iKang Healthcare Group, subsequently issued an internal email stating that the decision to go private was driven entirely by strategic planning rather than being a passive choice. Zhang has also stated that, in the long run, with better corporate governance structures and improved management systems—particularly once the registration-based IPO system replaces the approval-based system—more high-quality companies will return to China.

As iKang Healthcare Group announced its privatization offer, Meinian Onehealth declared its acquisition of a 72.22% equity stake in Ciming Health Checkup, the third-largest player in China’s health examination industry. This restructuring transaction has not yet been formally completed. Currently, Meinian Onehealth holds a 27.78% equity stake in Ciming Health Checkup.

Industry insiders believe that iKang Guobin’s decision to go private and return to the domestic capital market is aimed at securing a higher valuation, thereby raising more funds to accelerate mergers and acquisitions in the Chinese market.

Zhang Ligang has publicly stated that iKang Guobin was undervalued, with the U.S. capital market assigning it a valuation of only $1 billion. He claimed that its market capitalization would be at least three times higher after returning to the domestic capital market. Meanwhile, Meinian Onehealth, which successfully listed on the A-share market this year through a reverse merger with Jiangsu Sanyou, once had a market capitalization comparable to that of iKang Guobin.

Previously, the domestic health checkup market in China had formed a tripartite structure dominated by Meinian Onehealth, iKang Healthcare Group, and Ciming Health Checkup. Once Ciming Health Checkup is acquired by Meinian Onehealth, iKang’s market position will inevitably be threatened. Although Meinian Onehealth has the largest number of physical stores, iKang Healthcare Group remains the leader in China’s health checkup market in terms of revenue.

Clearly, if Jiangsu Sanyou’s tender offer to privatize iKang Healthcare Group proves successful, it will control the three major health checkup providers—Meinian Onehealth, iKang Healthcare Group, and Ciming Health Checkup—thereby establishing a dominant monopoly in China’s health checkup industry.

Currently, iKang Healthcare Group finds itself in a passive position. If it rejects Meinian Onehealth’s competitive takeover offer, its privatization process is likely to be stalled, as U.S. investors are reluctant to sell their shares at a discount. Should iKang fail to complete its privatization, Meinian Onehealth will gain more time to expand its operations in the Chinese market.

The Health Checkup Industry Is Still in the Warring States Period

Data shows that the health checkup industry has an extremely low level of concentration. In 2014, the top three domestic health checkup companies—Meinian Onehealth, iKang Guobin, and Ciming Health Checkup—served 5.28 million, 3.55 million, and 2.00 million individuals, respectively, with their combined market share amounting to only 2.6%. This indicates that mergers and acquisitions will be the prevailing trend for future industry consolidation.



Since mergers and acquisitions require substantial financial support, this has been the primary driving force behind Ciming, Meinian Onehealth, and iKang Guobin’s successive pursuits of public listings. By leveraging capital markets, these companies aim to execute rapid M&A transactions and expand their market share.

As it stands, Meinian Onehealth and iKang Guobin exhibit both distinctions and overlaps in their strategic layouts. Both companies have pursued acquisitions through various means, expanded into internet healthcare, and extended their industry chains downstream.

1. Meinian Onehealth Temporarily Leads in M&A Pace

On the evening of November 20, Jiangsu Sanyou issued an announcement stating its intention to acquire a 68.40% stake in Ciming Health Checkup for RMB 2.462 billion in cash. The remaining 3.82% stake is planned to be acquired through share issuance; if the share-based acquisition is not completed by December 31, 2016, the company will purchase this portion of shares for RMB 128 million in cash. The company also plans to apply for the resumption of trading of its shares by February 29, 2016.

Following the acquisition of Ciming Health Checkup, Meinian Onehealth will operate 200 offline health examination centers, potentially further leveraging economies of scale to reduce operational costs. Ciming Health Checkup is a family-controlled enterprise founded by Han Xiaohong and Hu Bo, which had previously expanded its chain of health examination facilities through mergers and acquisitions as well as organic growth.

iKang Guobin targets the high-end market, primarily providing corporate clients with health checkups, disease screening, dental services, and more. State-owned enterprises, government agencies, and private companies account for 80% of iKang Guobin’s current revenue. In the future, it will leverage capital markets to merge with or invest in offline health examination and medical centers.



Of the $153 million raised by iKang Guobin in its 2014 NASDAQ IPO, 70% was allocated to investing in or acquiring physical examination and medical centers, while 15% was directed toward investing in or acquiring dental centers. iKang Dental currently operates 30 offline dental centers.

According to iKang’s official website, the company currently operates 77 offline health checkup centers. Analysts predict that iKang will continue to acquire 10–15 checkup centers annually in the future.

In terms of market positioning, Meinian Onehealth and Ciming Health Checkup previously focused on the mid-to-low-end market; however, Ciming Health Checkup has also been developing high-end medical services. Aoya Health Management Hospital is Ciming’s high-end medical venture. Aoya Health Management Hospital obtained its medical license in late 2012, achieved profitability in 2013, and was projected to generate annual revenue exceeding RMB 100 million by 2015. Should Meinian Onehealth complete its equity acquisition of Ciming Health Checkup, it would fill the gap in its high-end market offerings.



 

2. Choosing Different Entry Points for Internet Healthcare

Meinian Onehealth leverages the vast amount of data from the health checkup industry as an entry point to expand into insurance, chronic disease management, and disease referral services. Currently, Meinian Onehealth has joined forces with internet companies such as Vipshop and Shanda Network to initiate the application for establishing China’s first internet-based health insurance company powered by precision data.

iKang Guobin has been exploring the integration of IT technology with traditional medical services, aiming to strengthen its presence in the internet healthcare sector.



This year, iKang Guobin launched the Daoyitong APP and the iKang Tijiianbao APP. Daoyitong operates as an independent company, with Zhang Ligang personally holding a 20% equity stake, iKang holding 70%, and the remaining 10% allocated to the management team. “iKang Tijiianbao” is an upgraded application product developed by iKang over a five-year period, evolving from a PC-based platform to a mobile APP. This tool enables users to quickly generate personalized health checkup plans by completing questionnaires covering genetic history, past medical history, lifestyle, and other relevant information on the “Tijiianbao” platform.

iKang Guobin aims to use its mobile health platform as an entry point to integrate various preventive and medical services—including health checkups, disease screening, dental care, private physician services, expatriate healthcare, anti-aging treatments, and vaccinations—thereby establishing a comprehensive health management platform.

In fact, iKang Guobin initially operated in the appointment registration business. In 2005, there were eight appointment registration companies across Beijing, Shanghai, Guangzhou, and Shenzhen; iKang acquired six of them, overnight becoming the largest player in this sector. However, at that time, there was no viable business model for appointment registration services, and the company eventually discontinued this line of business due to various reasons.

iKang Guobin has also partnered with Taiping General Insurance to launch “Senior Dental” and “Family Dental” insurance products for the first time this September. Currently, these products have been officially rolled out via the online insurance platform “Baohulu Insurance,” allowing users to purchase them directly through WeChat. This marks the first dental insurance product in China primarily marketed through mobile internet channels.

3. Cross-border medical services may be offered in the future.

Since its establishment in 2004, iKang Guobin has continuously received capital injections from venture capital firms, securing nearly $100 million in investment in 2013 from Goldman Sachs, the Government of Singapore Investment Corporation (GIC), and others. Behind Meinian Onehealth are overseas investment institutions such as The Carlyle Group.

It is evident that both iKang Guobin and Meinian Onehealth have overseas institutional investors, positioning them to potentially integrate overseas medical resources and provide cross-border healthcare services to their high-end clients.