Bumper supplement firm takeovers just the beginning for Chinese investment into Australian industry: KPMG
There has been a surge in healthcare investment by Chinese companies in Australia in recent years, with A$2.55bn invested in 2015, A$1.35bn in 2016 and A$1.58bn in 2017.
By far the single biggest deal remains the Biostime (now known as Health & Happiness) acquisition of Swisse for a total of $1.69bn in 2015 / 2016.
This dwarfs the next two highest deals, which were both in the healthcare provider space, with Shanghai Pharmaceutical's $314m takeover of supplement firm Vitaco placing fourth.
Meanwhile, as we revealed last week, By-Health currently has a deal on the table for Australian probiotic firm Life-Space. The planned $690m deal would place it at number three on this list.
"Chinese investment in healthcare has soared over the past three years," noted KPMG in its Demystifying Chinese Investment in Australian Healthcare report.
"Australia is becoming a highly sought after destination for healthcare investment due to the expertise of health professionals, availability of cutting-edge technology and high regulatory standards."
Aged care
Furthermore, KPMG added that China's ageing population and strong government focus on health and well-being would lead to more Chinese capital being pumped into Australia.
"As China's aged care industry develops and its healthcare service delivery sector matures, there will be a greater need for these high quality products and services, and more demand for the businesses providing them," added the report.
"Improving public health reform is one of the cornerstone policies under President Xi. The Chinese leadership is facing strong public demand to reduce the health effects of environmental degradation, improve access to healthcare services and affordable drugs, and focus more on preventative care.
"The government's reforms have brought a new commitment to open healthcare to market forces, including foreign commercial providers and health tourism."
Referring specifically to the supplement sector, the report states that demographic changes and an awareness of the preventative health factor have driven Chinese investment, which so far has been directed at strategic exporters.
However, that may be about to change, with the report noting that "there are only a small number of Australian supplement producers with the current capacity to harness growing international demand".
Fresh capital
One major deal that remains on the cards involves Nature's Care. We recently reported that China Jianyin Investment Ltd — a division of China's state-run investment fund — is believed to be among the frontrunners to snap up Nature's Care for around $1bn.
Bain Capital and Chinese private equity firm Citic Capital are also said to be in the mix.
The company holds a 7% market share in Australia's vitamin sector through its retail sales, making it the country's third largest brand after Swisse and Blackmores, which have a respective 20% and 19% market share.
While it's likely that Nature's Care, currently owned by the Wu family, will find a buyer this year, KPMG predicts there will be more bumper deals to come, with their report concluding that the Australian healthcare sector was well positioned to continue attracting significant Chinese investment.
"The flow of Chinese capital into the healthcare industry has the potential to increase Australia's scale and increase the export potential and global reach of Australian brands.
"The appeal of the 'Australia package' is increasing, and many Chinese investors are making repeat investments and continuing to add more specialist services to their offering to meet rapidly changing Chinese demographic markets," it added.
Tomorrow we will be publishing an exclusive interview with Life-Space boss Ben McHarg, who reveals more information about the probiotic firm's $690m acquisition by By-Health.
