Blackstone has agreed to make a significant investment into Xinrong Best Medical Instrument, a Chinese maker of orthopaedic implants for trauma, spine and joint applications.
The companies did not state the value of the deal nor the ownership split, however a person familiar with the matter said Blackstone is investing just over $100 million and would have influence over decision-making at the company.
China’s orthopaedic implant market will grow from $1.3 billion in 2013 to $4.1 billion in 2020, driven by an ageing population, increasing disease, improving treatment rate and growing affordability, according to Boston Consulting Group.
The Chinese government reimburses about 70% of a patient’s costs, but the out-of-pocket 30% is still beyond many of China’s citizens. Xinrong is looking to be more competitive on price than many foreign products but also reassuring on quality. It aims to expand into China’s second- and third-tier cities.
"With China’s ageing population and increasing disposable income, the market growth for orthopaedic implants is significant,” said Blackstone senior managing director Yi Luo in a statement on Tuesday. Luo is based in Shanghai and led the deal.
Blackstone is not the only foreign firm to see value in the sector. Minneapolis-based Medtronic agreed to pay $816 million for orthopaedic implant maker China Kanghui in 2012. Medtronic also acquired a 15% stake in Hong Kong-listed Shandong Weigao Group Medical Polymer in 2008 and, in January 2013, Medtronic completed its purchase of Shenzhen-headquartered Lifetech Scientific for a 19% equity stake with a convertible note boosting ownership to 25%.
Sealing the deal
Luo sourced the deal through his own network. There were other interested buyers but no formal auction took place. Blackstone’s was not the highest bid, according to a person familiar with the matter.
Xinrong, one of the few remaining independent medical devices companies in China, was interested in Blackstone’s ability to attract top-notch managers. A team is already assembled, including a new chief executive officer from a leading company globally in orthopaedics. Blackstone will also bolster Xinrong’s marketing and sales efforts.
The Chinese company is also looking to draw experience from Blackstone’s other portfolio companies in the sector. In 2007, Blackstone invested in Biomet, a medical device manufacturer, and holds a stake in DJO, a specialist in orthopaedic products for rehabilitation, pain management and physical therapy.
Blackstone acquired its shares from the three founders, who owned 100% of the company.
“Since Xinrong was founded in 2000, we have developed high quality medical devices, capturing a solid share of the domestic market,” said one of the founders of Xinrong, Zhenglin Ding.