- Divesh Bidhuri

Continued Growth In Mid-Sized M&A Transactions In Medical & Cosmetic

367.5

342.5

1332.8

0 200 400 600 800 1000 1200 1400

2017 - Q1

2016 - Q1

2016

Total Estimated Value

Bain Capital a US based company,continues to show interest in theAustralian care industry. They acquiredCraigcare group for an undisclosedamount only months after theacquisition of Australia childcareproviders, Only About Children andCamp Australia. They continue to showlook for more opportunities in thehealthcare sector.

Business sales in Australia's medical, toiletries & cosmetics product sector enjoyedhealthy activity in over the last 12 months with a total of 41 publicised transactionswith a combined estimated value of $1,332.8m. While both the number of deals andthe combined value of those deals fell from the estimated $1.532m in 2015, this2015 amount represented a record year for M&A in Australia.

What’s happening in 2017 so far?

So far in 2017, this industry has seenthe same momentum. For 2017(Q1),we have tracked 10 publicised mid-market transactions with a combinedestimated value of $367.5m. Incomparison, with 2016(Q1) this year istracking ahead by 20% in number ofdeals and 11% in the combinedestimated value.

Recap of the last 12 months

36%

22%

17%

10%

5% 5% 5%

Product expansion

Geographic expansion

Economies of scale

Grab Market Share

Acquire IP

Acquire distribution channels

Product diversification

What is the motivation behind these acquisitions?

Product expansion was the rationale for 36% ofthe acquisitions. Through these deals thecompanies hope to increase the portfolio oftheir products to reach a wider market andtherefore was primary applicable to cosmeticproducts, pharmaceutical companies, etc.

Geographic expansion was the rational for 22%of the acquisitions. Companies uses thesedeals to enter a new market as some industrieshave high barriers to entry. Internationalcompanies often follow this approach to enterthe Australian market.

Economies of scale rounded up the top-threewith 17%. Some of this industries in thissector are at a mature phase therefore, organicgrowth is no longer an option. Therefore,through acquisitions the companies achievehigh growth as the revenues increase and costsrare reduced.

Australia USA & UK Rest of the world

431

Acquirer by country

6

While issues such as Trump being elected and Brexit have created globaluncertainty in 2017 we believe that acquisition in medical, toiletries & cosmeticsproducts should remain largely unaffected as 75% of the acquirers were domesticfor the year 2016 and this trend has continued in Q1 of the current year.

Who are the acquirers?

32%

7% 46%

15%

PrivatetoPrivate PrivatetoPublic

Publictoprivate PublictoPublic

Key factors that will affect transactions in the various sectorsinclude:1. Strategic fit between the brands2. Revenue forecast and feasibility from unique IP such as new products in

pipeline, current R&D, patents, etc.3. Preparedness for the sale or acquisitions

In this report, we have further divided this sector into groups based on similarbusiness activity. These are the subgroups – Cosmetics & Toiletries,Pharmaceuticals, Medical equipment's, Aged- care facilities, Healthcare facilities,and Other transactions.

What is the buyer/seller profile?

Medical & cosmetics products and services sector was of interest to public buyers as they were responsible for 61% of the acquisitions leaving the remaining for private buyers. On the seller’s side, 78% were private.

We tracked 3 publicised mid-sized acquisitions in the cosmetics industry. Thecombined estimated value of the transactions was $33m. Two transactions were publicto private, and the other involved both private players.

Natura Cosmetics a Brazilian company acquired the remaining 35% of Emies Holding aprivate Australian company which retails and wholesales skin, hair, and facial products.

BWX Limited, manufacturer and distributor of hair and skin products acquired LightingBrokers, a national distributor of personal care products. The largest Australian-ownedcosmetic company The Heat Group acquired Doward International Pty Ltd, a distributorof personal care products for an undisclosed amount. This will help them move from apure distribution model towards an owned-brands model.

As per IBISWorld industry reports, the Cosmetics industry had a 9% growth for the last5 years but is forecasted to slow down to 2.8% from 2017-2022 as the industryreaches a mature stage. The Organic Cosmetics industry is forecasted to grow at a rateof 8.3% for the next 5 years. As the industry is at a growth stage and has low barriersto entry, it is likely to attract new entrants.

Cosmetics & Toiletries

We tracked 8 publicised mid-sized acquisitions in the pharmaceuticals industry. Thecombined estimated value of the transactions was $269.71m. Four transaction werepublic to private, three were private to private, and one was public to private.

The biggest transaction in terms of deal value was the $90m acquisitions of AustralianPharmaceutical Manufacturers by Pact Group Holdings, an ASX listed investmentcompany. This acquisition along with the $80m acquisition of Jalco in 2015 hasestablished speciality contract manufacturing as a vital core service.

Arrow Pharmaceuticals, which was acquired in 2015 by Strides Shasun LTD, acquiredGeneric Partners Holdings for $29.41m. Generic Holdings is pharmaceutical supply andresearch company based in Australia and Kenya. This transaction will help them expandtheir presence in Australia and establish a toehold in Kenya.

As per IBISWorld industry reports, for the years 2017-2022 pharmaceuticalsmanufacturing and pharmaceutical wholesaling are forecasted to grow at 1.6% and2.9% respectively which is higher than the industries’ past 5-year growth.

Pharmaceuticals

We tracked 6 publicised mid-sized acquisitions in the medical equipment industry. Thecombined estimated value of the transactions was $98m. Four transactions wereprivate to private, one private to private, and one private to public. USA was the acquirerin 3 transactions.

I'rom Holdings Co. Ltd., a Japanese integrated healthcare company, acquired CMAX PtyLtd from IDT Australia Limited for $14m. CMAX has IP in the form of a full suite ofclinical trial service off which, now I’rom will have access. While I’rom gets access toknow-how, it will assist in growing CMAX’s clinical trials and advanced therapeuticdomains, perfectly aligning both the companies’ strategies. Also, IDT can effectivelysimplify their core business and provide focus and resources to drive into specialitygenerics.

As per IBISWorld industry reports, for the years 2017-2022 medical equipmentmanufacturing and medical equipment wholesaling are forecasted to grow at 3.4% and3.5% respectively. For wholesalers, the growth rates stay stagnant compared with2012-2017 but for manufactures the forecasted growth rate is 2.5 times the 1.3% forthe 2012-2017 period.

Medical Equipment

We tracked 5 publicised mid-sized acquisitions in the residential aged-care facilitiesindustry. The combined estimated value of the transactions was $494.25m. Threetransactions were public to private, and two were public to public.

The biggest transaction in terms of deal value was the $215.5m acquisitions ofFreedom Aged Care Pty Ltd by Aveo Group. Aveo Group are leaders in providingretirement living, and the acquisition of Freedom Aged Care expands their nationalpresence.

As per IBISWorld industry reports, for the years 2017-2022 retirement villages and agedcare residential services are forecasted to grow at 10.1% and 4.4% respectively. Forretirement villages, it is a 0.3% increase from 9.8% growth for the past 5-years,whereas for the aged care residential services it is a 0.7% decrease from the 5.1%growth of the past 5-years.

Residential Aged-care Facilities

We tracked 12 publicised mid-sized acquisitions in the healthcare facilities industry.The combined estimated value of the transactions was $303.6m. Seven transactionswere public to private, two each were private to private and private to public, and onetransaction was public to public.

BGD Corporation Limited (now known as Zenitas Healthcare Limited) acquired fiveprivate companies’ health care facilities (Dandenong Medical Centre, Caring Choice,Health Networks Australia Investments, Ontrac Healthcare, St Kilda Road MedicalCentre) for a total value of $20.1m. Zenitas Healthcare Limited is a community-basedhealth operator with a portfolio consisting some high-profile investment.

The biggest transaction in terms of deal value was the $155m acquisitions of MedicalDoctor by the only foreign acquirer, Affinity Equity Market. The Hong-Kong basedcompany is one of Asia’s largest private equity firm focused on leveraged buyouts andgrowth capital transactions.

As per IBISWorld industry reports, for the years 2017-2022 health care facilitiesindustries is forecasted to grow at 3.2% which is a tad bit lower the 3.4% for theindustry’s past 5-years.

Health Care Facilities

We tracked 7 other publicised mid-sized acquisitions in related to health, medical, andcosmetic industry. The combined estimated value of the transactions was $132.5m. Threetransactions were public to private, three were private to private, and one was public toprivate.

The success story of this industry is a digital signage company, Medical Channel whichacquired Medical Media from Cirrus Media Pty Ltd for $2m and acquired MultimediaInternational Services Pty for an undisclosed amount. The rationale for their acquisitionswas to become a Market leader by grabbing the market share. Now, Medical Channel isAustralia's largest digital health media network and have a monthly viewership of 6.25macross 3200 health providers.

Primary Health Care Limited sold Transport Health to Railway and Transport Health Fund for$27m. Primary Health Care’s divestment of Transport Health along with their divestment ofBarangaroo property and Medical Director is in line with their capital recycling initiative tostrengthen their balance sheet.

Level 3, 50 York St, Sydney NSW 2000 info@strategictransactions.com.au | 1300 862 511strategictransactions.com.au

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