Overseas M&A strategies in the pharma industry

The motivations and strategies for Chinese enterprises’ overseas acquisitions vary from industry to industry. In recent years, Chinese pharmaceutical enterprises have been implementing internationalization strategies in various ways, with overseas acquisitions playing a prominent role.

The growth in overseas acquisitions by the pharmaceutical industry in 2016 has been impressive, both in terms of the amount and the number of deals, with private enterprises and financial investors actively participating in acquisitions, giving rise to large transactions of US$1 billion or more.

Overseas acquisitions by Chinese pharmaceutical enterprises continue on an upward trend. According to the requirements of the 13th Five-Year Plan for the Chinese pharmaceutical industry, China aims to enhance the level of international development of the industry and promote international industrial capacity co-operation. Additionally, the Belt and Road initiative gives rise to an additive effect from numerous favourable policies. This provides Chinese pharmaceutical industries with a singular historical opportunity to “go global”. By these two policies, pharmaceutical enterprises are not only able to sell their products but can also stride out onto the international stage to make investments, dispose themselves in adjacent countries and regions, and grow in developed countries.

Seeking areas of growth in overseas markets is a choice Chinese pharmaceutical enterprises must make if they wish to grow quickly. In China, the pharmaceutical industry is fragmented among a number of big players and characterized by intense competition. In comparison, as overseas medical enterprises are more numerous and valuations lower, presenting a better price-performance ratio, a not insignificant number of pharmaceutical enterprises have set their sights on overseas acquisitions as a way of expanding their means of profitability. Through an overseas acquisition, a pharmaceutical enterprise can expand and optimize its product mix, find new sectors in which to grow, and find new points of entry into developed international markets.

A pharmaceutical enterprise must grow and accelerate its overseas acquisitions in order to develop into a multinational corporation. China has become one of the largest pharmaceutical markets, second only to the US. Massive market prospects beckon to the rise of a number of large pharmaceutical enterprises that have local and global influence. Accordingly, the internal desire by many well-known domestic pharmaceutical enterprises to venture out is brimming over, imbuing them with the hope of becoming one of the players in this huge market.

Lin Zhong is a partner at EY Chen & Co. Law Firm