Good opportunity and right strategy have helped conglomerate Fosun seize overseasdeals, reports Cai Xiao from Shanghai
Liang Xinjun, chief executive officer of Chinese private conglomerate Fosun Group, has becomefitter than he was a year ago after having lost more than 5 kilograms and paying more attentionto his health.
"We gained good investment returns in the past 20 years, but, compared with Warren Buffett'snearly 50 years of good results, we are still far behind," said Liang. "Keeping fit is essential forinvestment."
In the past 20 years, Fosun Group has invested in more than 70 deals, and its annualinvestment return rate was about 30 percent.
Fosun regards Berkshire Hathaway as a learning model and follows a similar pattern, being aninvestment group with a core business based on insurance.
"We found three types of opportunities. One is grafting the world's excellent resources withChina's strong engine, so we take a good look at deals related to consumption upgrading andservices," said Liang, adding there is also potential to help Chinese companies listed abroad tobecome private and leading companies to integrate their industries.
Fosun has seized the first type of opportunity well. In the first half of this year, Fosun invested inthree foreign companies: US high-end women's knitwear producer St John Knits International Incwith $55 million for 33.3 percent stake, Israel-based cosmetic laser solutions and medical lasersprovider Alma Lasers Ltd with $221.6 million for 95 percent stake, as well as a $22.5 millioninvestment in US-based Saladax Biomedical Inc, which focuses on tumor diagnosis, andbecame its single largest shareholder.
The three big moves were made after their first two successful investments in French resortoperator Club Mediterranean SA in 2010 at a cost of 44 million euros ($58.9 million) and Greece-based high-end retailer Folli Follie Group SA in 2011 with an initial investment amount of 84.58 million euros.
"When going abroad to do some M&As, we look for industries in which the Chinese market sharewill occupy 20 to 30 percent of the global entity in the coming five to 10 years, such as luxuryindustry, and then we choose the No 1 or No 2 company in these industries, "said Liang.
Fosun would become their first- or second-largest shareholder and then help these companiesimprove their business performances in China.
As an investment conglomerate, Liang said Fosun chooses a limited number of large-scale dealsto invest in so that they can decrease the time of decision-making and control risks.
St John is the largest women's knitwear producer in North America, and its clothing technology isunique in that its garments do not wrinkle. The garments especially appeal to executive women - women in positions of authority.
Fosun's US team has been in contact with St John since 2009 and the senior executivesparticipated in the deal in 2012. Liang visited St John's stores and factories in Houston, LosAngeles and New York. And then Fosun Group Chairman Guo Guangchang and President WangQunbin also visited the company.
"We are very cautious about decision-making because we seek a success rate. We have aninvestment decision committee made up of seven people and most of them should be present," he said.
The Chinese market contributed to less than 1 percent of St John's annual sales, but theaverage proportion in China should be 29 percent by Liang's calculation.
"We are capable of helping it develop in China."
According to him, such measures include opening stores quickly and popularizing St John'sbrand in China. Fosun is negotiating with Intime Group and Beijing Enterprises Group Co Ltd toopen to stores.
Fosun helped Folli Follie open 76 stores within two years, while the Greek company in theprevious eight years only opened the same amount of stores .
Fosun also found a Chinese partner, Eve Group, for bringing in St John. They are consideringthe pricing strategy as well as a system for running St John in China in the coming three months.
In the United States, the price of every suit is about $1,500. That in current Chinese stores isbetween 15,000 and 20,000 yuan.
Chinese high-end clothing market is at the early stage of its development. Its growth rate inrecent years was between 20 percent and 30 percent, much higher than that of the overallChinese clothing market. Its annual compound growth of the high-end clothing market would be33 percent in the coming three years, according to a report by Minsheng Securities Co.
Chanel, Dior, Burberry, Prada, Giorgio Armani and a few local brands such as Ne Tiger occupythe Chinese super high-end clothing market. Popular high-end brands in China include localbrands Ports, Lancy and Marisfrolg.
During the progress of upgrading consumption, local high-end clothing companies have seizedon an empty marketplace and developed fast. While foreign super high-end companies targetthe super rich and powerful, local high-end ones focus on the Chinese elite aged 25 to 45, whoseek big brands as well as acceptable prices.
The Chinese high-end clothing market is still fragmented so companies with strong design andoperational capabilities will stand out, said the report.
Fosun Group purchased a 95 percent stake in Israel-based Alma Lasers Ltd for $221.6 million inMay.
Alma Lasers manufactures laser, light-based, radio frequency and ultrasound products withintegrated product portfolios for aesthetic and medical applications.
Fosun Chairman Guo and President Wang visited Israel-based Alma Lasers when there was aterrorist attack in that region. They visited Alma's co-founder Dr Ziv Karni, who is a scientist witha lifelong interest in studying wavelengths.
Alma Lasers has a 15 percent share of the global market for high-end aesthetic devices withannual revenues of nearly $100 million.
Liang said beauty consumption in the European market has been cut a lot since the financialcrisis, but the demand is very high in China.
"We believe the Chinese market share will take up more than 22 percent of Alma's globalrevenue," he said.
"We have a strong distribution capacity in China to help Alma."
Fosun invested in Hong Kong-listed Sinopharm Group Co Ltd in 2006 and became its second-largest shareholder. The company is the main suppliers of 70 percent of hospitals in China.
Fosun also reached strategic cooperation with Chindex International Inc, a leading independentUS provider of Western healthcare products and services in China in 2010. It acquired lots ofsales experience in Chinese hospitals.
General hospitals, special hospitals and beauty shops with medical qualifications will all beAlma's target distribution areas when entering the Chinese market. Household products will alsobe targeted.
Liang said they also showed confidence in Alma's leading position in the world and stronginnovation capabilities.
The third investment by Fosun in the first half of the year was investing $22.5 million in US-based Saladax Biomedical, which develops and commercializes novel diagnostic trials for thepractical delivery of personalized medicine.
The proprietary line of MyCare trials improves the efficacy of existing drugs through optimizeddosage.
Saladax's initial focus is oncology, with a portfolio of 13 chemotherapy drug dose managementtrials in various stages of development.
Liang said in this way, patients can avoid using unnecessary medicine and their pain can belargely reduced. Furthermore, medical fees can be cut.
"We feel confident in explaining the technology and application of Saladax to the Chinesegovernment and winning their support," said Liang, adding that the application will be introducedto both private and public hospitals in China.
The Chinese medical service market is of great potential. The revenue of hospitals totaled 1.25 trillion yuan ($205 billion) in 2011, according to a report of the BCG Consulting Group in June.
Public hospitals used to occupy the dominant position, but private ones have developed fast inrecent years, with their average annual growth rate reaching 16 percent between 2008 and 2011.
According to the Chinese government's plan, the service value of private hospitals in China willaccount for 20 percent in 2015 of that of all hospitals in China. With policy encouragement, themedical service sector has attracted private equity investors, listed pharmaceutical enterprises, industry capital and foreign and local medical groups.
The detailed sectors full of investment opportunities include high-end healthcare, private specialclinic chains and private comprehensive hospitals as well as the restructuring of public hospitals.
Investing in medical equipment in China is also of great potential. The value of the Chinesemedical equipment market is only about 15 percent of the Chinese pharmaceutical market, whilethe average ratio in the world is about 40 percent.
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