Bottom line: Fosun’s newest acquisitions indicate it could soon become more active in the asset management and drug sectors outside China, with a focus on emerging markets like the BRICS countries.
Private equity giant Fosun (HKEx: 656) is in 2 separate M&A headlines in the BRICS nations of Brazil and India, purchasing an asset manager in the former and a drug maker in the latter. Pharmaceuticals and real estate have been 2 of Fosun’s focus areas in its shopping spree both at home and abroad, though the move into developing markets is relatively new.
Fosun has more traditionally focused its global buying on western markets in the US and Europe. So this latest pair of deals could signal a new focus on emerging markets, especially ones like Brazil and Russia where recent economic malaise could be pressuring some debt-laden companies to sell off assets at bargain prices to raise cash.
That kind of pressure is certainly being felt in Brazil, which is suffering from economic and political turmoil as it prepares to open the curtain on the latest Olympics later this week. That pressure may be a factor behind one of the deals, which will see Fosun purchase Rio Bravo, a Brazilian company that offers a wide range of fund management services focused on the real estate sector. (English article; Chinese article)
The reports point out that the purchase is the first for Fosun in Latin America, though no terms were given for the deal. Rio Bravo currently manages the equivalent of about $3 billion in assets, and Fosun chief executive Guo Guangchang said the purchase reflects his company’s plans to move into more strategic emerging economies. Brazil certainly fits that definition, and we can probably expect to see one or two more similar deals there and in other BRICS countries later this year.
Financial services has emerged as one of Fosun’s key investment areas, with a heavy focus on insurance companies. Fosun is quickly earning a reputation as one of China’s most aggressive private equity buyers under the leadership of Guo, a billionaire who some liken to US investor Warren Buffett. In the asset management space, Fosun has purchased several smaller European companies, though one of its largest bids for BHF Kleinwort Benson ultimately failed last year.
Tapping Indian Drug Prowess
Meantime in the more thriving BRICS nation of India, Fosun also announced it will pay up to $1.3 billion for 86 percent of Gland Pharma, a drug maker backed by US private equity giant KKR. (English article; Chinese article) Unlike the Brazilian deal, which was probably driven partly by that country’s ailing economy, the main driver of the Gland Pharma deal is probably the big potential for drug production in India.
Fosun is purchasing most of its stake from KKR, which invested in Gland Pharma in 2014. The company makes a wide range of medicines that are injected through syringes, bags and pumps, which are typically more difficult to make than other conventional medicines. India is already a major supplier of drugs to the US, and I expect that Fosun will use this new acquisition to try and export more of the company’s products to the fast-growing China market.
Both western and domestic drug makers have invested huge sums in China in recent years, as the country works to overhaul its medical system and provide affordable basic service to all of the nation’s 1.3 billion people. A big component of that equation has been the opening of clinics throughout the country, and also big government deals to supply those clinics with affordable medicines.
Each of these 2 deals is being driven by widely different factors, though they do show that Fosun’s overseas buying binge will continue despite Guo Guangchang’s brief detention at the end of last year to reportedly assist in a criminal investigation. (previous post) Asset management and drugs are 2 areas where the company has been less active in overseas buying, so perhaps this pair of deals indicates it will become more aggressive in these sectors going forward.
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