Blue Ocean Capital exits China Cord Blood

The GP committed $250 million in December 2015 in support of a privatization of CCBC launched by Hong Kong-listed Golden Meditech, which was at the time the company's largest shareholder. Blue Ocean subscribed to a promissory note secured against shares in CCBC.

In January, Sanpower’s healthcare-focused M&A fund – the Nanjing Yingpeng Huikang Huikang Medical Industry Investment Partnership – acquired a 65.4% stake in CCBC from Golden Meditech for RMB5.76 billion ($875 million). This allowed Blue Ocean to exit the investment alongside Golden Meditech.

CCBC is the largest umbilical cord blood banking operator in China with licenses in various Chinese provinces and municipalities, including Beijing, Guangdong, and Zhejiang. The company provides cord blood testing, processing, and storage services under the direction of subscribers, receiving processing and storage fees.

In 2012, KKR purchased $65 million in senior convertible notes issued by CCBC, with a five-year tenor and a 7% coupon. The notes would convert into a 23.9% stake in the company. In 2015, Golden Meditech – which owned more than 50% of CCBC – proposed to take the company private in a deal worth $467 million. This included redeeming the notes held by KKR for $115 million.

Shortly after Golden Meditech announced this plan, Nanjing Xinjiekou Department Store – a Shanghai-listed subsidiary of Sanpower Group – made a competing bid for the company of about $966 million. Nevertheless, Golden Meditech pushed ahead with its privatization, obtaining financial support from Blue Ocean.

Golden Meditech increased its holding in CCBC to 65.4% through a convertible bond subscription but then reached an agreement to sell its entire interest in the company to Nanjing Xinjiekou for RMB5.76 billion in cash and shares. It also agreed to pay $267 million for the additional 34.6% in CCBC that Golden Meditech would own if the take-private were successful.

However, the privatization was later abandoned. This came as the sale to Nanjing Xinjiekou – which involved restructuring three listed companies – struggled to win regulatory approval in China amid last year's crackdown on capital outflows. Sanpower then formed the healthcare M&A fund and it was agreed that this entity, rather than Nanjing Xinjiekou, would buy CCBC.

The M&A fund is managed by two domestic asset management firms – Nanjing Yingpeng and Guotain Junan Securities – and has a corpus of RMB6.57 billion. The transaction, which took almost two years to complete, was approved by the Chinese regulator.

“All stakeholders have all made great efforts to make this transaction happened,” said Frank Fang, founding partner and CEO of Blue Ocean Capital. “This deal illustrates our ability to identify and execute complex multi-jurisdictional cross-border transactions to unlock and create value.”

Prior to founding Blue Ocean in 2015, Fang was a managing director responsible for healthcare investments at CCB International. Blue Ocean focuses on healthcare, technology, media and telecom, and innovative financial services businesses, targeting buyouts and significant minority stakes. The firm, which has offices in Shenzhen, Shanghai and Hong Kong, manages about $300 million across renminbi and US dollar-denominated funds.  

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• Topics
• Trade sale
• Greater China
• Healthcare
• Buyouts
• China