The company describes the transaction as the extension ‘of Cardinal Health's distribution and services presence into one of the world's fastest growing health care markets’, providing a ‘platform to drive long-term growth’.
With China expected to become the world’s second largest pharmaceutical market by 2015, due largely to market reforms and the modernisation of its healthcare system, George Barrett, CEO of Cardinal Health, added that the acquisition is in the “right market in the right company with the right management at the right time.”
“We believe we will be one of the world’s largest, if not the largest, [distribution company] over the next 10 years”, added Barrett.
Healthcare distribution in China is very fragmented, according to Cardinal Health, with a network of thousands of distributers amongst which the top ten make up less than 35 per cent of the total market share. It sees consolidation as the ‘inevitable byproduct of the push for efficiency’ and expects to ‘bring some experience of leading this process in the US’.
Yong Yu, established in 1993, represents the largest pharmaceutical importer in the country with annual sales over $1bn, distributing to approximately 49,000 hospitals and clinics and over 123,000 pharmacies.
President Eric Zwisler explained that in order to participate in the consolidation process, Yong Yu realised it “was probably going to require a company of greater scale”.
“Active supply chain management and concepts tools that Cardinal Health brings to the table are going to be tremendously important as this market moves forward. That is a large part of the value that is going to be created here,” added Zwisler.
All members of the Yong Yu management team have now joined Cardinal Health. Zwisler explains that as a new platform for the company, part of Yong Yu’s role will be to manage cultural and economic issues in order to facilitate Cardinal Health’s entry into the market.
Cardinal Health describes Yong Yu as a ‘good cultural fit’ with a ‘strong multinational management team that we know and trust’. It plans to maintain Yong Yu’s ‘well recognised name’ in the local market but will also introduce the Cardinal Health name and brand alongside.
Together with the acquisition, Cardinal Health will create an advisory council, ‘to transmit learnings from the region back to the US’, as well as a ‘China focus integration team’.
Indicating the company’s broad outlook, Barrett added that “the acquisition of Yong Yu follows an extensive evaluation of opportunities to drive growth in targeted geographies outside of North America where we believe our core capabilities would add value.”