Chinese Device maker Trauson to IPO
BY JAKE NORD, JUNE 21, 2010
Chinese orthopedic device manufacturer Trauson (Jiangsu) Holdings Company Limited announced details of their planned IPO on the Hong Kong stock exchange on June 14th, 2010.
Trauson, founded in 1986 and based in Changzhau, China, manufactures more than 2,000 devices for trauma, spine, and other orthopedic indications. As of December 31, 2009 the company provided products to over 2,500 hospitals in China. Their products are distributed in 30 domestic cities and 29 countries and regions. Trauson utilizes its ties with various academic institutions and its ability to organize various forms of trauma and spine-related training classes all over China as a marketing tool.
Trauson anticipates net proceeds of US$67.10 million. The company plans to use 40% of the proceeds for the acquisition of new production equipment, 20% for market development and 34% for potential mergers and acquisitions, with 6% to be kept for working capital. Specifically Trauson is planning a new production facility and to immediately upgrade their obsolete production equipment over the course of the next five years. The financial advisers to Trauson are UBS, Guotai Junan Securities Limited and CCB International Capital Limited.
According to market research done by China Orthopaedics used in the offering materials, the People's Republic of China ("PRC") or "China" trauma orthopedic products market grew a CAGR of 20.7%, the PRC spine orthopedic products market grew at a CAGR of 24.1% and the PRC joint orthopedic products market grew at a CAGR of 22.1% all over a four year period from 2006 to 2009. Furthermore, Trauson believes that the recently announced healthcare reform in China and the resulting increase in investment in the healthcare sector will benefit the markets and producers such as Trauson.
Management estimates that the company is second in the PRC trauma orthopedic products market with a market share of 8.4%. Synthes, Inc. is the leading provider with a market share of 13.8%. Trauson is sixth in the PRC spine orthopedic products market with a market share of about 3%.
Trauson's revenues have grown steadily over the past few years from US$19.21 Million in 2007 to US$30.87 Million in 2009 accounting for a CAGR of 26.8% respectively indicating that they are taking share. In 2009 Trauma products accounted for 64% of revenue, spine products accounted for 14.8 %, OEM products accounted for 14.9%, and 6.3% of revenue came from other sources.
One of many things we found intriguing in the offering materials were the risks discussed relating to doing business in China. Despite the high market growth in the region, substantial concerns were outlined about intellectual property, brand protection and patent infringement.
All in all, we find it encouraging that yet another orthopedic device company is seeing to go public this month. This offering comes on the heels of Tornier's IPO filing in the US two weeks ago. To us, this is a clear sign that the capital markets are opening up for the high growth musculoskeletal industry.
