HEALTHCARE M&A
China

Lexology GTDT - Healthcare M&A

Healthcare M&A
Quick reference guide enabling side-by-side comparison of local insights into transactional
considerations (including structures, timelines, representations and warranties, due diligence, warranty
and indemnity insurance, pre-closing conditions and covenants, and post-completion undertakings);
regulation (including restrictions on owners, directors, overseas operations and cross-border acquirers;
competition and merger control, and regulation and state and private healthcare combinations);
financing and valuation; tax; public relations and policy considerations; and recent trends.

Generated 28 October 2022

The information contained in this report is indicative only. Law Business Research is not responsible for any actions (or lack thereof) taken as a result of
relying on or in any way using information contained in this report and in no event shall be liable for any damages resulting from reliance on or use ofthis information. © Copyright 2006 - 2022 Law Business Research© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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Table of contents
TRANSACTIONAL ISSUESStructures
Timeline
Representations and warranties
Due diligence
Risk exposure
Specific diligence issues
Conditions before completion
Pre-closing covenants
W&I insurance
Specific documentation
Post-completion undertakings
REGULATION
Laws and regulations
Consents, notification and filings
Ownership restrictions
Directors
Operating outside the home jurisdiction
Cross-border acquirers
Competition and merger control
State and private healthcare combinations
FINANCING AND VALUATION
Financing
Security
Financial assistancePrice and consideration
Enterprise value
TAX
Typical issues in combinations
Tax risks for healthcare businesses© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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PUBLIC RELATIONS AND GOVERNMENT POLICY
Public relations
PolicyUPDATE AND TRENDS
Recent developments© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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Contributors
China
Cindy Hucindyhu@east-concord.com
East & Concord Partners© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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TRANSACTIONAL ISSUESStructures
What is the typical structure of a healthcare-related business combination in your jurisdiction?

In China, the typical structure of a healthcare-related business combination includes equity interest purchase, asset
purchase and management-rights purchase. The first two transaction structures are to acquire the equity interest or theassets and business of the target hospital. The management-rights purchase is to obtain the operation andmanagement rights of the target hospital within a certain period of time.
In China, hospitals can be categorised into for-profit hospitals and non-profit hospitals according to whether they can
distribute profits to shareholders or investors. According to the different types of registered legal entities ororganisations, for-profit hospitals can be divided into:
hospitals with independent legal person status (for-profit legal persons) registered as limited companies,
companies limited by shares and foreign-invested enterprises; andhospitals without legal person status registered as sole proprietorship enterprises or partnership enterprises(unincorporated organisations).

In terms of legal entities or organisations, non-profit hospitals are categorised as:
hospitals with public institution legal person status, which are run by the government or state-owned enterprises(public hospitals); andprivate non-profit hospitals mainly run by social capital (private non-profit hospitals).

Since different types of legal entities or organisations are subject to different laws and regulations, and there is no
direct legal means to transform from one type to another, therefore, the above-mentioned transaction structures would
vary depending on the nature of the types of entities or organisations accordingly.
Generally, the equity interest purchase or the asset purchase can be applicable to for-profit legal person hospitals; theprocedure of the equity interest purchase is more direct than that of the asset purchase, which reduces and avoids thecomplicated procedures involved in the transfer of asset ownership, and it may be preferable to an asset purchase interms of tax cost involved in the transaction. Therefore, equity interest purchase is more widely chosen in the
combination of for-profit hospitals.
In the combination of non-profit hospitals, the equity combination or the asset combination would have the following
restrictions:the equity interest purchase cannot be directly used in the combination of non-profit hospitals, but if the founderof the target hospital is a corporate legal person (the founder company), the equity acquisition can be
implemented indirectly by acquiring the equity interest of the founder company, provided that the acquisition
should not change the non-profit nature of the target hospital. Otherwise, the transaction may not be approved orcomplicated procedures for transforming non-profit hospitals to for-profit hospitals may be required;
the Law of the People’s Republic of China on Basic Medical Care and Health Promotion (Healthcare Law), whichis the first basic and comprehensive law in the field of healthcare enacted on 1 June 2020, stipulates that
hospitals run by governments shall not invest with other organisations to establish healthcare institutions without
independent legal person status, nor shall they cooperate with social capital to establish for-profit healthcare
institutions. Therefore, investment for the combination of government hospitals will face the aforementioned© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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legal restrictions;in an asset purchase of public hospitals, the transaction shall follow state-owned asset supervision procedures.
In addition, asset purchases are not applicable to the acquisition of private non-profit hospitals; andacquiring non-profit hospitals by foreign investors, will not be approved in practice under the current regulatory
policies and environment. Owing to the aforementioned restrictions on equity or asset combinations of non-profit
hospitals, the management-rights purchase remains the main transaction structure for acquiring non-profit
hospitals.
Law stated - 28 July 2022

Timeline
How long do healthcare business combinations usually take, and what factors tend to be mostsignificant in determining the timing to completion?

A healthcare business combination may take one to three years to complete. The timeline varies depending on thecomplexity of the transaction. The main factors influencing the transaction timeline include:internal authorisation and approval from the board of directors or the shareholders of the target company and allparties related to the transaction;
any third-party consents;
approval from the health commission; andregistration procedures for the change of ownership of equity interest or assets with the registration authority.

If the transaction involves the sale of state-owned equity interest or assets, foreign investment, the concentration ofundertakings and other issues, further requirements also include:
following the state-owned assets assessment and filing procedures;the transaction shall be conducted publicly on the assets and equity exchanges;
the examination and approval procedures for acquisitions by agreement;
the approval procedures for foreign investment; andreporting concentration of undertakings to the Anti-monopoly Bureau of the Ministry of Commerce of thePeople’s Republic of China.
Law stated - 28 July 2022

Representations and warranties
What are the typical representations and warranties made by a seller in healthcare businesscombinations? What areas would be covered in more detail compared with a more generalbusiness combination?

Given that the healthcare industry is a heavily regulated industry, common representations and warranties made by aseller in healthcare business combinations include that:the target hospital is a medical institution incorporated and operated in accordance with the law, and holds all therequisite qualifications and licences in relation to its medical business; andthe ownership of the equity interest or assets to be sold by the seller is clear, lawful and effective, and free of© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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dispute or encumbrance.

Compared to M&As in other industries, the warranties and representations in the healthcare industry place moreemphasis on the practising licences, business qualifications of hospitals and the medical staff, assets and equipment
ownership of hospitals.
Law stated - 28 July 2022

Due diligence
Describe the legal due diligence required in healthcare business combinations. What specialists
are typically involved? What searches would typically be carried out?

The main purpose of the legal due diligence required is to examine the target’s compliance with relevant laws andregulations, and ensure the purchaser or the continuing entity will be able to operate its business in compliance with all
the necessary licences and permits.
The legal due diligence usually places great emphasis on the legality and validity of the target hospitals’ legal statusand qualifications, business licences and qualifications, main assets (real estate, medical equipment, core intellectual
property rights), major creditors’ rights and debts and business contracts, the management and core medical
personnel, legal disputes and penalties for violation of regulations.
If the target company implements an innovative business model or engages in innovative business, such as online
medical treatment, storage and application of medical and health big data, due diligence shall include an assessmentof regulatory trends, and the legality of the business model or the business itself.
If the transaction involves innovative technologies, such as biopharmaceuticals and artificial intelligence, the legal due
diligence often places great emphasis on the examination of intellectual property rights and the product’s regulatory
approvals on the markets.
Law stated - 28 July 2022

Risk exposure
If due diligence is not correctly undertaken, what specific healthcare risks might buyers inherit?

In both equity acquisition or asset acquisition, if due diligence is not properly undertaken, a key risk is that, after theacquisition, the purchaser or the continuing entity cannot own the assets to carry out the healthcare business or it
cannot obtain the approval, practising licence and qualification required for carrying out the healthcare business. In
addition, if the contingent liabilities and risks of the target are not checked or discovered in the due diligence, thepurchaser may face the risks of an increase in acquisition cost and potential debt repayment. In a management-rights
purchase, the main risks that the purchaser is exposed to are that the purchaser cannot actually obtain the independent
operation and management rights of the target hospital, the return on investment cannot be guaranteed or the contract
may be terminated.
Law stated - 28 July 2022

Specific diligence issues© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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How do buyers typically approach specific material diligence issues in healthcare businesscombinations?

The purchaser usually addresses the material due-diligence issues in the transaction documents. Typically, these risks
are addressed in the provisions of the representations and warranties, conditions on closing the seller’s specificobligations or indemnifications.
Law stated - 28 July 2022

Conditions before completion
What types of pre-closing conditions are most common in healthcare business combinations?

Pre-closing conditions are highly dependent on the overall situation of the target hospital or asset or the transaction
and are often heavily negotiated. In healthcare business combinations, common and non-controversial pre-closing
conditions include the completion of the necessary financial, legal and commercial due diligence on the target hospitalor the underlying assets, the internal authorisation and approval procedures to be performed by both parties for
implementing the transaction, the relevant approval or permission required by laws and regulations as well as theregulatory departments, and third-party consents and permission. In the equity acquisition, third-party consent would
typically include that the target hospital or the seller shall, upon equity sale or major changes of equity of the target
hospital, be obliged to obtain the consent of counterparties in accordance with the agreements that are entered into by
the said target hospital or the seller and financial institutions, creditors, investors or key business partners. In an assets
acquisition, third-party consent typically means that the target hospital or the seller shall, upon asset sale, be obliged toobtain the consent of counterparties in accordance with the law or the agreements that are entered into by the said
target hospital or the seller and the obligees of the assets (such as creditors and lessors) and other counterparties
related to assets and business.
In addition to the above circumstances, other pre-closing conditions depend on the negotiation between the twoparties. These conditions mainly involve the resolution and settlement of the material issues found in due diligence.
Law stated - 28 July 2022

Pre-closing covenants
What sector-specific covenants are usually included to cover the period between agreement andcompletion in healthcare business combinations?

The sector-specific covenants in healthcare business combinations include:
maintaining the necessary qualification licence and practising status of the target hospital and its medical staff;
maintaining all operating assets and equipment (including intellectual property) of the target hospital in normal
operation and good maintenance state;maintaining the normal operation of the target hospital;
not transferring or reducing business resources;
or not making any decision in any way that has a major adverse effect on the hospital’s own assets, business andpersonnel.
Law stated - 28 July 2022

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W&I insurance
What specific provisions are commonly seen in warranty and indemnity insurance policies forhealthcare business combinations compared with general business combinations?

At this point, warranty and indemnity insurance policies are seldom used in healthcare business combinations.
Law stated - 28 July 2022

Specific documentation
Is there any sector-specific documentation typically used in healthcare business combinations?
Does this differ depending on the structure of the transaction?

In an equity acquisition, it is necessary for the relevant practising qualifications and permits of the target hospital andits medical staff to remain the same, and the transaction needs to go through the registration procedures for thechange of the relevant practising permits and licences with the health commission. In the asset acquisition, theownership of the underlying asset should be ensured to transfer to the purchaser. If the seller contributes the assets of
the hospital to establish a joint venture company with the buyer, the underlying assets should be registered under thename of the new company, which should apply for a new medical institution practising licence from the healthcommission. In the acquisition of management right, the above-mentioned business qualification, personnel, asset
ownership and other matters should be in a legal, effective and unchanged status. If the acquisition of management
rights involves the change of the main responsible person of the target hospital, the registration procedures for thechange of medical practising licence shall be handled with the health commission.
Law stated - 28 July 2022

Post-completion undertakings
Which post-completion undertakings are common in healthcare business combinations? Which
undertakings are common?

The common post-completion undertakings include but are not limited to:completing the change, transfer and handover procedures with the relevant government regulatory departmentswith regard to the relevant approval documents or qualification licences, assets and business contracts;
clearing up any loose ends discovered in due diligence;
specific personnel of the target hospital (such as shareholders, senior management personnel, core technicalpersonnel and other personnel with confidentiality obligations) are required to agree to a restraint of trade
preventing them from re-entering the market as a potential competitor; andthe liability for breach of relevant non-competition, the right to terminate the combination agreement and the rightto request for repurchase shall be clarified.
Law stated - 28 July 2022

REGULATION© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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Laws and regulations
What are some of the primary laws and regulations governing or implicated in healthcare-related
business combinations? Are healthcare assets subject to specific regulation that would bematerial in a typical transaction? Is law and regulation of healthcare national or subnational?

The regulatory provisions involved in healthcare business combinations mainly include the establishment and accessof medical institutions, the asset disposal of medical institutions and so on. Among them, the regulatory provisions forestablishment and access of medical institutions mainly include the permits for establishment and practising of
medical institutions, the registration of legal persons, the access of foreign capital and access of the internet to
medical treatment. With regard to asset disposal, if the hospital belongs to the assets of public institutions or stateowned enterprises, it should follow the relevant regulations on the supervision of state-owned assets of public
institutions and state-owned enterprises.
The relevant laws and regulations at the national level have been promulgated in relation to the above contents, andcorresponding local regulations have also been formulated in different regions. The primary laws and regulations at thenational level include, but are not limited to:Category

Title

Effective dateof the current
editionLaws

Law of the People’s Republic of

1 June 2020

China on Basic Medical Care and
Health Promotion
Administrative Regulations on Medical Institutions 2022

1 May 2022

revision
Foreign Investment Law of the People’s Republic of China

1 January 2020

Implementation Regulations for the Foreign Investment Law

1 January 2020of the People’s Republic of China
Anti-monopoly Law of the People’s Republic of China (2022

1 August 2022

Revision)
Administrative Regulations on Registration of Market Entities

27 July 2021of the People’s Republic of China
Regulations

Rules for Implementation of the

1 April 2017

Administrative Regulations on
Medical Institutions
Provisional Measures for the Administration of Medical

1 July 2000

Institutions in the Form of Sino-foreign Equity or Contractual
Joint Venture and its supplementary provisions
Special Administrative Measures (Negative List) for Foreign

1 January 2022

Investment Access (2021 version)
The Interim Measures for the Management of State-owned

29 March 2019

Assets of Public Institutions© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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Measures for the Supervision and Administration of the

24 June 2016

Transactions of State-Owned Assets of Enterprises
Rules for Implementation of Administrative Regulations on

1 March 2022

Registration of Market Entities of the People’s Republic of
China

Law stated - 28 July 2022

Consents, notification and filings
What regulatory and third-party consents, notifications and filings are typically required for ahealthcare business combination?

If the combination transaction involves the reform of state-owned enterprises and the disposal of state-owned assets,
the state-owned assets assessment and filing procedures, transactions conducted publicly on the assets and equity
exchanges, and approval procedures for acquisitions by agreement should be followed. If foreign investment isinvolved, the approval procedures with the health commissions and the foreign investment approval authorities should
be followed. If the reporting of concentration of undertakings is triggered, it should be reported to the State Antimonopoly Bureau in advance, and concentration of undertakings shall not be implemented without reporting.
In an equity acquisition, third-party consent typically means that the target hospital or the seller shall, upon equity saleor major changes of equity of the target hospital, be obliged to obtain the consent of counterparties in accordance withthe agreements that are entered into by the said target hospital or the seller and financial institutions, creditors,
investors, and key business partners. In the asset acquisition, third-party consent typically means that the target
hospital or the seller shall, upon asset sale, be obliged to obtain the consent of the third-party obligees orcounterparties in accordance with the law or the agreements that are entered into by the said target hospital or theseller and the obligees of the assets (such as creditors and lessors) and other counterparties related to the assets andbusiness.
If the combination transaction involves changing the registration of the medical institution’s name, place, main
responsible person, registered capital, diagnosis and treatment subjects and the number of beds, the change ofregistration of the medical institution’s practising licence must be registered with the health commission.
If other specific business qualification management matters are involved, the relevant qualification certificate shall bechanged, filed and renewed, such as:
the radiation diagnosis and treatment licence;
the haemodialysis room practising registration certificate;
the judicial appraisal licence;the practising licence of the maternal and child healthcare technology service;
the radiation safety licence; andthe approval certificate for practising of health examination agencies.

If the combination transaction involves changing the registration of the legal subject of the target hospital, the relevant
procedures for change should be handled with the original registration authority.

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Law stated - 28 July 2022

Ownership restrictions
Are there any restrictions on the types of entities or individuals that can wholly or partly own
healthcare businesses in your jurisdiction?

In China, there are clear restrictions on access to the healthcare industry, such as the qualification of the investor andthe total investment amount with regard to foreign investment. In addition to the qualified investors from Hong Kong,
Macao and Taiwan as defined in certain rules and regulations, who can invest for the establishment of wholly owned
hospitals in the pilot area, other foreign investors can only invest in the medical industry in the form of joint venture,and their shareholding ratio should not exceed 70 per cent. Moreover, both parties to the joint venture should haveinvestment and management experience in the medical industry, and should meet one of the following requirements:
be able to provide international advanced management experience, management mode and service mode of
medical institutions;be able to provide international leading medical technology and equipment; orbe able to supplement or improve local medical service capacity, medical technology, funds and medical facilities.

The Sino-foreign joint venture medical institution to be established must be an independent legal person; the total
investment amount should not be less than 20 million yuan; and the term of the joint venture should not exceed 20
years.
Law stated - 28 July 2022

Directors
Are there any restrictions on who can be director of healthcare businesses in your jurisdiction?

In China, there are clear requirements on the conditions and qualifications to act as government-run public hospitalleaders, and the main conditions and requirements include professional knowledge and vocational quality, educationlevel, work experience, professional training and physical conditions. There are no specific requirements for leaders ofprivate hospitals. If the private hospital is a corporate legal person, its directors, supervisors and senior management
personnel should be free from the unsuitable appointment circumstances as stipulated in article 146 of the Company
Law of the People’s Republic of China.
Law stated - 28 July 2022

Operating outside the home jurisdiction
What domestic regulatory issues might arise for a company based in your jurisdiction operating
healthcare businesses in other jurisdictions?

As the healthcare industry in China is still under development, there are few cases of medical institutions
headquartered in China operating healthcare businesses overseas. In addition, there are no specific rules or regulations
governing the aforesaid overseas healthcare business investment. According to the relevant rules and regulations ofoverseas investment by a Chinese entity, the domestic headquarters company should engage in the filing and approval
procedures for overseas investment with the national or local development and reform commission, the commercial© Copyright 2006 - 2021 Law Business Researchwww.lexology.com/gtdt

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commission, the foreign exchange department and other departments regarding the establishment of overseas
branches.
If the headquarters are state-owned enterprises, foreign-invested enterprises or listed companies, special attention
should be paid to the specific regulatory requirements.
Law stated - 28 July 2022

Cross-border acquirers
What domestic regulatory issues arise when the acquirers of healthcare businesses are basedoutside the jurisdiction?

If the purchasers are overseas investors (excluding qualified investors from Hong Kong, Macao and Taiwan as definedin certain rules and regulations), they shall meet certain regulatory requirements in terms of the subject qualifications,
total investment, approval procedures, equity ratio, related management experience, medical technology and medical
service capabilities. They should go through the relevant approval procedures with the development and reform
commission, the commercial commission and the healthcare commission in accordance with the Foreign Investment
Law of the People’s Republic of China, Special Administrative Measures (Negative List) for Foreign Investment Access(2021 version), Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors, Provisional
Measures for the Administration of Medical Institutions in the Form of Sino-foreign Equity or Contractual Joint Venture.
If the target company is a listed company in China, the relevant provisions of the Administrative Measures on Strategic
Investment in Listed Companies by Foreign Investors should be followed. If the target equity interest or target asset ofthe combination are state-owned assets, the state-owned assets assessment and filing procedures, transactions
conducted publicly on the assets and equity exchanges, and the examination and approval procedures for acquisitions
by agreement should also be followed.
Law stated - 28 July 2022

Competition and merger control
What specific competition or merger control issues may arise in healthcare businesscombinations?

If foreign investors set up hospitals in China, Provisional Measures for the Administration of Medical Institutions in theForm of Sino-foreign Equity or Contractual Joint Venture and the relevant policies of foreign investment access should
be followed. Except for the said Provisional Measures and the policies, there are no special requirements forcompetition or merger control issues in the healthcare industry.
The regulatory provisions on competition or merger control issues mainly include the Anti-monopoly Law of thePeople’s Republic of China and the Provisions of the State Council on the Declaration Standards for Concentration ofUndertakings. In accordance with the above laws and regulations, if the combination meets the declaration standard ofconcentration of undertakings, it should be declared to the Anti-monopoly Bureau of the Ministry of Commerce inadvance. If the combination fails to be declared or is required to prohibit the concentration of undertakings, it should
not implement the concentration. It is noteworthy that on 24 June 2022, the Anti-monopoly Law (2022 Revision) was
reviewed and adopted, and will enter into force from 1 August 2022.
The Anti-monopoly Law (2022 Revision) has significantly raised the upper limit of fines for violations of the Antimonopoly Law, and raised the upper limit of fines for particularly serious cases. Moreover, it has established a double
punishment system, and a dual responsibility system for operators and principal responsible personnel.

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Law stated - 28 July 2022

State and private healthcare combinations
Are there any differences for healthcare business combinations if the transaction relates solely tobusinesses servicing private clients rather than state-funded clients?

In China, whether the patients of medical institutions pay for their own expenses is related to whether the target
hospital has obtained the qualification of designated medical institutions of basic medical insurance (designatedmedical insurance qualification), and the hospitals that have obtained the qualification can undoubtedly obtain more
service objects. In the healthcare combination, if the target hospital obtains the designated medical insurance
qualification, it will undoubtedly have more investment value under the same conditions. In China, non-profit hospitals
enjoy favourable policies compared with for-profit hospitals in terms of tax, land and financial subsidies. However, nonprofit hospitals are not allowed to distribute profits to investors, and there are strict restrictions on the financial system
and asset disposal in the case of exit. In China, it is comparatively difficult to directly acquire equity or assets of nonprofit hospitals.
Law stated - 28 July 2022

FINANCING AND VALUATION
Financing
How do buyers typically finance healthcare-related business combinations?

The buyers of healthcare-related business combinations are mainly strategic investors and financial investors. Amongthem, strategic investors, such as listed companies, can raise funds through refinancing (issuance of new shares andbonds) and share issuance of the listed companies to purchase target hospitals or underlying assets, or take shares aspart of the transaction consideration; financial investors represented by private equity funds mainly raise funds throughprivate placement. In addition, investors can also obtain project funds by raising their own funds or combination loans,but it is difficult to obtain combination funds through loans from banks.
Law stated - 28 July 2022

Security
Describe the typical security structures in healthcare business combinations, including
confirmation of any registration or notary fees in respect of the security documents.

In the healthcare business combinations, the seller will generally make a guarantee or an undertaking in relation to thecontingent liabilities, qualification licence, professional ability, business resources and asset ownership of the target
hospital or underlying assets, other than providing real estate mortgage or equity pledge, therefore, confirmation ofregistration or notarisation fees is not involved. The buyer can extend the payment period, take the instalment payment
method or reserve an appropriate proportion of the transaction price to deal with the transaction risk. In addition, thebuyer can avoid the investment risk through the valuation adjustment mechanism in equity interest purchases of forprofit hospitals.
Law stated - 28 July 2022

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Financial assistance
Are there any financial assistance rules that arise in healthcare business combinations?

There are no specific financial assistance rules for healthcare business combinations.
Law stated - 28 July 2022

Price and consideration
What pricing and consideration structures are typical in healthcare business combinations?

Under the equity interest purchase or asset purchase, the transaction pricing typically can be determined on the basisof the audited or evaluated net asset value. If the target equity interest or asset is state-owned, it should be based on
the assessed value. Transaction consideration is usually paid in stages according to the progress of the transaction. In
equity interest purchases of for-profit hospitals, the value adjustment mechanism can also be set up to control theinvestment risk. However, in the combination project of non-profit medical institutions, as non-profit hospitals cannot
distribute profits, and the acquisition of equity and assets are restricted, therefore, the pricing and consideration
structures in the acquisition of non-profit hospitals will be difficult to apply. The management-rights purchase is usuallyadopted in the acquisition of non-profit hospitals, and the acquirer obtains investment returns by way of entrusted
management and charging management and service fees from the target hospitals.
Law stated - 28 July 2022

Enterprise value
How are healthcare-related businesses typically valued?

Healthcare-related businesses generally are valued by using several basic evaluation methods, such as the market
method, income method and cost method, among which, the earn-outs method shall not apply to the combination of
non-profit hospitals. In practice, especially in the combination of non-profit medical institutions, the same evaluation
method will produce different valuation results under different transaction modes, and there is no suitable projectvaluation model currently. In the acquisition of asset-light healthcare businesses such as online healthcare-related
businesses, earn-outs are more in line with actual market expectations for evaluation.
Law stated - 28 July 2022

TAX
Typical issues in combinations
What are some of the typical tax issues in healthcare business combinations and to what extent
do these typically drive structuring considerations? Are there certain considerations that stemfrom the tax status of a target?

The applicable type of tax and tax rate of the target, whether to enjoy the tax preference and whether there is the risk oftax non-compliance, are the key issues in healthcare business combinations that may affect the transaction cost andconsideration. In addition, the tax burden borne by the acquirer and the transferor and the target enterprise may bequite different under different transaction structures.

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Law stated - 28 July 2022

Tax risks for healthcare businesses
What are the typical tax risks that are associated with healthcare businesses? What measures
are normally taken to mitigate those typical tax risks in healthcare business combinations?

For an equity interest purchase, the taxes involved mainly include stamp tax (to be borne by both the buyer and theseller) and income tax (to be borne by the seller for the gains arising from the sale of the equity interest). The tax
liabilities of the target company will remain unchanged after the acquisition.
For an asset purchase, the taxes involved by the buyer normally include deed tax and stamp tax, while the taxes
involved by the seller include stamp tax, income tax, value added tax and land value added tax, etc. The specific taxes
shall be determined according to the actual target assets to be transferred.
If foreign investors implement an acquisition through a company established in Hong Kong, they can enjoy reductions
or concessions in corporate income tax, dividend withholding tax, interest withholding tax and franchise tax, according
to the relevant tax treaties between Hong Kong and other countries.
It is highly recommended that the buyer seek advice from tax consultants for overall tax planning, verifying the specifictypes of tax, tax rates and tax bases involved in the transaction.
Law stated - 28 July 2022

PUBLIC RELATIONS AND GOVERNMENT POLICY
Public relations
How do the parties address the wider public relations issues in healthcare businesscombinations?

In China, the common public relations issues in healthcare business combinations include basic healthcare security
and the prohibition of dividends for non-profit medical institutions. Whether it is a for-profit medical institution or a nonprofit medical institution, assuming public responsibility will help to foster a positive image of the investor or the target
hospital, and facilitate the approval for the establishment of a medical institution and the qualification of designatedmedical insurance. Acquirers should choose the appropriate target according to their business purpose.
Law stated - 28 July 2022

PolicyHow do parties address the wider political issues in healthcare business combinations?

In China, the healthcare industry is greatly influenced by governmental policies and legislation. Under the current policy
and legal environment, government-run healthcare institutions should not make an investment with other organisations
for the establishment of healthcare institutions without independent legal person status, nor should they cooperatewith social capital to set up for-profit healthcare institutions. In addition, the access policy of foreign-funded medical
institutions is becoming stricter, and investors should adjust the direction and strategy of combinations in accordancewith the changes in policies and laws.
Law stated - 28 July 2022

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UPDATE AND TRENDS
Recent developments
What are the current trends, and what developments are expected in healthcare businesscombinations in your jurisdiction in the coming year?

In China, except for government hospitals, healthcare business combinations are expected to remain active in theforeseeable future. For-profit hospitals’ holding-type acquisitions have increased, the trend of ‘group operation’ and‘chain operation’ of listed hospital groups has accelerated, specialised hospitals have become more favoured targets inthe capital market, and the popularity of digital medical investment continues to heat up. In addition, Chinese laws
strictly limit government hospital services to the scope of basic medical care, leaving room for the development ofsocial capital in the high-end healthcare market. At the same time, with China’s ageing population, the healthcare
industry will continue to grow.
Law stated - 28 July 2022

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Jurisdictions
Belgium

Bird & Bird LLP

China

East & Concord Partners

Egypt

Shahid Law Firm

Indonesia

Hadiputranto, Hadinoto & Partners (member firm of Baker
McKenzie)

Japan

Mori Hamada & Matsumoto

Switzerland

Lenz & Staehelin

USA

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