China’s Cogo Group (NASDAQ:COGO) surged to a 52-week high after inking a deal to buy certain assets of privately-held MDC Tech for $22 million, an effort to capitalize on a slew of new Chinese regulations set to be rolled out over the next decade.
The provider of customized module and subsystem design solutions said the transaction will expand its presence in China’s key industrial segments, including automotive, smart grid and smart meters, high-speed railways and healthcare.
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MDC, a technology solutions and engineering services company focused in China, will be merged with Cogo’s existing industrials business, which currently comprises some 18% of its total revenue. MDC focuses on the smart grid roll-out and medical equipment sectors, both rising areas in the country.
The end goal from the acquisition, according to Cogo, will be energy turbines and high-end medical equipment used in new and newly modernized hospitals. Last year, China committed $125 billion over a three-year period to modernize its health-care system, looking to provide universal healthcare for all 1.3 billion of its citizens by 2020.
MDC already represents customers in more than 10 hospitals, and Cogo said it expects that number to grow.
"The acquisition of MDC enhances our already strong position in the Smart Grid roll-out and puts us in the sweet spot of China's healthcare reform," said Cogo CEO Jeffrey Kang. "After the close of this deal, we will be increasingly well-positioned to take advantage of the massive spending anticipated in China.”
The deal is expected to close in the first-quarter of next year and will most likely be an all-cash transaction paid over several quarters. Once completed, Cogo said it plans on growing MDC sales at a 20% annual rate over the next five years.