With China's healthcare spending forecast to nearly triple to $1 trillion by 2020 from $357 billion in 2011, according to consulting firm McKinsey, the country is a magnet for makers of medicines and medical equipment.
Dihon has about 2,400 employees and generated sales of 123 million euros ($168 million) in 2013, Bayer said on Thursday, declining to provide the financial terms of the deal.
Dihon's products include dandruff treatments, antifungal creams and medicine against gynaecological conditions such as endometriosis. A spokeswoman said it was too early to say whether they would be exported to Germany or Europe.
The deal, which could help Bayer challenge Johnson & Johnson to the number-one spot in the over-the-counter (OTC)market, underscores its push into herbal medicine after it bought smaller German supplier Steigerwald last year.
A number of international healthcare firms have been making inroads in China. Alliance Boots, the owner of Europe's largest pharmacy chain, plans to take a 12 percent stake in Chinese distributor Nanjing Pharmaceutical Co Ltd, while Medtronic Inc purchased China Kanghui Holdings in 2012.
But doing business in the world's most populous country is not without risk. China's regulators have been investigating several foreign and domestic drug companies on suspicion of bribery, with the most high-profile investigation involving Britain's GlaxoSmithKline.
China's consumer health and wellness market is expect to hit almost $70 billion by 2020 as increasing numbers of consumers turn to health supplements and OTC health treatments, according to a recent report from Boston Consulting Group.
The OTC market alone was worth $18 billion and is estimated to grow at a rate of around 8 percent per year, the report said.
The Dihon deal is to close in the second half of 2014, Bayer said. ($1 = 0.7317 euros)
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