Sonic Healthcare Limited (ASX: SHL) announced it is acquiring Aurora Diagnostics for $750 million.
Sonic Healthcare is one of Australia’s largest healthcare businesses, it provides laboratory services, pathology, and radiology services. It is actually the world’s third-largest pathology/laboratory medicine company. It has operations in Australia, USA, Germany, Belgium, Switzerland, the United Kingdom, Ireland and New Zealand.
Sonic’s USA acquisition
Sonic Healthcare announced it is acquiring Aurora Diagnostics for $750 million, or US$540 million.
According to Sonic, Aurora is one of the leading providers of anatomical pathology services in the US with 220 pathologists and 32 practices. It processes 2.5 million accessions each year and has contracts with more than 100 hospitals.
In the year to 30 September 2018 Aurora generated pro forma revenue of US$310 million and pro forma EBITDA of US$59 million (click here to learn what EBITDA means). This means the acquisition is priced at around 9.2x pro forma EBITDA.
To fund this deal Sonic is raising $600 million from institutional investors and $100 million from Australian & New Zealand ‘retail’ investors via share purchase plan (SPP). Click here to learn what that means.
The Sonic CEO Dr Colin Goldschmidt said that the acquisition will: “Offer Sonic Healthcare USA the scale and critical mass to boost the national promotion of Sonic’s unique Medical Leadership model in the US laboratory and pathology markets.”
How will this benefit Sonic?
Sonic said the transaction will transform its US business, providing it with a strategic national footprint and platform that adds “significant” scale.
The acquisition has been calculated to add 3% to profit per share (EPS) on a pro forma FY19 basis — after the effects of the capital raising but before expected revenue and cost benefits.
In year one Sonic’s return on invested capital (ROIC) is expected to be more than 9% to 10%, which is higher than Sonic’s FY18 ROIC.
Sonic said that the anatomical pathology sector is a large and growing one, supported by attractive tailwinds. The industry is fragmented, so Sonic thinks it can benefit from consolidation. Following this deal, Sonic will be the leader of clinical and anatomical pathology in the US.
Is it time to buy Sonic shares?
Sonic’s business is in healthcare, which is largely seen as a defensive industry. But, that doesn’t mean the share price can’t be hurt — in fact, it’s down nearly 20% since the start of August 2018.
Its slow and steady profit & dividend growth may be attractive to some investors, but our top analyst thinks it’s unlikely to deliver the rapid growth that the two healthcare shares in the free report below are generating.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).