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Here’s why the ALS (ASX:ALQ) share price is rising

The ALS Ltd (ASX: ALQ) share price is up more than 3% after announcing an acquisition.

ALS is a global testing, inspection and certification business. It’s aiming to diversify into new sectors and geographies where it can take a leadership position.

What’s the ALS acquisition?

ALS is acquiring Investiga, which is a pharmaceutical testing business with operations in Brazil and the east coast of the USA.

Founded in 1993, Investiga is privately owned with 360 employees and it made AU$20 million of revenue in FY20. It specialises in the cosmetic and personal care market, providing services to a portfolio of major global clients.

ALS said that Investiga will be integrated into the existing ALS Life Sciences network with a particular focus on growing in the USA, which represents over a quarter of the global market.

Investiga is being bought at a multiple of 11 times the adjusted FY20 EBITDA (EBITDA explained), paid from existing debt facilities. Key management will remain with the business.

Management comments

ALS Managing Director and CEO Raj Naran said: “Growing the Life Sciences division is a key part of the ALS strategy and Investiga significantly increases our presence in the pharmaceutical market.

We have a strong track record of integrating acquisitions into our existing life sciences network and Investiga provides us with the platform to grow our cosmetic and personal care offering, particularly in the USA.”

ALS trading update

The company also gave a trading update. It said that it continued to trade resiliently in the third quarter and the early fourth quarter despite the uncertainty caused by COVID-19. Management said that they remain committed to aligning the cost base to client demand and managing capital expenditure spending while maintaining focus on key growth opportunities.

ALS said that life sciences volumes have been stable . The commodities division is starting to benefit from the improving cycle. Geochemistry sample flows increased by 13%.

In the industrial division, tribology has seen “some improvement” in the third quarter of FY21 whilst the trading environment for asset care remains challenging.

ALS said that the balance sheet remains strong with more than AU$600 million of available liquidity and a leverage ratio of 1.7 times at 31 January 2021.

Summary thoughts

It seems like a good acquisition and it’s useful to diversify the earnings further. I don’t know too much about the market opportunity for ALS or the industry, so I’m just an interested observer at this stage.

Before you consider ALS, you can click on this link to ASX growth shares and find lots of ASX stock ideas and analysis.

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