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The US acquisition that puts Sonic Healthcare on your buy list

sonic healthcare shares

Sonic Healthcare has announced the acquisition of US-based anatomical pathology provider Aurora Diagnostics for $US540m ($A750m).

Aurora is one of the leading anatomical pathology providers in the US, with 32 pathology practices generating revenue of $US310m, and the acquisition will make Sonic the leading provider of both clinical and anatomical pathology in the US, with revenues of about $1.6bn.

Sonic estimates that the US anatomical pathology market is worth about $16bn and that no-one has more than 5% of that, so there’s an attractive opportunity to consolidate it.

Aurora also operates in several states from which Sonic is absent, so it will broaden Sonic’s US footprint.

Aurora made earnings before interest, tax, depreciation and amortisation (EBITDA) of $59m on a pro forma basis, putting the price at an EBITDA multiple of about 9.2.

That compares well with Sonic’s EBITDA multiple of 13, and management expects the purchase to enhance earnings per share by about 3% on a full-year basis.

The deal will largely be funded via a $600m underwritten institutional placement at $19.50 per share, an 8.8% discount to yesterday’s close.

That implies that shares on issue will grow by a little over 7% before existing shareholders have the opportunity to get involved through the proposed share purchase plan (SPP), which aims to raise another $100m.

Given the maximum uptake is capped at $15,000, not all shareholders will be able to avoid dilution, but those that wish to minimise it will need to take up this option.

The SPP is not scheduled to close until February 4, 2019, and we will provide further details in the new year, once the SPP booklet has been dispatched.

If you’re keen to get a head start, however, we’ve written about how to decide on these in the past.

Management also took the opportunity to confirm its previous 2019 financial year guidance, and noted that its US business is tracking ahead of expectations.

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Written by Mickey Mordech

Mickey Mordech

Mickey Mordech is an analyst at Intelligent Investor (under AFSL 282288), owned by InvestSMART Group Limited. Mickey got his first exposure to financial services with Australia's leading retail currency brokerage, where he learned the ins and outs of global currency markets. Having managed his own share portfolio since completing VCE, he sought the opportunity to pursue a career with a greater focus on the stock market and joined the InvestSMART team in 2017. Mickey is a CFA Level III Candidate and is in the final stages of completing a Graduate Diploma in Finance with RMIT University. To unlock Intelligent Investor stock research and buy recommendations, take out a 15-day free membership.

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