Sonic Healthcare Limited (ASX: SHL) has entered into a binding agreement to acquire Aurora Diagnostics, for USD$540million. The acquisition plan is in line with company’s objective of undertaking strategic and financially disciplined acquisitions in core markets. The implied acquisition multiple is 9.2 times Pro-forma EBITDA.
Sonic Healthcare is a leading global healthcare company with its reputed excellence in laboratory medicine, pathology practice and radiology services. Headquartered in Sydney, its operations spread across boundaries.
Aurora Diagnostics is one of the prime anatomy pathology providers in the U.S. It operates thirty-two pathology practices. The company serves approximately 23,000 physicians and more than 100 hospital contracts, with practices in 19 U.S states. It processes about 2.5 million accessions per year. The Pro-forma revenue for the company stands out to be US$310million with proforma EBITDA of US$59million.
The critical strategic rationales behind the acquisition include:
- Aurora’s close alignment with Sonic’s US and global patient-centric culture.
- Transformation of Sonic’s U.S. business, providing the opportunity to differentiate its culture and medical leadership model further.
- Diversification of Sonic’s U.S. market presence and physician exposure.
- Significant scale addition in the attractive and fragmented U.S. anatomical pathology market.
- Provision of significant platform for further growth in both anatomical and clinical pathology markets.
- Leveraging Sonic’s deep anatomical pathology and hospital experience in other markets.
- Financially attractiveness of the acquisition deal
The acquisition will be funded through AUD$600million fully underwritten Institutional Placement, and a fully underwritten acquisition bridge facility, which is to be subsequently refinanced post completion. Additionally, Sonic intends to offer a Share Purchase Plan to raise AUD $100million. It will offer its eligible shareholders the opportunity to purchase up to AUD$15,000 of Sonic shares.
Acquisition of Aurora, anticipated to be closed by CY2019, is expected to be approximately 3% EPS accretive post placement on a pro-forma FY2019 basis, before any expected revenue and cost synergies. During the first-year post-acquisition, the expected ROIC on transaction expected to be 9–10% which exceeds Sonic’s FY2018 group ROIC.
Pro-forma for the acquisition and capital raising, Sonic’s net debt / EBITDA is expected to be around 2.5x post completion of the acquisition and capital raising Sonic is supposed to have significant headroom in undrawn, committed debt facilities and cash. A robust balance sheet, with a strong capacity for further growth initiatives, including M&A activity. Sonic maintains FY2019 earnings guidance as confirmed at the AGM held on 21 November 2018.
The purchase of Aurora will position Sonic as a leading provider of both clinical and anatomical pathology in the U.S.
Sonic’s stock has been on massive downturn since 3 months with a poor return of -17% with a YTD return of -6.27%. The company is currently trading at an earnings multiple of 19 with a market capitalization of 9.12 billion.
The shares have been placed in a trading halt at the request of Sonic due to its release of the announcement. Company’s share price is worth keeping a close eye, once regular trading activity begins on 14th December, Friday.