Acquisitions can be a potent way to grow a business, especially when the new purchase adds more than 25% to your bottom line.
That appears to be the case with Capitol Health Ltd's (ASX: CAJ) acquisition of Imaging @ Olympic Park, an MRI centre for sports injuries in Melbourne.
Funded by a share issue – more on that below – the acquisition places an 'Enterprise Value' (cash and debt-free) of $25 million on the imaging business, which earned $10.4m revenue and $3.3 million Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in 2014.
It will make for a meaningful increase to the $90 million revenue and $7.2 million Net Profit After Tax that Capitol Health earned last year, and is likely to see the company's share price rise to new heights in coming months.
The acquisition is set to be completed in February, and will be funded with a $15 million share placement to eligible investors (those who held shares on or before January 15).
Investors can subscribe for up to $15,000 in shares each, and shares will be valued at a 7.5% discount to the Volume-Weighted Average Price over the five day trading period from 6-12 January 2015.
Based on my rough calculations, this will see shares issued for around $0.76 each.
The total number of shares on issue will rise by roughly 19 million, or 3.8% of the 496 million existing shares.
It's a good deal that delivers mild dilution to shareholders in return for what should be a significant jump in earnings per share.
The new business does look a little expensive at a price of over 8 times the EBITDA figure, but is comparatively cheap compared to Capitol Health's Price to Earnings (P/E) ratio of over 37.
All things considered, if you're thinking about taking up your entitlement, I see a number of positives and no real reason not to.
