What you need to know about Estia Health Ltd’s latest acquisition

Consolidation of the aged care industry has continued after Estia Health Ltd (ASX: EHE) acquired the Kennedy Health Care Group for just under $400 million, which was announced to the market this morning.

So What: A number of companies are all competing to become Australia’s leading provider of aged care, including Estia Health, Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG), all of which listed their shares on the ASX in 2014. All three have generated fantastic returns in 2015 with Estia’s share price up 52%, Japara’s shares up 48% and Regis’ shares up 38%.

In an announcement to the market today, Estia Health said it had acquired Kennedy Health Care, which is one of the largest private aged care providers in Australia. It will gain eight facilities and 959 operational places as part of the acquisition, taking Estia’s total operating places to 5,690.

Estia said the acquisition will be immediately earnings per share (EPS) accretive and puts the group on target to hit 10,000 places by the 2020 financial year. Kennedy’s eight facilities maintain 94% occupancy (slightly above Estia’s 93.6% occupancy levels) and roughly the same net EBITDA (earnings before interest, tax, depreciation and amortisation) per occupied bed of $22,067.

The chart below shows further comparisons between Estia and the Kennedy groups:

Source: Estia Health presentation

Source: Estia Health presentation

Estia said it would fund the acquisition through a combination of existing debt facilities and the issuance of roughly $50 million in new shares to the Kennedy family. The company also updated guidance for FY16, saying pro forma net profit after tax (NPAT) is now anticipated to be “more than 25%” above that of the prior year ($44.6 million), compared to previous guidance of “more than 20%”.

Indeed, there is plenty of potential for Estia, Japara and Regis to all continue growing over the coming years, especially thanks to the ageing population and the growing need for more aged care beds.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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