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Is Sirtex Medical Limited about to make a major acquisition?

Is Sirtex Medical Limited (ASX: SRX) about to make an acquisition? The cancer treatment manufacturer entered a trading halt this morning pending a ‘potential material corporate transaction.’ The trading halt will remain in effect until Thursday 1 February, or until the announcement is released to the market.

While a ‘corporate transaction’ could refer to either a purchase, takeover offer for Sirtex itself, or a divestment, it is more likely to be an acquisition in my opinion.

When new CEO Andrew McLean was hired last year, he came to the company with a pretty clear strategy – slash R&D, focus on sales, and look at possibly diversifying revenue streams via acquisitions.

Historically, Sirtex has tried to a) win additional indications (potential uses) for its SIR-Spheres treatment via research, and b) develop new revenue streams by researching new products – although they have not been particularly active on that front.

With McLean cutting Sirtex’s R&D division to the bone last year, Sirtex’s only choice for diversifying its revenue streams is buying new businesses. The company has $118 million in cash as of the 2017 annual report, no debt, and is generating decent amounts of cash, so an acquisition could definitely be on the cards.

The key concern in my mind is to see that the company acquires smartly and doesn’t race out to buy a new business for the sake of doing so. It may be instructive for Sirtex investors to look at CEO McLean’s background to determine if he has successfully acquired businesses in the past, as Sirtex itself does not have much institutional experience here.

Alternatively, Sirtex may be a takeover target itself with international healthcare businesses potentially interested in growing by acquisition.

We’ll have full coverage for you when Sirtex provides a formal update and exits trading halt.

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Motley Fool contributor Sean O'Neill owns shares of Sirtex Medical Limited. 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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