Paragon Care Ltd (ASX: PGC) announced this morning that it would be undertaking a $69.8 million capital raising to fund a portfolio of acquisitions.
The capital raising is fully underwritten and will be made up of a $26.6 million institutional placement and a 1 for 2.8 accelerated entitlement offer to raise around $43.2 million at a price of $0.725 per share.
The acquisitions had already been announced to the market, but they are as follows.
Insight Surgical will be acquired for $5 million plus an ‘earn-out’ for FY18.
Medtech Solutions will be acquired for $2.4 million.
Seqirus ImmunoHaematology will be acquired for $8.5 million.
Management stated that these acquisitions continue Paragon’s long-term record of buying sensibly, integrating successfully and driving strong shareholder returns in a fragmented industry.
Paragon has calculated what the financial impact of the equity raising and acquisitions will be for FY18:
- Pro-forma revenue forecast to be 71.2% higher to $222.6 million
- Pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) up 85.9% to $34.4 million
- Pro-forma net profit after tax (NPAT) up 97.7% to $20.9 million
- Enterprise value up 55.2% to $243.5 million
- Pro-forma earnings per share (EPS) up 21.4% to 7.7 cents
- Pro-forma net debt to EBITDA ratio reduced to 1.4x
Paragon has a long-term target of $250 million and a target EBITDA margin of 15%, these acquisitions bring that goal much closer.
Management are looking to tap into the $200 billion per annum expenditure in Australia and New Zealand. This is expected to keep growing as the ageing demographics of Australia continue to affect the company.
Paragon is currently trading at around 10x FY18’s pro forma EPS, which I think is a good price to pay for a growing business. Large acquisitions can be risky, so it would be good to see Paragon integrate the businesses effectively to know the acquisitions were worth the major equity raising.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Paragon Care Limited. 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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