The Sonic Healthcare Limited (ASX: SHL) share price could come under scrutiny today after the company announced an acquisition.
It has announced that it has acquired Pathologie Trier, one of the largest and most respected anatomical pathology practices in Germany according to Sonic Healthcare.
The acquisition
Pathologie Trier has annual revenue of €20 million and employs around 160 staff which includes 24 pathologists. It operates four laboratories in three West German cities. Two of those, in Dusseldorf and Duren, are inside large hospital facilities.
It runs a variety of pathology services including molecular pathology and tumor genetics services. Its clients include around 30 hospitals, a large number of general practitioners and specialist physician referrers.
The management team of four founding pathologists will remain after the transaction.
The deal
The initial acquisition price was funded in Euros from Sonic's existing debt facilities, although 25% of the total price is subject to a 3-year revenue-based earnout provision.
According to Sonic, a majority of the purchase price will be tax deductible in Germany over 15 years as goodwill amortisation.
The initial return on investment exceeds Sonic's cost of capital and the transaction will be earnings per share (EPS) accretive by 1% to 1.5%. Those returns will increase as procurement and logistics synergies are created.
The CEO of Sonic, Dr Colin Goldschmidt, said "We are delighted that Pathologie Trier has joined Sonic Healthcare's expanding global team and I would like to take the opportunity to warmly welcome the Trier doctors and staff to our company.
"Pathologie Trier's reputation and expertise will complement and add value to Sonic's anatomical pathology services and to our genetic and clinical laboratory testing. This partnership comes at an opportune time, as the disciplines of anatomical pathology, clinical laboratory testing and genetic testing move closer together."
Is Sonic a buy?
It's currently trading at around 20x FY19's estimated earnings. Sonic has done excellently for investors since it listed but it seems quite expensive for the limited organic growth it's creating. It could play a small part in a defensive portfolio with its partially franked dividend yield of 3.2%. I wouldn't buy at today's price, although it is a good business.
