Paragon Care Ltd (ASX: PGC) has announced another acquisition to the market, this one is called Total Communications (Australia) Pty Ltd.
Paragon described Total as one of the most highly regarded communications providers for the health and aged care sectors.
Total has been running since 1986 and it boasts of extensive experience in the telco & IT industry, much of which is derived from the larger manufacturing and network corporations such as Telstra Corporation Ltd (ASX: TLS), NEC, Ericsson, Panasonic, Siemens, and Extreme Networks.
Paragon said that Total has a steady track record of growth in its customer base. Some of its major customers include Bupa Aged Care, Allity Aged Care and Healthscope Ltd (ASX: HSO).
Some numbers for Paragon
Total generates revenue of around $16 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) of around $5 million per annum.
The initial purchase price is a cash total of $27.5 million. However, there's also an earn-out over the next two years of "FY20 incremental EBITDA from acquisition EBITDA at 3 times." The acquisition will be funded with Paragon's cash reserves, after the acquisition Paragon will have a net debt to EBITDA ratio of between 1.5 times to 2 times
The management team will remain in place for at least the earn-out period.
Paragon said that the acquisition is anticipated to be "in excess of 10%" earnings per share (EPS) accretive in FY19 and beyond.
The company said that the organic growth of Total meets Paragon's investment hurdles and offers a continuing opportunity pipeline.
Foolish takeaway
The acquisition in itself seems like a decent deal. However, I imagine Paragon are thinking they can roll this out to all healthcare clients, not just specialising with aged care providers.
It's not easy to get a clear reading of what Paragon management are projecting EPS will be in FY19 with all the acquisitions and the capital raisings. It is likely trading at around 10x FY19's estimated earnings at the pre-open price. I think Paragon looks like a solid buy at around 70 cents per share.
