Sonic Healthcare announces $750 million acquisition: Time to buy shares?

The Sonic Healthcare Limited (ASX: SHL) share price won’t be going anywhere today after the international medical diagnostics company placed its shares into a trading halt.

The halt was requested so that Sonic Healthcare could launch a A$600 million institutional placement and accompanying A$100 million share purchase plan to part fund the acquisition of U.S. based Aurora Diagnostics.

These funds will be raised at A$19.50 per share, which represents an 8.8% discount to the last close price.

According to the release, Sonic Healthcare has entered into a binding agreement to acquire 100% of Aurora Diagnostics for US$540 million (A$750 million).

Aurora is one of the leading providers of anatomical pathology services in the United States with ~220 pathologists and 32 practices processing approximately 2.5 million accessions per year, received from ~23,000 referring physicians.

For the 12 months to September 30, Aurora Diagnostics generated pro-forma revenue of approximately US$310 million (A$431 million) and pro-forma EBITDA of approximately US$59 million (A$82 million). This implies an acquisition multiple of approximately 9.2x pro-forma EBITDA.

It is expected to be approximately 3% EPS accretive post placement on a pro-forma FY 2019 basis, before any expected revenue and cost synergies.

Management believes the “transaction will transform Sonic’s U.S. business, providing it with a strategic national footprint and platform that adds significant scale and extends Sonic’s existing presence in anatomical pathology.”

In addition to announcing the acquisition, management released a trading update for its U.S. business in FY 2019. That update revealed that its U.S. business is tracking ahead of expectations this year.

Should you invest?

This looks to be a good move from management and I expect that its placement and share purchase plan will be well supported by investors.

However, at the current level I think its shares are close to fully valued. As such, I would sooner pick up the shares of fellow healthcare peers CSL Limited (ASX: CSL) and ResMed Inc. (ASX: RMD) instead.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. 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 Scott Phillips.

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