The Sonic Healthcare share price is down 4% after opening its SPP

The Sonic Healthcare Limited (ASX: SHL) share price is down 4% after opening its share purchase plan (SPP).

Sonic Healthcare is one of the world’s largest laboratory, pathology and radiology businesses. It has just launched a SPP to raise funds from its retail investors because it wants to raise $100 million. Each shareholder can purchase up to $15,000 of new shares at $19.50 each.

That $19.50 price is a sizeable discount to the share price of $21.64 at the time of writing. I think most investors would be happy to get more shares at a 10% discount.

The $100 million will be added to the $600 million which was raised from institutional and professional investors.

Why is Sonic raising money?

It’s acquiring Aurora Diagnostics for US$540 million, or $750 million in Australian dollar terms.

Aurora is one of the leading providers of anatomical pathology services in the US with 220 pathologists and 32 practices. It has contracts with more than 100 hospitals across the US.

According to Sonic, Aurora generated pro-forma revenue of approximately US$310 million and pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) of approximately US$59 million in the 12 months to 30 September 2018. This implies the acquisition multiple is around 9.2x of EBITDA.

Sonic said that in FY19 it’s expected to be accretive to earnings per share (EPS) by 3% before expected revenue and cost synergies. It will add significant scale to Sonic’s US business and giving it a national footprint.

Foolish takeaway

Whilst Sonic operates in the defensive, attractive healthcare sector I’m not sure how quickly its earnings can grow. It’s currently trading at 18x FY19’s estimated earnings with a partially franked dividend yield of 3.7%. I think there could be better ASX growth shares out there for the price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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