Standing at a colossal $13.07 billion market capitalisation, this blue-chip share is eager to become an even bigger business, firing its cash at another company.
Today, shares in Sonic Healthcare Ltd (ASX: SHL) are up slightly, lifting by 0.4% to $27.46 apiece after announcing an acquisition this morning. Despite the move, the pathology and laboratory services company is still valued 19% lower than it was worth a year ago.
Let's inspect the details of today's deal more closely.
Image source: Getty Images
Switzerland expansion for ASX blue-chip share
One of the world's largest diagnostic companies is set to grow even larger after entering a binding agreement to acquire Switzerland-based Dr Risch Laboratory Group.
The second-generation family business operates a 'full-service' medical laboratory across 13 centres in Switzerland and another in Liechtenstein. According to the Dr Risch Group website, the company encompasses laboratory medicine, human genetics, microbiology, clinical studies, and more.
In 2023, the Swiss group raked in A$175.9 million in total revenue. Sonic will pay A$201.7 million to acquire the company, equating to a price-to-sales (P/S) ratio of approximately 1.1 times 2023 sales.
The payment will comprise A$51.7 million worth of Sonic Healthcare shares issued to the sellers. Meanwhile, the remaining A$150 million will be funded through the ASX blue-chip shares' existing cash and debt facilities.
CEO of Sonic Healthcare, Dr Colin Goldschmidt, remarked on the transaction, saying:
The partnership with Dr Risch is an exciting development for Sonic Healthcare and further strengthens our existing position in the Swiss market.
Switzerland made up 10% (A$405 million) of Sonic's total revenue in the first half of 2024.
So what is the rationale behind this acquisition?
Sonic management anticipates the deal to be earnings per share (EPS) accretive from 2025. Furthermore, the return on invested capital is slated to "significantly exceed Sonic's cost of capital once synergies are achieved."
The synergies expected relate to 'multiple areas of infrastructure and operations (including procurement)'.
Sonic expects the deal to be done by 31 March 2024.
Acquisition appetite
In the last few years, Sonic Healthcare has made numerous acquisitions. Five acquisitions and one strategic stake have been carried out since June 2021.
The flurry of deals follows a period of outsized earnings for Sonic during the COVID-19 pandemic. This stretch of above-normal profits bolstered the company's balance sheet, reducing its debt-to-equity ratio from more than 50%.
This ASX blue chip share is putting the additional financial headroom to work. Still, at the end of 2023, Sonic posted a debt-to-equity of 32%, suggesting ample firepower for additional acquisitions.
