Healthscope bids also fuel speculation of a big clinical pathology transaction
Last week in Australia, investment insiders shared rumors that Quest Diagnostics Incorporated (NYSE: DGX) was interested in acquiring Sonic Healthcare Ltd. (ASX: SHL). However, press stories discounted the possibility of a deal between these two billion-dollar clinical pathology laboratory behemoths. Neither company has issued a public statement addressing this issue.
In assessing the possibility of Quest Diagnostics acquiring Sonic Healthcare, the Sydney Morning Herald (SMH) threw cold water on the idea. It pointed out that Sonic’s stock price is trading at a multiple of 10.8 times earnings before interest, taxes, depreciation, and amortization (EBITDA). That would make Sonic an expensive purchase for Quest Diagnostics, since Quest’s share price trades at a multiple of seven times EBITDA. Further, SMH’s reporter pointed out that Sonic’s market capitalization of A$5.7 billion would make it a major acquisition for Quest Diagnostics, which has a market capitalization of U.S.$9.5 billion.
Few people were prepared for Friday’s announcement that Sonic Healthcare, Limited of Sidney Australia will acquire American Esoteric Laboratories, Inc. (AEL) of Nashville, Tennessee.
However, Sonic’s purchase of AEL provides several useful insights about the competitive laboratory marketplace and will be the lead story in The Dark Report which is at the printer today. Sonic will pay approximately $180 million cash to acquire American Esoteric Laboratories. Subject to regulatory approvals, seller and buyer are working to close the deal in early January.
More details about this acquisition are in our full intelligence briefing in The Dark Report. For owners of independent laboratories, there is good news. Sonic is paying a fairly strong multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). On one hand, this shows the demand for good laboratory business, since there were other buyers who looked at purchasing American Esoteric Laboratories and Sonics offer would reflect that demand. On the other hand, it shows that Sonic Healthcare is willing to pay a strong price for laboratory business operations it considers a solid platform for ongoing growth.
When completed, this acquisition will mean that Sonic Healthcare’s business divisions in the United States are providing laboratory testing services to clients in 14 states. Since it first entered the U.S. lab testing market with its acquisition of Clinical Pathology Laboratories (CPL) in late 2005, Sonic Healthcare has taken careful steps to expand its presence in regional markets throughout the United States. By acquiring AEL, Sonic gains a significant presence in Memphis, Tennessee, through AEL’s Memphis Pathology Laboratories (MPL).
Finally, The Dark Report knows that Sonic Healthcare is having discussions with other independent laboratory companies. Our prediction is that Sonic Healthcare will acquire several significant laboratory operations during 2007. For reasons explained in detail in our Dark Report intelligence briefing, some laboratory owners consider Sonic Healthcare to be a more attractive acquirer than the two blood brothers. Thus, it is likely that Sonic�s next few laboratory acquisitions will involve a least one of the nation’s most prominent, independent regional laboratory companies.
Should you have comments or insights on this acquisition, please contact Robert at email@example.com.
PS: Cognescenti Health Institute, a division of Sonic Healthcare, disclosed that Philip Chen, M.D., Ph.D., founder of Cognescenti and Vice President and Chief Medical Informatics Officer for Clinical Pathology Laboratories. Inc., on the Board of Directors for the Central Florida Regional Health Information Organization Details of this strategic informatics initiative are in the December 18, 2006 issue of The Dark Report.