The $12bn Australian-listed Sonic Healthcare has been talking about further acquisitions for years, but one of its next big Australia deals could be just around the corner.
DataRoom understands Sonic is positioning itself to buy the diagnostic imaging business which Healius has placed on the market, and may fetch a price of as much as $800m.
It comes after Sonic has flagged for some time acquisitions are on its agenda, with most of its opportunities abroad, given its dominant position in the Australian pathology market.
But, radiology only makes up about 10 per cent of Sonic’s overall revenue, which means the Australian Competition and Consumer Commission is unlikely to have an issue with it buying the radiology operations of its competitor here.
While the earnings in the unit are said to have deteriorated, the attraction for a buyer is they can use the deal to further consolidate the Australian market, and with operational improvements, there’s likely to be future earnings upside.
Diagnostic imaging also has an appeal, with artificial intelligence expected to create more opportunities in the future.
As earlier reported by DataRoom, a number of private equity firms are also interested buyers and have made inquiries, including Quadrant Private Equity, Adamantem Capital and Bain Capital.
This column also understands Ramsay Health Care is weighing up whether to bid, while PRP Diagnostic Imaging, which IFM bought for close to $1bn in 2022, is also shaping up as a serious contender.
Strategic investors frequently have the edge over buyout funds, particularly in a market where debt is more expensive.
It is understood information memorandums for the sale will be out in about one weeks’ time.
Healius confirmed last week it would explore a sale for its Lumus Imaging unit through adviser UBS.
As earlier reported, should Healius offload the diagnostic imaging unit, the test will be whether it can then improve the performance of its pathology operation and produce sustainable earnings margins.
Proceeds could be used to pay down debt.
Analysts have a more pessimistic view of the value of Lumus Imaging, saying it could be worth less than $500m, but a large line of suitors lining up is expected to create significant competitive tension.
Among the shareholders of Healius is activist investor John Wylie, whose Tanarra Capital owns about 6 per cent.
Lumus Imaging generated $45.6m of earnings before interest, tax, depreciation and amortisation for the six months to December, while pathology generated $119.4m.
For the six months to February, Healius generated a $9m loss.
Sonic’s interest comes after it cut profit forecasts in March, saying they would be more than $100m lower with inflationary pressures, currency exchange headwinds and slower-than-expected benefits from margin improvement measures to blame.
As a result, its share price fell 6 per cent.
The pathology and radiology provider had offered guidance for full year underlying earnings in the range of $1.7 to $1.8bn, however, it warned at the time the figure was likely to come in at the lower end of this range.
The company’s update in March said earnings were now likely to come in at about $1.6bn on revenue of $8.9bn.
Sonic is forecasting profits to reach $1.7bn to $1.75bn on a constant currency basis next financial year.
For the six months to December, it delivered a $202m net profit, down 47 per cent on the previous corresponding period.
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