Integral Diagnostics and Capitol Health’s $900m-plus merger proposal bodes well for Healius
The price that Integral Diagnostics has agreed to buy Capitol Health for as part of a scrip deal to create a $1bn listed radiology company provides some positivity around the Healius sale process of its Lumus Imaging unit.
Integral Diagnostics announced on Monday that it was offering its Australian listed diagnostics imaging rival Capitol Health 0.12849 Integral shares per Capitol share, where Integral would have about 63 per cent of ownership of the combined group at an implied share price for Capitol of 32.6c.
Capitol’s shares previously traded at 24.5c.
It places a market value of $350.6m on Capitol and a $413m value including its debt and a multiple of 10 times its forecast annual earnings before interest, tax, depreciation and amortisation before synergies.
Based on Healius’ Lumus Imaging EBITDA over the next year, which is forecast to be between $60m and $70m, it suggests a price of $600m to $700m, with the higher end in line with what some anticipate as easily achievable.
Lumus is a larger business, so is expected to be ascribed additional value for that than Capitol.
It’s the second attempt Integral and Capitol have had at a merger, and this time it looks more likely to succeed with both groups on board.
Industry scale amid challenging conditions in healthcare and $10m of synergies make a merger more than stack up, not to mention the exposure Capitol gains to Queensland and New Zealand markets as well as a greater share in Victoria and Western Australia as well as South Australia and Tasmania.
If the deal goes through following the due diligence provided by Capitol, it creates a business with a market value of not far off $1bn, $93m in annual EBITDA and 155 clinics overall, adding to Capital’s current 65.
The proposal is a win for Barrenjoey, which has emerged on the ticket for Integral Diagnostics with its typical house banker Jefferies.
Citi is working with Capitol.
The transaction, which has been in the works since March, also has the bonus benefit for Integral Diagnostics, where it will reduce its overall level of debt that was $210m on a net basis at December.
It’s also in time to benefit from government changes that allows for more MRI services that can be unlicensed or privately funded, providing more potential profitability than government funded work.
Unified Capital analysts said the deal is being undertaken at a cyclical low point, with Medicare volumes improving, better indexation and a positive outlook on imaging volumes after significant volatility in volumes and lower margins in an inflationary environment.
“A merger at the bottom of the cycle it appears,” the analysts said.
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