Private equity eyeing Integral Diagnostics after stock price falls

Integral Diagnostics is gaining attention following its weak share price performance. Picture: iStock

Integral Diagnostics is believed to be once again in the spotlight for private equity buyers after its share price took a hit due to its half year result, taking its market value to $837m.

Its share price closed on Friday at $2.29 down from over $3 before it reported its half year result last month and the price is lower than when it merged with its rival last year.

Market sources say that the diagnostic imaging company is constantly being assessed by private equity firms, eager to increase their exposure to healthcare.

But right now, it is looking like a particularly good buying opportunity and is grabbing attention.

Obvious suitors would be the under bidders from the sale last year of the Healius diagnostic imaging group that sold for $965m to Affinity Equity Partners.

At the time, the under bidders were TPG Capital and Pacific Equity Partners.

Integral Diagnostics embarked on a long-anticipated scrip tie-up with fellow healthcare operator Capitol Health last year, creating a $900m-plus company at the time of the transaction.

The Integral Diagnostics share price fell 12 per cent on the day it delivered its half year results, which were disappointing to investors.

Analysts and investors said the stock was hit hard not because of any fallout with its $350m acquisition of rival Capitol Health last year, but more because the cost of staff was higher than expected, particularly in regional areas.

Higher staff costs across its 155 clinics are affecting the bottom line of healthcare providers throughout the sector, but some Integral Diagnostics investors say that the company had been caught out before with unexpected challenges and frustration was growing with management.

The Capitol Health Care merger in June last year should create synergies, but from the result, it appeared that radiologists had management over a barrel.

Integral Diagnostics posted a $400,000 half-year loss, down 99.4 per cent from the previous corresponding six months to December 31.

Integral Diagnostics said the fundamentals of the essential radiology industry remained strong.

It said it would remain focused on integrating the Capitol Health business into the company and driving organic growth.

The terms of the Capitol Health transaction involved Integral Diagnostics offering 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.

It placed a market value of $350.6m on Capitol.

It was the second attempt Integral and Capitol have had at a merger.

Industry scale amid challenging conditions in healthcare and $10m of synergies made 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.

The deal helped Integral Diagnostics reduce its debt and 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 at the time that the deal was 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.