Australian Clinical Labs (ACL), a private equity-backed pathology company, has made an all-scrip offer to acquire Healius, the No.2 player in the market, via a nil-premium merger. ACL hopes that the merger will create a $2.1bn value to be shared by both companies’ shareholders. Healius shareholders would have the lion’s share, accounting for 68% of the combined group, while ACL would account for 32%.
ACL has been eyeing the merger for years, but Healius has been distracted by various activities such as talks with potential suitors, buying and selling into day hospitals and IVF, offloading its medical centres and dentists unit, the COVID-19 pandemic, and trying to turnaround its financial performance. The merger would have been led by Healius under normal circumstances.
Healius was surprised by ACL’s offer, even though there have been rumblings on Healius’ share register about the need to improve its financial performance, and a merger with ACL is one way to achieve that. ACL’s offer has left the door open to discuss board composition, but it made it clear that its senior management team was best placed to run the combined group.
Although it is early days, Healius is expected to reject the offer due to the complete lack of any premium. However, the offer could be a catalyst to get the long-mooted dream deal moving. There are some unhappy shareholders on Healius’ share register; the company’s shares are down 24% in the past five years, 37% in the past year, and 9.45% since December 31. Tanarra Capital, a shareholder with a 7.8% stake, is not scared to weigh into boardroom debates.
A combined Healius/ACL would have 42.3% of Australia’s pathology services market, according to IBISWorld data, while Sonic has 36.9%. Healius is also a major player in diagnostic imaging and recently bought into the clinical trials sector. The bid will put Healius back on private equity firms’ radars. If ACL can pull off the combination and create $2.1bn, why couldn’t a private equity player? ACL has been listed since May 2021, with Crescent Capital still owning a 30% stake.
Alternatively, Healius could try to turn the tables. Its shares are trading at 19.4 times broker forecast FY24 EBIT, according to ACL’s bidder’s statement, while the smaller player is at a discount (13.4x). Goldman Sachs and Gilbert + Tobin are in ACL’s camp, while Healius is yet to appoint advisers, although it has historically been close to UBS.
