Australian Clinical Labs (ASX: ACL) is set to nearly double its number of collection centres in NSW while solidifying its presence in QLD through the $70 million acquisition of Medlab Pathology.
After recently lifting its December half revenue guidance by around 30 per cent on the prospectus forecast, with net profit after tax (NPAT) expectations up by at least 178 per cent, ACL is now making its largest acquisition since its $408.6 million initial public offering (IPO) in May.
Since it was founded in 2015 through an aggregation of Healthscope’s Australian pathology business, the Melbourne-based company's growth has been bolstered by acquisitions including the incorporation of Queensland-based skin cancer clinics and histopathology business SunDoctors this year in tandem with the listing.
With Medlab's assets brought into the fold, ACL will add two laboratories and 288 collection centres to its portfolio, doubling its market share to more than 20 per cent in NSW and providing a strong entry platform into QLD with a 6.5 per cent market share.
The group highlights there is limited geographic collection centre overlap in Sydney, giving ACL more comprehensive coverage in the city's market including growth corridors in western and south western Sydney. In NSW Medlab operates a laboratory in Auburn, Sydney and 205 collection centres.
In Queensland, Medlab operates a laboratory in Wilston, Brisbane and 83 collection centres.
Post the Medlab acquisition, ACL will have specialist histology laboratories in each state where it operates and four across NSW and QLD. The group also has locations in Victoria, Western Australia, South Australia, ACT and Northern Territory.
The acquisition will be funded by a mix of cash and debt facilities with $60 million paid upfront, followed by $5 million on completion of the 2022 calendar year and another $5 million subject to the achievement of non-COVID revenue retention hurdles.
"The Medlab acquisition aligns to our well-defined strategy to grow our position in the New South Wales and Queensland markets, and will deliver both significant growth opportunities and shareholder value," says Australian Clinical Labs chief executive officer Melinda McGrath.
"The significant prior investment we have made in the national unified pathology system and single laboratory information system will ensure the Medlab integration is efficient and delivers material synergies, with the additional volume expected to underpin further operating leverage for ACL."
Medlab generated $92.6 million in revenue ex-JobKeeper in FY21 and $10.5 million in normalised earnings, implying a 3.9x acquisition multiple or 2.2x on a statutory basis.
Key Medlab vendors have agreed to work for ACL for two years and the company's key pathologists have agreed to work on an ongoing basis.
ACL shares are up 2.25 per cent at $4.315 each at the time of writing. The group listed at $4 per share in May, although shares quickly dropped to around the $3.50 mark before a sustained rise got underway in July that continued through September.
On 28 October the group upgraded its December half revenue forecast to between $398.1 million and $414 million, representing an increase of 29.5-34.7 per cent.
Meanwhile, the company increased its NPAT guidance by 177.9-205.6 per cent on the prospectus forecast to between $63.7 and $70 million, based on results in July, August and part of September due to strong demand for COVID-19 tests.
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