PKS Holdings expands beyond pathology field with Pavilion Health Australia takeover

PKS Holdings ASX Pavilion Health Australia takeover
PKS Holdings' offer for Pavilion Health Australia has an enterprise value of $8.5 million.

As part of PKS Holdings’ (ASX: PKS) strategy to expand beyond pathology, it has agreed to acquire Pavilion Health Australia in an all scrip deal valued about $8.5 million.

Australia-based privately-owned Pavilion operates under a cloud-based software as a service model and provides audit and risk applications and consulting services to hospitals and governing health bodies.

Pavilion’s audited sales for FY 2019 were $4.37 million, which PKS anticipates will double its own sales.

Meanwhile, Pavilion’s operational earnings before interest tax depreciation and amortisation was $1.66 million.

Deal terms

The deal values Pavilion at about $8.5 million. Pavilion holders will be offered 65.2 million new PKS shares, which will amount to about 35% of the combined entity.

At PKS’s share price of $0.13 on 17 April, the $8.5 million deal values Pavilion at 1.9 times its FY 2019 revenue and 5.1 times its FY 2019 operational EBITDA.

As part of the merger, former Pavilion chairman Stephen Borness will join PKS’ board, while current PKS board member Neil Broekhuizen will step down.

Acquisition strategy

According to PKS, its rationale for the takeover is to boost the company’s technical capabilities and scale.

It will also increase PKS’ FY 2019 revenue by 113%, with the combined company to also possess a larger and more diversified customer-base.

Pavilion has already established customers and relationships in many international markets including Ireland, Singapore, Fiji and the Middle East.

PKS anticipates these markets will serve as a platform for the combined company to launch into other European, Middle Eastern and Asian markets.

The combined entity will possess complementary products to provide a broader offering to the wider healthcare industry – making it more attractive to customers and enhancing the potential for cross selling and upselling.

Under the deal, PKS also hopes to enter the wider hospital market and accelerate the development of future products.