Healthcare operator Zenitas Healthcare (ASX: ZNT) has announced it will be acquiring and assimilating two companies into its own growing portfolio of aged and disabled care services that it offers across multiple states in Australia.
Both deals are expected to be revenue accretive and expected complete sometime in June 2018.
Both acquisitions intend to provide Zenitas with ongoing sales revenue growth given the expansive industry estimates indicating that both aged and disabled care demand is rising across Australia, with Victoria and New South Wales particularly highlighted for future growth given they are the two most populous states in Australia.
The news announced early this morning saw Zenitas shares rise by 5% up to A$1.03 per share thereby valuing the company at A$77 million by market capitalisation.
Zenitas’ first acquisition is that of Australian Home Care Services (AHCS), a leading home care provider in Victoria and NSW, for A$4 million in cash.
Zenitas has entered into a binding agreement to acquire the entirety of AHCS from Multiple Sclerosis Ltd (MSL).
The acquisition further enhances Zenitas’ operational capabilities with the company confirming that the deal provides access to several key funding agreements via preferred provider panels, particularly in disability care.
AHCS has a range of revenue funding sources including the Transport Accident Commission (TAC), iCare NSW, the National Disability Insurance Scheme (NDIS), WorkCover Victoria, Home Care Packages and private funding.
According to Zenitas’ due diligence, as part of the deal, AHCS’ expected gross revenue for the forthcoming financial year is A$38 million with an accompanying EBITDA of A$2 million. Zenitas said it expects “significant upside” in both the 2020 and 2021 financial years to come.
According to the Australian Department of Health, growth for home care packages is strong with estimated future demand currently at 140,000 home care packages by 2021-22, an increase of over 80,000 new home care packages since 2012-13.
In addition, the disability care services sector is projected to grow over the coming years with the National Disability Insurance Scheme (NDIS) set to cover over 475,000 participants at a cost of approximately A$22 billion each year, according to the Australian government’s productivity commission.
The AHCS acquisition adds another 1,302 carers to the Zenitas team and another 4,109 clients requiring services within the fast-growing home care industry, according to Zenitas.
In conjunction with the acquisition, Zenitas has agreed a supplementary A$1 million sponsorship deal over the next five years with MSL to raise public awareness and provide support for individuals suffering from multiple sclerosis and other neurological conditions.
The second acquisition announced by Zenitas today is that of Beleura for A$2.4 million, which operates two allied health clinics on the Mornington Peninsula in Victoria. In the last financial year, Beleura recorded gross revenues of A$2.3 million and EBITDA of A$600,000.
Zenitas has entered into a binding agreement to acquire 80% of the shares of Beleura, an operator of two allied health “multi-modality clinics” including 25 clinicians. The deal sees three senior clinical vendors of Beleura retaining 20% equity in the business.
Accompanying the announcement, Zenitas said the Beleura acquisition would be “highly complementary to its PSMG acquisition” completed in March 2018 and further strengthens Zenitas’ position in Victoria.
Acquiring a stronger market position
The acquisitions announced today constitute a comparatively small portion of Zenitas’ overall asset portfolio in the healthcare space with the total A$6.4 million paid in being easily manageable from existing cash reserves.
Following the completion of its two acquisitions, Zenitas says it will have a gross revenue base of A$170 million and an EBITDA of A$19 million for the 2018 financial year.
“The acquisition of AHCS is an exciting step enabling Zenitas to continue to grow and deliver quality home care services in Australia’s two fastest growing cities. AHCS has an enviable quality and accreditation framework coupled with an experienced operational team. The Beleura team have an impressive reputation on the Mornington Peninsula with existing close relationships with Zenitas practitioners. They are a welcomed natural fit to our valued and highly regarded clinician partners,” said Justin Walter, chief executive officer of Zenitas.
“In addition, our balance sheet remains strong and both acquisitions demonstrate our ongoing commitment to deliver on our existing growth strategy and long-term shareholder value,” Mr Walter said.