Capitol Health Limited zooms up with more radiology clinics

Capitol Health Limited (ASX: CAJ) is a medical diagnostic imaging company, which saw its stock price move up by 2.2% on June 27, 2018 (before market close) as the group has snapped up more radiology clinics. Capitol is under the acquisition of 9 independent clinics from 4 different vendors in WA. These acquisitions provide Capitol with a strategic platform for geographic expansion into the Perth and Melbourne market. It also expands Capitol’s Victorian network into the Mornington Peninsula region.

The clinic service offerings include sub specialty intervention and pain management, Cardiac CT, and general radiology and will bring well respected doctors into the Capitol group. Aggregate acquisition consideration is $17.0 million upfront on a cash and debt free basis and up to an additional $3.3 million payable under earn-out to the vendors over the first year of ownership (based on performance).

The new clinics are expected to contribute $16.5 million in revenue and $3.1 million in EBITDA on an annual basis (based on FY19 forecast). This represents an EBITDA multiple of 5.5 rising to 6.5 if all earn-out conditions are met. The transactions are expected to complete early in Q1FY19 (subject to satisfaction of standard conditions) and contribute strongly to the full year FY19 result.

These acquisitions are Capitol’s entry into the attractive Perth market. The initial 6 clinics will provide a critical mass to grow the business through additional capital investment, targeted recruitment and growth in the doctor group, and further acquisitions with several smaller bolt on opportunities in the pipeline. Whilst acquired from different vendors, Capitol expects to derive network benefits from the clinics as well as to strengthen key areas of sub specialty and further improve Capitol’s clinical standing.


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