After going on an acquisition spree over the last 14 months Synergy Health, the provider of outsourced sterilisation services, is to bolster its balance sheet by tapping the market for funds.
The company intends to place 2.76m shares at a price yet to be determined in a move that will increase the company's shares in issue by around 5%.
The announcement to tap the market coincided with the release of the company's full year results and the acquisition of US peer, SRI/Surgical Express.
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Synergy Health is offering $3.70 a share for SRI/Surgical Express in a deal that values the US hospital sterilisation services (HSS) firm at $25.1m. Synergy will take on the US firm's debt, which will increase the acquisition price to $38.5m (£24.9m), which will be funded from Synergy's existing debt facilities.
In 2011 SRI reported revenues of $107.6m (£69.6m), adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $10.8m (£7.0m), a loss before tax of $1.5m (£1.0m) and had gross assets of $64.2m (£41.5m).
For the three months to March 31st 2012, SRI reported revenues of $27.1m (£17.5m) and adjusted EBITDA of $2.6m (£1.7m). Current trading is in line with the same period in the prior year and the company currently has a bid book in excess of $25.0m (£16.2m) per annum.
The Synergy board believes that the anticipated cost synergies and value re-engineering opportunities of $5m (£3.2m) per annum, combined with the implementation of a cost leadership strategy and the application of Synergy's hospital sterilisation services expertise, will enable SRI to achieve significantly improved financial returns across the business. The acquisition is expected to be earnings per share enhancing in the first full financial year and thereafter.
"SRI is an excellent strategic acquisition for the group providing Synergy with immediate access to the newly developing HSS market in the USA. With the combination of our recently purchased business in New York and SRI, we become the largest provider of outsourced hospital sterilisation services business in the US and create the opportunity to accelerate our local and global leadership," said Dr Richard Steeves, Chief Executive of Synergy Health.
Turning to Synergy Health's results for the 12 months to April 1st, revenue was a shade below expectations but profits surprised on the upside.
Revenue rose 8.6% to £312.0m from £287.3m the year before, versus market expectations of £317.7m. Revenue rose 9.7% in the UK & Ireland, and by 2.4% in Europe and the Middle East. Revenues rose 31.7% in Asia & Africa and by 28.5% (pro-forma) in the Americas.
Underlying organic revenue growth on a constant currency basis was 5.4%, which was in line with expectations after allowing for a 53 week comparator the preceding year, the company said.
Adjusted profit before tax of £43.4m was ahead of market forecasts of £42.2m and was up 13.4% on the previous year's £38.3m. Reported profit before tax tumbled 11.6% to £32.5m from £36.7m the year before.
Adjusted earnings per share (EPS) climbed 12.7% to 60.32p (consensus forecast: 58.65p) from 53.54p the year before.
Net debt at the end of the reporting period had zoomed up to £173.5m from £112.3m a year earlier, while cash generated from operations increased 8.5% to £85.0m from £78.3m the year before.
Having announced a further expansion in the US with its acquisition of SRI, the company's chairman, Robert Lerwill, acknowledged that Europe's difficulties could worse in the coming year but expressed confidence that the group's strategy to expand internationally "adequately addresses these risks."
"We are cautiously optimistic that our current growth rates will be sustained, especially given our clear objectives, strong management, and talented employees. We anticipate continued good underlying earnings growth in this new financial year," Lerwill said.
The board is proposing a final dividend of 11.18p, which together with the interim dividend of 6.82p would give dividends for the year totalling 18.00p (2011: 15.84p) representing a 13.6% increase. The market had forecast that the full year pay-out would rise to 16.83p.
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