Singapore Medical Group's stock jumped 13.7% to close today at 41.5 cents, a five-year high, after it announced it would acquire Astra Women’s Specialists for S$60.0 million.
|Along with oncology, ophthalmology and diagnostic imaging, we identified our O&G segment as a key vertical in which we wanted to scale and grow our suite of services. This acquisition combined with our three specialists provides us with scale and access to a unique market segment in women's health.
-- Dr. Beng Teck Liang,
CEO and Executive Director,
Singapore Medical Group
(NextInsight file photo)
The deal is not just earnings accretive (comes with a five-year profit guarantee of a minimum of S$4.6 million per year, which will roughly double SMG's earnings post-completion).
It will also enable SMG -- a specialist healthcare services provider with 23 existing clinics in Singapore -- to overtake Singapore O & G in the field of obstetrics and gynaecology (“O&G”).
Astra runs a flagship O&G clinic in Mount Elizabeth Novena Specialist Centre and has branches located in heartland locations such as Bishan and Hougang, a presence that competitors such as Singapore O&G do not have.
Following the acquisition, at an implied valuation of 13.0x P/E, SMG will have a total of 8 O&G doctors, compared to six at Singapore O&G.
The five Astra doctors will serve six-year service agreements as the Group expands its offerings into areas such as general O&G, fetal-maternal medicine, urogynaecology and in-vitro fertilisation.
To cement its No.1 position for the long haul, SMG and Astra will increase its headcount of O&G specialists and groom the next generation of O&G doctors.
The acquisition will be funded via the issue of new shares at S$0.33/share and the payment of S$33.0 million in cash in three tranches.
The number of new shares to be issued (note that SMG had net cash of $5.2 million only as of 2Q16) will have a bearing on the earnings accretiveness of the acquisition.
√ S$0.1 million upon signing agreement;
√ S$10.9 million upon completion of acquisition expected to take place on 31 Jan 2017;
√ S$11.0 million after the first year of completion of acquisition;
√ S$11.0 million after the second year of completion of acquisition.
Commenting on the Group’s acquisition, CEO and Executive Director Dr. Beng Teck Liang said, “Along with oncology, ophthalmology and diagnostic imaging, we identified our O&G segment as a key vertical in which we want to scale and grow our suite of services.
"This acquisition combined with our three specialists provides us with scale and access to a unique market segment in women's health.
"This value-driven, synergistic acquisition will enable us to further build upon our capabilities and presents a unique opportunity for us to leverage on our diverse network to promote cross-selling opportunities amongst the full suite of ambulatory care services we provide at our 23 existing clinics in areas such as cancer, dermatology, aesthetics and radiology.”
SMG's announcement on the deal is here.