Sonic Healthcare Limited · ASX:SHL
Sonic Healthcare — Merger or Acquisition (August 2005)
32 slides from Sonic Healthcare's merger presentation, Aug 23, 2005
Slide 1: Sonic Expands into USA Pathology Market
Sonic Expands into USA Pathology Market Acquisition of Interest in CPL Dr Colin Goldschmidt Managing Director/CEO 23 August 2005
Slide 2: Agenda
Agenda Summary Sonic’s Global Expansion US Industry Overview Clinical Pathology Laboratories, Inc. Acquisition Structure and Funding
Slide 3: Summary
Summary ¾ Sonic Healthcare has signed an agreement to initially acquire an 80-85% interest in Clinical Pathology Laboratories, Inc. (CPL) ¾ CPL is the one of the largest independent laboratories in the United States Annual revenues of ~US$190 million (~A$250 million) ¾ CPL enjoys a leadership posi
Slide 4: Summary
Summary ¾ CPL is differentiated from major competitors in the independent sector Pathologist / Medical leadership Doctor-focused, personalised service ¾ Sonic and CPL have similar corporate cultures and values ¾ CPL provides Sonic with substantial growth opportunity Like-minded partnership L
Slide 5: Agenda
Agenda Introduction Sonic’s Global Expansion US Industry Overview Clinical Pathology Laboratories, Inc. Acquisition Structure & Funding
Slide 6: CPL Acquisition Affords Sonic a Global Footprint
CPL Acquisition Affords Sonic a Global Footprint Germany 2004 United Kingdom 2002 United States 2005 Hong Kong 2001 New Zealand 1999 Australia 1987 Sonic Core EPS performance 1997 1998 1999 2000 2001 2002 2003 2004 2005 4
Slide 7: Agenda
Agenda Introduction Sonic’s Global Expansion US Industry Overview Clinical Pathology Laboratories, Inc. Acquisition Structure & Funding
Slide 8: The United States Pathology Market
The United States Pathology Market ¾ The US is the largest pathology market in the world US$40 billion revenue in 2003 ¾ Laboratory testing is linked to the entire US healthcare system Hospital care, GP and specialist services, nursing homes, home healthcare etc ¾ Pathology expenditure in the US
Slide 9: US Laboratory Market Segments
US Laboratory Market Segments Laboratory Industry Laboratory Industry Share Share by Test by Test Revenue, Revenue, 2003 2003 Ot he r la b s P hy s i c i a n 7% o w ne d l a b s 7% Hospital Labs………………...~8,500 Independent Labs……….......~5,000 Physician Office Labs….…~110,000 Other Labs…………………~ 58,00
Slide 10: Independent Laboratory Sector – Revenue Trend
Independent Laboratory Sector – Revenue Trend 15 13.0 12.4 11.7 12 10.6 9.5 US$ B 9 6 3 1999 2000 2001 2002 2003 The independent laboratory sector grew at an average of 6.9% per annum (1999 – 2003) Source: Washington G2 Reports
Slide 11: Independent Laboratory Sector
Independent Laboratory Sector ¾ Independent pathology sector is highly fragmented ¾ In 2003, the sector had revenues of ~US$13 billion ¾ 5,000 independent laboratories falling into three categories National consolidators - Quest and LabCorp Mid-sized independents with revenue of US$10-500 millio
Slide 12: Independent Laboratories
Independent Laboratories (by revenue, 2003) ¾ Quest ¾ Labcorp ¾ Ameripath – Specialist Anatomical Pathology ¾ LabOne – purchased by Quest in 2005 ¾ Mayo Medical Labs – Hospital owned, esoteric lab ¾ ARUP Laboratories – Hospital owned, esoteric lab ¾ Spectra Renal Labs – Specialist renal dialysis ¾ C
Slide 13: US Laboratory Testing Segments
US Laboratory Testing Segments US Laboratory US Laboratory Testing Testing Segments Segments by Revenue, Revenue, 2003 2003 ¾ Routine tests include blood counts, routine by chemistry analysis, urinalysis, blood Drugs-of- cholesterol tests, pregnancy and prenatal Abuse testing, glucose monitoring etc
Slide 14: Agenda
Agenda Introduction Sonic’s Global Expansion US Industry Overview Clinical Pathology Laboratories, Inc. Acquisition Structure & Funding
Slide 15: Clinical Pathology Laboratories (CPL)
Clinical Pathology Laboratories (CPL) ¾ CPL is the largest regional independent laboratory in the USA ¾ CPL’s core market is Texas, with newly established markets in Ohio and Virginia (Washington DC area) ¾ Annual revenue of ~US$190 M (~A$250 M) per annum ¾ CPL has a proven, experienced and committe
Slide 16: CPL History
CPL History ¾ 1948 – 1989 Forerunner of CPL, part of pathologist group ¾ 1990 – 1997 Expansion into San Antonio, Dallas ¾ 1999 Acquisitions of Seguin Labs and Waco Medical Group Lab ¾ 2000 Acquisitions of labs in Houston, Dallas, Denton, Victoria ¾ 2001 CPL recapitalises with entry of private equity
Slide 17: CPL Operational Markets
CPL Operational Markets South West Mid West Mid Atlantic
Slide 18: CPL Geographic Markets
CPL Geographic Markets ¾ CPL South West • CPL’s core market • Texas, Oklahoma, Arkansas, Louisiana • South West laboratory market estimated at US$1.3 billion annually • CPL has around 15% share of Texas market (population 22 million) • Major referrals from Austin, Dallas and San Antonio • Extensive
Slide 19: CPL Operational Infrastructure
CPL Operational Infrastructure 150 Patient • Strategic, established Service Centres collection infrastructure • Courier network – • Limited range of tests strategic routes and hubs 25 Stat Labs • Rapid, urgent testing 3 Full Service • Austin, Texas • Toledo, Ohio Labs • Chantilly, Virginia • Highly
Slide 20: Laboratory Testing Segments
Laboratory Testing Segments US US Laboratory Laboratory Testing Testing Segments Segments by by Revenue, Revenue, 2003 2003 Drugs-of-Abuse testing Cytology 2% Esoteric 3% testing 9% CPL focuses testing on: Anatomical pathology ¾ Routine Pathology 14% ¾ Anatomical Pathology ¾ Cytopathology Routine te
Slide 21: Corporate Values and Operating Models
Corporate Values and Operating Models Sonic Healthcare Sonic Healthcare CPL CPL ¾ Medical practice / Medical leadership ¾ Pathologist interaction with clinicians ¾ Respect & honesty ¾ Uncompromising integrity ¾ Responsibility & accountability ¾ Accountability ¾ Personalised service for Doctors ¾ Foc
Slide 22: Corporate Values of Sonic and CPL
Corporate Values of Sonic and CPL ¾ Corporate values and operating models of Sonic and CPL are very similar ¾ Like Sonic, CPL has pathologists in leadership positions ¾ Like Sonic, CPL provides direct personalised service to referring doctors ¾ CPL is affiliated with over 150 pathologists ¾ CPL’s mo
Slide 23: CPL Payer Mix
CPL Payer Mix HMO 1% Insurance ¾ Government including Medicare (Federal – Government 36% elderly) and Medicaid (State – disadvantaged) 30% ¾ Managed care companies – CPL has contracts with many including Blue Cross, Aetna, United, Medical Mutual, Humana etc ¾ Direct payers such as physicians, hospit
Slide 24: CPL Management
CPL Management ¾ CPL has an experienced and dedicated management team, committed to growing the business with Sonic ¾ Dr Robert Connor, M.D., Chairman, CEO, Medical Director Qualified and practising pathologist Became Chairman and CEO of CPL in 1990 Has driven the medical leadership model of C
Slide 25: Agenda
Agenda Introduction Sonic’s Global Expansion US Industry Overview Clinical Pathology Laboratories, Inc. Acquisition Structure & Funding
Slide 26: Summary of Key Transaction Terms
Summary of Key Transaction Terms Key Transaction Terms Commentary Sonic will initially acquire 80% - 85% of CPL Key CPL management and pathologists will initially retain a 15% - 20% interest in CPL Sonic will acquire the minority interests progressively over a 3 year period (2009 – 2012) Considerati
Slide 27: Ownership Structure
Ownership Structure ¾ Initially, Sonic will acquire at least 80% of CPL, and not more than 85% ¾ Key management and pathologists will retain equity for a period of at least 5 years ¾ The largest non-Sonic shareholders will continue to be Dr Robert Connor (Chairman and CEO) and Mr David Schultz (Pres
Slide 28: Purchase Price
Purchase Price ¾ Sonic’s consideration for 80% of CPL is US$300 million, less debt (~US$10 million) ¾ Earn-out of up to US$20 million of the US$300 million consideration Earn-out is dependent on achievement of pre-defined EBITDA targets in CY2005 ¾ Valuation represents a prospective EV/EBITDA mult
Slide 29: Acquisition Debt Facility
Acquisition Debt Facility ¾ Sonic was named the exclusive preferred bidder for CPL in early July ¾ A shared philosophy and Sonic’s ‘federation’ model were critical success factors and certainty of funding was a pre-requisite ¾ ANZ Bank and JPMorgan have provided a six-month US$ debt facility ¾ Sonic
Slide 30: Transaction Timeline
Transaction Timeline ¾ Transaction conditions Approval from Sonic’s banking syndicate for the US$ facility CPL shareholder approval (CPL Board approval given) US anti-trust approval ¾ No problems are envisaged with these conditions ¾ Completion expected on 30 September 2005
Slide 31: Conclusion
Conclusion ¾ CPL represents an exceptional entry for Sonic into the world’s largest pathology market ¾ CPL’s management and pathologists are experienced and committed and will hold significant equity in the business ¾ Sonic is attracted to CPL’s similar culture and unique doctor- focused operating m
Slide 32: Sonic Healthcare
SONIC HEALTHCARE ene HEALTHCARE
Sonic Healthcare — Merger or Acquisition (August 2005) on 6ix