Medica acquires Global Diagnostics Ireland

RNS Number : 1645E

Medica Group PLC

04 November 2020

 

The information contained in this announcement is inside information for the purposes of article 7 of Regulation (EU) 596/2014.

4 November 2020

Medica acquires Global Diagnostics Ireland to expand its geographic reach, customer base and service offering

Medica expects the acquisition to be strongly accretive to earnings

Global Diagnostics Ireland is the market leader for teleradiology services in Ireland

Medica to acquire Global Diagnostics Ireland for an initial consideration of €16m (£14.5m) from Centric Health

Medica Group Plc (LSE: MGP, "Medica" or the "Company"), the UK market leader in the provision of teleradiology services, today announces the acquisition of Global Diagnostics Ireland (GDI), the market leader for teleradiology services in Ireland, for an initial cash consideration of €16m (£14.5m) from private Irish healthcare group, Centric Health, on a cash-free and debt-free basis, and provides an update on current trading.

A webcast for analysts will be held at 9am GMT today to discuss the transaction. For further details, please contact FTI Consulting at [e-mail] .

Transaction highlights:

· Diversifies Medica's customer base and geographical operations with Ireland's market leader in teleradiology services

· Expands service offering into ophthalmology with a 50% market share for the provision of diabetic retinopathy screening services on behalf of the Irish health service

· Brings with it a strong management team and network of expert doctors

· Expected to be strongly earnings enhancing and return on invested capital expected to be approximately twice the cost of capital

Dr. Stuart Quin, CEO of Medica Group stated:

"This highly complementary acquisition of Global Diagnostics Ireland aligns with, and significantly accelerates, our strategy to diversify Medica's geographic reach, service offering and customer base, while being strongly accretive to earnings.

"We have been evaluating the Irish market for teleradiology for the past year and in GDI we have found an ideal partner that shares our focus to provide the highest quality radiology services. GDI has built a strong reputation amongst radiologists, as well as hospital and primary care clients across Ireland. Additionally, in partnership with leading ophthalmologists in Ireland, they have built a strong reputation in the delivery of diabetic retinopathy screening services which cover 50% of the Irish market. Medica will support Caroline and the management team to continue to grow and develop the business, as well as invest to deliver a broader range of services."

Caroline Byrne, who will join the Medica executive team as Managing Director, Ireland, commented:

"We are excited to join forces with Medica and think it will benefit all our stakeholders. Ireland's teleradiology market is attractive and evolving at a pace whereby we will benefit from the processes, systems and clinical governance expertise that Medica brings. In addition to the strong business rationale for both parties, we also see a close cultural fit between our two organisations and we look forward to continuing to develop the Company for the benefit of our clients and their patients."

1.  Introduction and overview of GDI

GDI, based in Balally, Dublin was established in 2007 to operate diagnostic managed services, including teleradiology reporting services to support the successful growth of Centric Health's primary care business. The company, led by Managing Director Caroline Byrne, has grown rapidly and now operates at over 50 clinical sites within Ireland, employing a team of over 140 people nationwide working alongside more than 20 Irish Medical Council certified specialist radiologists. Trading as Global Diagnostics, the company offers a range of diversified services, including 'scan only' or 'scan and report' managed-service radiology solutions for plain film, ultrasound, CT and MRI. It has also grown to become the market leader in the fast-growing teleradiology reporting market in Ireland. Clients include the Irish Health Service Executive (HSE) and a range of private healthcare providers.

The Irish radiology services market represents over €500m of spend and demand for radiology is increasing at around 8% per annum. Ireland, like the UK, has an undersupply of radiologists which currently equates to a shortfall of around 25%. Also like the UK, teleradiology is increasingly being used to fill the gap in demand for highly qualified radiologists; particularly during hospital out-of-hours.

In addition, GDI, trading as Global Vision, provides dedicated eye screening and surveillance services on behalf of the Irish National Screening Service for patients at risk of diabetic retinopathy. The service covers an area comprising 50% of the population which equates to c. 50,000 patients screened per annum using a team of employed ophthalmologists and other healthcare professionals.

For the financial year ended 30 June 2019, GDI reported revenues¹ of €7.4m, an increase of 16% on the prior year, adjusted EBITDA¹ of €1.5m and profit before tax of €1.2m. For the year ended 30 June 2020, despite the negative impact of COVID-19, GDI reported revenues of €7.3m, adjusted EBITDA¹ of €1.1m and adjusted profit before tax of €0.7m. Since the year end, the business has continued to perform strongly, reflecting the positive impact of contracts won during the prior year, with current run rate EBITDA² of approximately €2.0m. As at 30 June 2020, GDI had total assets³ of €0.7m.

2.  Background to and reasons for the acquisition

This acquisition is in line with Medica's revised strategy announced in March this year to diversify revenue sources outside of the UK, to continue to further its market leadership position in teleradiology and expand into new areas of telemedicine.

Geographic diversification:

-  The Irish market for teleradiology offers attractive opportunities for growth. GDI is the market leader.

-  Today, the rate of teleradiology service outsourcing is lower than the UK. However, the market is expanding quickly and GDI is well-positioned as the quality leader based in Ireland to take advantage of this growth opportunity.

-  The complexity of scans being reported is increasing as more CT and MRI scans are required following a trend that Medica has experienced in the UK.

Revenue diversification and further growth opportunities:

-  Medica and GDI each have radiologists that are dual Ireland-UK certified offering the potential for cross-reporting of studies

-  Medica's systems, clinical governance expertise and commercial support will support GDI as it grows and develops

-  GDI has a combination of private and public radiology and ophthalmic screening service models that will correspondingly add to the breadth of capabilities within Medica

Strong financial metrics:

-  Expected to be strongly earnings enhancing for the financial year ending 31 December 2021

-  Return on invested capital (ROIC) expected to be approximately double the Company's weighted average cost of capital (WACC)

-  Significant potential for growth in revenue and profit from new contract opportunities in the short to medium term

3.  Principal terms and financial impact

The acquisition comprises the following elements:

· €16.0m payable in cash at completion for 100% of the shares in GDI together with customary adjustments for acquired cash, debt and normalised working capital at completion

· A maximum of €4m deferred consideration based on contractual milestones payable over the next few years.

· Costs of c. £0.7m plus Irish stamp duty at 1% of total consideration will be charged to the P&L in the current financial year.

In order to support the acquisition, Medica has agreed an extension to its undrawn revolving credit facility from £1m to £6m and this has been fully drawn down at completion in Euro denominated funds. Interest on the new facility is at LIBOR + 3.0% margin with a commitment to move away from LIBOR before 30 June 2021. Terms on the existing term debt facility remain unchanged.

The balance of the completion payment of c.€9.4m has been funded out of existing group cash.

Following completion, the Company will therefore have pro-forma gearing (net debt to EBITDA) on a last twelve months basis of approximately 1.1x after taking account of existing group cash balances and cash acquired.

4.  Medica Trading Update

Recent Medica trading has been in line with management expectations since the update provided to the market at the 2020 interim results in September. Despite regional lockdowns throughout September and October, NightHawk activity remains in excess of pre-COVID-19 levels and our Elective activity shows a marginal increase from our last update.

It is too early to estimate the impact of the stricter COVID-19 restrictions to be implemented in England on the 5th November, but we do not expect to be impacted to the same extent seen earlier this year. The lockdown restrictions are not as severe and we expect the NHS to be better positioned to continue to provide services. Organisations have had more time to prepare and they also have the added pressure of a backlog of patients awaiting treatment. Discussions with our clients indicate that radiology departments are planning to adhere as closely as possible to business as usual through this second lockdown period and beyond. This is in stark contrast to earlier in the year which saw the vast majority of non-acute imaging halted and subsequent changes to on-site radiologist rotas which contributed to the adverse impact on our NightHawk and Elective volumes.

ENDS

1 - Excludes historically discontinued operations

2 - Based on unaudited management accounts for the three months to Sept 2020

3 - Excludes balances relating to the selling group

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

The person responsible for arranging for the release of this announcement on behalf of the Company is Richard Jones, Chief Financial Officer.

For further information, please contact:

Medica Group Stuart Quin, Chief Executive Officer Richard Jones, Chief Financial Officer	[phone]
Investec Bank plc Sara Hale Daniel Adams	[phone]
FTI Consulting Victoria Foster Mitchell Robert Winder	[phone] [e-mail]

About Medica Group PLC

Medica is the UK market leader in the provision of teleradiology services, providing outsourced interpretation and reporting of MRI (magnetic resonance imaging), CT (computerised tomography) and plain film (x-ray) images. The Company currently offers two primary services to hospital radiology departments:

· NightHawk, urgent reporting service, and

· Elective which includes routine cross-sectional reporting on MRI and CT scans, and routine plain film reporting on x-ray images.

Medica contracts with the largest pool of consultant radiologists in the UK performing remote access teleradiology across its customer base of more than 100 NHS Trusts, private hospital groups and diagnostic imaging companies in the UK. This enables the Company to offer a fast, responsive service both during the day and importantly supporting urgent out-of-hours reporting.

Medica has developed a bespoke, secure IT platform that provides market-leading linkage between a hospital's Radiology Information System (RIS) and consultant radiologists who contract with the Company. Direct RIS access ensures that where the wider patient medical history is available, it can be reviewed by the consultant as part of every report. For more information please visit www.medica.co.uk  

About teleradiology

Teleradiology is the remote electronic transmission of radiological patient images, including plain film (x-rays), CT scans and MRI scans, from one location to another for the purposes of diagnostic interpretation and reporting.

About retinal diagnostic screening

People with both Type 1 and Type 2 diabetes are at risk of developing diabetic retinopathy. This is a common complication of diabetes which affects the small blood vessels in the lining at the back of the eye and can lead to deterioration in vision. Regular diabetic retinopathy screening is recommended for people with diabetes aged 12 years and older.

 

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