What happened to Australian Pharmaceutical Industries share price?
It’s good news for Australian Pharmaceutical Industries Limited [ASX:API] today, with a massive rise in their share price of 7.8% earlier this afternoon.
API is a wholesale distributor of pharmaceutical and allied products, and also provides retail support services to pharmacists.
The spike in their share price seems to coincide with their ASX statement released this morning, revealing the company agreed to acquire the assets of Clearskincare Clinics.
The total cost of this deal is $127.4 million, which will be paid in instalments over the next three years. They have calculated this to turn into an EBITDA of 7.6 times in that three-year period.
In return, API will receive 50.1% controlling interest in the clinic business of Clearskincare and 100% ownership of the skincare products business.
By September 2021, API will have 100% ownership of the clinic business as well.
The acquisition will be funded through debt facilities that have been set up specifically for this purpose.
It’s expected to make API the leading business in the Australian health and beauty products and services market.
Why is Clearskincare Clinics the best option for API?
Clearskincare Clinics has a strong focus on acne, anti-ageing and scarring treatment along with other skincare solutions.
So by acquiring their assets, API’s services will broaden into wider avenues. It is, as stated in the acquisition presentation, an ‘adjacent marketing opportunity’ into an already established network.
The move makes sense for many reasons.
For one, both API and Clearskincare have the same customer base, so the existing marketing strategies will still be effective. They have the means to enhance Clearskincare’s already strong profitability and earnings.
Also, consumers are growing more interested in beauty services, so they won’t be short on customers.
And at the moment, the health and beauty industry is absent of a major front-runner. There is no brand with a decisive market share. Moreover, the form of beauty services makes disruptive entry and online competition pretty unlikely.
It looks like a very smart decision by API.
What API is expecting in the future
This agreement with Clearskincare Clinics aims to give API shareholders a more diverse business with better growth potential. They expect Clearskincare to make API EPS accretive for FY19. And the earnings’ growth should continue for years to come.
On the official ASX statement, API managing Director and CEO Richard Vincent said:
‘The Acquisition fulfils our criteria for aligning with a robust business in a burgeoning sector of the health and beauty market…to which we can add further value for customers, clinic teams and shareholders.
‘We expect to build scale and profitability because of our operational capabilities in franchising, network development and consumer products management. Also, API’s Priceline Pharmacy business and Clearskincare Clinics share the same core customers, which will enable us to leverage our marketing assets across both businesses.’
Time will tell if API’s strategic thinking has paid off.
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