Diversified manufacturer Roper Industries Inc (ROP.N) said it will buy privately held Sunquest Information Systems Inc, a provider of diagnostic and laboratory software services, for about $1.4 billion in cash, cheering investors who drove the stock up as much as 10 percent.
Roper, whose wide product range includes medical and scientific imaging devices, radio frequency products and fluid testing equipment, said it expects Sunquest to benefit from such favorable market forces as an aging population and the need for reduced healthcare costs.
“One of the reasons the stock has held up relatively well in the last several months is because people were expecting a sizable transaction towards some time in 2012 and Roper delivered,” Longbow Research analyst Mark Douglass said.
Roper CEO Brian Jellison said on a conference call that the company had been in talks with Sunquest since 2010.
“Growth, high profits, more or less stable recurring revenue, no capital expense required — that’s what Roper’s after,” Douglass said.
CEO Jellison said Sunquest has twice the EBITDA margins that Roper enjoys. He added that two thirds of the medical company’s revenue comes on a recurring basis.
Roper said it expects the deal to add about 12 cents to 14 cents per share to adjusted earnings in 2012, and about $75 million to revenue in the last four months of the year.
“It is going to add well over 35 percent (in revenue) to the medical and scientific segment for next year,” Jellison said on the call.
The company raised its full-year 2012 earnings forecast to between $4.84 and $5.00 per share, from its prior view of $4.75 to $4.91 per share.
Tucson, Arizona-based Sunquest is owned by private equity entities Huntsman Gay Global Capital and Vista Equity Partners.
The business will continue as Sunquest, marketing products and services under current brand names, the Roper CEO said.
The medical diagnostics sector has seen a lot of takeovers in the recent past, including Agilent Technologies Inc’s (A.N) $2.2 billion acquisition of Danish cancer diagnostics firm Dako and Hologic Inc’s (HOLX.O) $3.75 billion buy of Gen-Probe Inc (GPRO.O).
Barclays advised Roper, and Jefferies & Co advised Sunquest.
Sarasota, Florida-based Roper’s shares, which have risen about 11 percent this year, were up another 8 percent at $106.48 in morning trade on the New York Stock Exchange.