Up 23% since their ASX debut in May earlier this year, Australian Clinical Labs (ASX: ACL) are expanding, with the acquisition of Medlab Pathology. 

Medlab is a leading private pathology provider comprising two main laboratories and 288 collection sites across both NSW and QLD. The highly complementary acquisition will see ACL’s market share in NSW double to 20.4% and provide an entry point into the QLD market, with 6.5% market share. Currently, ACL operates 222 sites in NSW. The Medlab additions will bring this to 427.

NSW represents the largest pathology market in Australia, whilst Queensland is the third. The acquisition strategically offers ACL more exposure to these markets which complements operations already established across other states. 

Expansion via acquisition is well known territory for ACL, which has a proven track record of successful acquisition and integration of businesses to further consolidate the pathology market. 

ACL is currently the third largest private pathology provider by revenue in Australia, just behind Sonic Healthcare (ASX: SHL) and Healius (ASX: HLS). The three companies account for 80% of all authorised pathology collection centres in the country. 

Last financial year, Medlab achieved $92.6 million in revenue and an EBITDA of $10.5 million. ACL is acquiring the business for $70 million of which $60 million will be paid upfront. The remainder will be partially paid at the end of CY22, and subject to revenue retention hurdles. The payment will be funded by cash and existing debt facilities. 

Benefits of the acquisition are expected to equate to over $10 million and be felt in 18 to 24 months time. 

The acquisition will see ACL with specialist histology labs in each State, including 4 in NSW and QLD. ACL has secured employees at key Medlab sites on an ongoing basis. 

The pathology services market is booming thanks to the need for COVID testing and is estimated to be worth approximately $5.4 billion in Australia alone. 

Commenting on the acquisition, CEO of ACL, Melinda McGrath said: “The Medlab acquisition aligns to our well-defined strategy to grow our position in the New South Wales and Queensland markets, and will deliver both significant growth opportunities and shareholder value.”

“The significant prior investment we have made in the national unified pathology system and single laboratory information system will ensure the Medlab integration is efficient and delivers material synergies, with the additional volume expected to underpin further operating leverage for ACL.”