In and amongst the slew of resource based IPOs vying for listing this month is Australian pathology company Australian Clinical Labs (Proposed ASX code: ACL). 

The Company is hoping to join the likes of their ASX-listed competitors Sonic Healthcare (ASX: SHL) and Healius (ASX: HLS) later this month with an IPO Offer Price of $4 per share to raise $408.6 million.

The three companies account for 80% of all authorised pathology collection centres in Australia with ACL as the third largest private pathology provider in Australia by revenue. 

ACL is owned by domestic private equity firm Crescent Capital Partners. With proceeds of the raise going towards paying ACL’s existing liabilities (all $331 million of them…), selling existing shares and broadening ACL’s shareholder base. All while benefiting from the increased brand profile that comes with public listing. 

At the offer price, the Company will have a market capitalisation of $809.3 million. 

Pathology services is a lucrative market estimated to be worth $5.4 billion in Australia alone as of June 2020. This is made up of community pathology, hospital pathology and other pathologies such as veterinary, commercial, government and research. 

The potential for market growth is high due to Australia’s ageing population and the increasing burden of chronic disease, of which more than 80% are detectable by pathology. People over 65 are the largest users of pathology services, consuming 38% of all services in FY2020. By 2030 there are expected to be 5.2 million people aged over 65 years in Australia. As the proportion of older Australian’s increases, so will expenditure and demand for pathology services. 

But, there’s no reward without risk. 

70% of ACL’s revenue in the 2020 calendar year came from Medicare funding and reimbursements for pathology services. While the Medicare funded pathology segment has grown by 5.4% per year since 2000 and worth $3.1 billion as of last year, the Company is at the whim of the Australian government and their Medicare Benefits Scheme (MBS). The majority of ACL’s services are bulk billed, and with the MBS ongoing near continuous renewal and change

Another concern is that of obligation. GP’s aren’t obligated to refer to ACL, and patients aren’t obligated to attend their collection centres. While the Company boasts an impressive 995 collection centres, it is essential that they nurture relationships with healthcare providers to remain a preferred provider. 

The Company has significant reach in most states except NSW, where Sonic Healthcare reigns supreme, Queensland, ACT and the Northern Territory. However, strategic acquisitions are in their growth strategy plan. 

They have diversified with the acquisition of 30 specialist skin cancer clinics, diagnosing approximately 15% of all reported melanomas in Australia last year. 

ACL demonstrated a 2.3% increase in revenue from 2019 to 2020 and are expecting their FY2021 revenue to be as high as 647 million, a 24.7% increase on last financial year.
The trend is reflected in their EBITDA which showed a 21% increase from FY2019 to FY2020, and is forecast to be 76% higher than last year at an impressive $207.7 million.

There’s no doubt that ACL is a profitable business that is well positioned in a growth market. If they can pique investor’s interest they might just be able to realise these projected figures and expand their operations nationwide. 

Australian Clinical Labs (ASX: ACL) is set to commence trading on the ASX from Friday, May 14.