ON AUGUST 23, Sonic Healthcare Ltd., of Sydney, Australia, released its financial results for its fiscal year ending June 30, 2011. This provided an opportunity to assess Sonic’s impact in the United States, where it has regularly expanded its testing activities.
Sonic reported statutory revenue in FY 2011 of A$3.1 billion, compared to A$3.0 billion of statutory revenue in FY 2010. The company said that this growth was 3.4%. During the same period, earnings before EBIDTA grew from A$544 million to A$570 million. This was an increase of 11.3%.
In U.S. dollars, Sonic’s FY 2011 revenues were $3.3 billion. This compares to the FY 2010 revenues of Quest Diagnostics Incorporated and Laboratory Corporation of America of $7.4 billion and $5 billion, respectively.
Buying Labs in the U.S.
Since 2005, Sonic Healthcare has been a regular acquirer of clinical laboratory companies and pathology companies in this country. It is now the third largest U.S. laboratory company serving the physicians’ office market segment.
For FY 2011, Sonic reported annual revenues from its U.S. operations of A$721 million (US$768 million). This represents 23% of Sonic’s total revenue. By contrast, Sonic generates A$923 million of revenue from Australian lab operations and A$541 million from European lab operations.
To achieve its current market share in the United States and Europe, Sonic has invested substantial capital. In its FY 2011 earnings report, it disclosed that, since 2005, it spent US$1.36 billion purchasing laboratory companies in this country. It also stated that it has invested €430 million (US$610 million) in Germany alone since 2007.
Major Global Lab Presence
The importance of the United States to Sonic’s long term growth strategy can be seen in the company’s FY 2011 financial report. In Australia, it is the nation’s largest provider of pathology and clinical lab testing services. Opportunities to further grow market share in Australia are limited.
By contrast, in less than six years, it has been able to build a lab testing business in the United States that has gone from zero to US$768 million. This U.S. book of business now represents 23% of Sonic’s total yearly revenue. moreover, the company still has the potential to significantly increase its share of lab testing in the United States.
In its hunt for new lab acquisitions in the United States, Sonic has earned a reputation as a disciplined and careful buyer. It has been outbid for several of the larger lab companies that have come to market. But independent lab owners often favor selling to Sonic, since its federated business model means it typically keeps the name, the lab facilities, the management team, and the staff of the lab companies it does acquire.
