Primary announces acquisition to grow non-Medicare revenue

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Primary Health Care (ASX:PRY) has announced the acquisition of Montserrat Day Hospitals for a potential price of almost $140 million.

Montserrat operates seven specialist day hospitals and cancer clinics across Queensland, Western Australia and New South Wales.

It is developing three new facilities in South East Queensland and Western Australia. It has also agreed to purchase a private hospital in Western Australia.

In a statement announcing the acquisition, Primary said Montserrat will "form the nucleus" of its new Primary Day Hospital division. This division will source its revenue outside Medicare and will continue to be operated by the existing Montserrat management team.

According to Primary’s managing director and CEO, Dr Malcolm Parmenter, “The acquisition of Montserrat is an exciting opportunity for Primary. Montserrat is strategically aligned to Primary’s core business of providing frontline community healthcare. Moreover, the growth in day hospital admissions has outpaced overnight hospital admissions over the last ten years and this trend is expected to continue.

“In combination with Primary's five existing day hospital facilities, Montserrat provides a scale platform for us to grow non‐Medicare revenues. It is a high quality business, run by a strong and experienced management team who will remain with us and who will bring their capabilities to assist our existing day hospitals as well.

“Importantly, Montserrat with its combination of haematology/oncology clinics and day hospitals, will deliver synergies to the benefit of other divisions. We will be able to take advantage of Montserrat facilities as we grow our specialist businesses, like IVF.

"We also expect that our Pathology division will be able to organically grow revenue through Montserrat over time,” added Dr Parmenter.

Primary said the acquisition is expected to be completed in November this year.

The company will pay upfront consideration of $75 million for Montserrat upon completion and a further deferred payment of up to $20 million will also be payable subject to the successful commissioning of the three facilities currently under development and completion of the private hospital acquisition in Western Australia.

Further additional earn‐out payments may be payable subject to Montserrat achieving certain agreed financial milestones.

The total acquisition consideration payable for Montserrat is capped at $138.5 million.