Roper Industries Makes Another Acquisition

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Roper Industries Inc. (ROP) recently completed the acquisition of privately-held Sunquest Information Systems Inc. for approximately $1.415 billion, including $25.0 million in cash tax benefits. Roper used its available cash and credit facility to fund the acquisition.

Tucson, Arizona-based Sunquest develops software solutions for clinical and anatomic laboratory professionals. Its solutions are used to improve workflow automation and integrate important data that forms the backbone of diagnostics decision making. Sunquest has a strong clientele of more than 1,700 hospitals worldwide.

Roper plans to integrate Sunquest in the Medical & Scientific Imaging segment. Sunquest is expected to contribute approximately $75.0 million in revenue through the rest of 2012. The acquisition is expected to generate significant cash flow, which prompted Roper to raise its operating cash flow guidance to $700.0 million for fiscal 2012 (up from $650.0 to $675.0 million). Roper expects the acquisition to generate EBITDA of approximately $140.0 million or more in 2013.

Over the years, acquisitions have been an integral part of Roper’s growth story. To date in fiscal 2012, Sunquest is Roper’s fourth acquisition. Roper acquired Shanghai Hao Ying Measurement & Control Technology Co, Ltd. (January), Cambridge Viscosity, Inc. (February) and Ascension Technology Corp. (May) this year.

The recent acquisitions reflect Roper’s focus on expanding its high-margin businesses. Given Sunquest’s significant growth opportunities, recurring revenue stream and strong cash flow generation, we believe that the acquisition will be accretive for Roper over the long term.

Roper recently announced its second quarter 2012 results. Total revenue increased 3.5% year over year to $724.9 million, with acquisitions contributing 3.0% to revenue growth, while 3.0% came from organic growth. For further details please see Roper Posts EPS In line, Revs Miss.

We believe that Roper will continue to pursue acquisitions based on its strong balance sheet and solid cash flows. At the end of the second quarter, Roper’s cash and cash equivalents were $518.9 million. Along with the new $1.5 billion credit facility, it looks to be well-equipped to buy companies with significant growth opportunities in the near term.

We believe that strong backlog coupled with robust organic growth will drive earnings growth going forward. Moreover, accretive acquisitions will expand its product portfolio, providing a significant competitive edge over peers such as Agilent Technologies Inc. (A) and Halliburton Company (HAL) over the long term.

We maintain an Outperform recommendation over the long term (6-12 months). Currently, Roper has a Zacks #1 Rank, which implies a short-term Strong Buy rating on the stock.

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