Quest Diagnostics Inc. (DGX) has signed a definitive agreement to acquire Solstas Lab Partners Group and its subsidiaries. Quest Diagnostics will pay approximately $570 million to Welsh, Carson, Anderson and Stowe, a private equity firm which owns Solstas. The acquisition is expected to be completed by the first half of 2014.
Greensboro, N.C.-based Solstas operates in nine Southeastern states in the U.S. and is a full-service commercial laboratory company. The integration of Quest Diagnostics advanced diagnostic services with the wide client network of Solstas in Southeast U.S. should boost healthcare solutions in the aforesaid region.
The transaction will benefit Quest Diagnostics by adding nearly 5% to annualized revenues, about 1% of which would be from professional lab services. The deal is also expected to be slightly accretive to adjusted earnings per share in 2014.
This deal is in line with Quest Diagnostics’ robust and consistent inorganic growth strategy. In a bid to enhance its diagnostics services, the company acquired ConVerge Diagnostic Services and the lab-related operations of Dignity Health and UMass Memorial Medical Center in 2013. It also formed a strategic alliance with Hologic Inc. (HOLX) in the same year to focus on women’s health.
We are optimistic about Quest Diagnostics’ active involvement in fighting odds like low healthcare demand and adverse healthcare reforms. As mentioned in the company’s annual report, management is focusing strongly on a five-point strategy, which includes restoring growth and driving disciplined capital deployment through strategically aligned, accretive acquisitions. Such efforts are likely to garner increased market share for the company and subsequently help it to emerge as a leading provider of diagnostic testing information services.
Currently, Quest Diagnostics has a Zacks Rank #4 (Sell). Some better-ranked in the broader healthcare industry are Almost Family Inc. (AFAM) and LCA-Vision Inc. (LCAV). Both these stocks sport a Zacks Rank #1 (Strong Buy).