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Roper Expands in Medical Segment

Zacks Equity Research

Roper Industries Inc. (ROP) has agreed to a buy Managed Health Care Associates, Inc. (“MHA”) for an all-cash deal of $1 billion. The company expects to close the acquisition in the next 30 days, subject to the required regulatory approvals.

Managed Health Care Associates, based in Florham Park, N.J, provides healthcare services and solutions like Group Purchasing, Managed Care and Payer Contracting, Pharmaceutical Data Analytics and Clinical Services. MHA’s services and software enhances business growth through operational efficiency for its clients.

Roper projects that the current acquisition will generate approximately $95.0 million in EBITDA for the first 12 months. This excludes acquisition-related fair value accounting. The recent acquisitions reflect Roper’s focus on expanding its high-margin businesses. Given MHA’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.

Acquisitions have been an integral part of Roper’s growth story and had resulted in incremental revenues. Roper’s last acquisition in the medical segment was Sunquest Information Systems Inc. for $1.4 billion in mid-2012. Roper’s revenues from Medical & Scientific Imaging segment had increased 15.3% year over year in fiscal 2012 while its orders increased 14.7% in fiscal 2012.

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 its peers.

However, macroeconomic concerns, integration issues due to acquisitions and competition from Agilent Technologies Inc. (A), Halliburton Company (HAL) and IDEX Corp (IEX) are possible headwinds for the company.

Currently, Roper has a Zacks Rank #2 (Buy).

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