Eco Investor November 2016

Core Securities

Tox Free Acquires Medical Waste Business

Hands up all those environmental investors who remember SteriHealth? The medical waste company was delisted in a privatization in 2014 but is now back on the radar as it has been acquired by Tox Free Solutions.

In the meantime it changed its name to Daniels Health Australia. The seller is its founder, Dan Daniels. The company's value at the ASX delisting was $34.2 million and its current enterprise value is $186 million, so there has been some growth.

Tox Free is funding the acquisition through equity, cash and debt. About $85 million will come via an underwritten 1 for 3.9 non-renounceable entitlement offer at $2.30 per share; $29 million through a placement of shares to the seller; $67 million from increased debt facilities; and $14 million in cash from the completion of a proposed sale and leaseback transaction.

The institutional part of the offer has been completed and raised $60 million. The retail entitlement offer opens on 3 November and closes on 18 November. The acquisition should complete on 1 December.

Daniels was founded in 1986 and is Australia's leading supplier of medical waste solutions, collections and treatments. It has the intellectual property rights to collector systems including the "Sharpsmart" and "Clinismart" reusable sharps and clinical waste containers. Its services include medical waste collection and treatment, recycling, gatewaste, waste stream auditing, controlled substance destruction, secure shredding, training, compliance and education.

The company has about 300 employees at 17 sites, and these include incineration facilities in Sydney and Melbourne and three joint venture sites in New Zealand. It has a large customer base including long term relationships with public and private hospitals, medical centres and aged care facilities.

Tox Free managing director, Steve Gostlow said the acquisition is complementary to Tox Free's brand and culture and is consistent with his company's strategy to focus on specialist waste streams. It provides a new pillar for growth in the growing healthcare segment, and is expected to deliver complementary waste handing, treatment and distribution capabilities with potentially meaningful cost synergy benefits. There is also an opportunity to cross-sell Tox Free's industrial and total waste management solutions to Daniels' customers.

For the full 2016 year, Daniels' pro forma revenue is $83.4 million and its pro forma earnings (EBITDA) is $20.7 million. For Tox Free, the acquisition is expected to be 16 per cent accretive to earnings per share in 2016-17 on a full year pro forma basis.

Tox Free has a long history of growth through acquisitions. The strategy has worked with Tox Free now one of Australia's major waste companies with operations in a range of sectors. (ASX: TOX)

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