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(Sharecast News) - Novacyt announced on Monday that it has conditionally agreed to acquire Southern Cross Diagnostics for an initial cash consideration of AUD 8.5m (4.45m), as the molecular diagnostics group looked to expand its footprint in the fast-growing Australian market and accelerate its path to profitability.
The AIM-traded company said the acquisition would be made via its wholly-owned subsidiary Novacyt Holdings UK, and cover the entire issued share capital of the Sydney-based distributor.
Southern Cross Diagnostics, founded in 2008 by chief executive Nick Thliveris, distributes molecular diagnostics, serology and laboratory consumables across Australia and has been a distribution partner for Novacyt subsidiary Yourgene Health since the acquisition of Elucigene Diagnostics in 2019.
The business has 11 employees and counts some of the largest pathology and laboratory customers in the region among its client base.
For the year ended 30 June 2025, Southern Cross Diagnostics generated revenue of around 6.7m, up from 2.4m in the year ended 30 June 2023, and reported a net profit of about 0.8m.
Gross margins in the 2025 financial year were 39%.
In the six months ended 31 December, revenues totalled roughly 3.4m.
Net assets being acquired were approximately 2m as at 30 June 2025, adjusted for loans to be settled before completion.
Novacyt said the deal would be immediately earnings and revenue accretive, although around 2m of annual revenue representing existing direct sales from Novacyt to Southern Cross Diagnostics would be removed from the combined businesses.
It said the acquisition would provide direct access to the Australian diagnostics market, where Novacyt had seen strong growth following positive reimbursement developments for its cystic fibrosis and DPYD assays, and offered access to strategic regional accounts and third-party products for potential distribution in other territories.
Australia's clinical diagnostics market was estimated to grow at a compound annual growth rate of 8.5% between 2025 and 2030.
Completion was conditional on a pre-sale reorganisation under which Southern Cross Diagnostics would transfer its issued capital to Ardenna, as trustee for The Thliveris Family Trust.
In addition to the upfront payment, Novacyt UK agreed to pay contingent consideration of up to AUD 16.5m in cash over a period of up to four years ending 28 February 2030, subject to annual and cumulative EBITDA targets.
For every AUD 1 above the EBITDA target, 83.3% would be paid as earnout, with the full contingent consideration requiring Southern Cross Diagnostics to deliver more than AUD 30m in EBITDA over the four-year period.
The vendor also committed to subscribe for up to AUD 0.8m in new Novacyt shares through a preferential subscription rights issue expected to launch following completion, which was expected by the end of February.
"We are thrilled to announce that we have agreed to acquire Southern Cross Diagnostics, an earnings accretive distribution partner in Australia," said Lyn Rees, chief executive of Novacyt.
"There is a clear strategic alignment between the two organisations who have worked in close partnership together over the last few years to shape the market ahead of the positive reimbursement news in Australia for our cystic fibrosis and DPYD assays.
"Australia has always been a key market for us and has become even more important due to the uptake of our cystic fibrosis and DPYD assays to meet clinical market needs.
"It is a good example of strong growth in a clinical diagnostics market based on changes in the reimbursement landscape. We look forward to continuing to support our customer base in this region."
At 0954 GMT, shares in Novacyt were up 0.36% at 34.22p.
Reporting by Josh White for Sharecast.com.