Within the past 12 months, industrial equipment manufacturer Roper Industries, Inc. (NYSE:ROP) has made two important acquisitions that have the potential to reorder the company's focus and boost its bottom-line earnings.
In mid-2012, Roper inked a $1.4 million cash purchase deal with privately held Sunquest Information Systems, an important player in the laboratory software industry. More recently, the company agreed to purchase privately held Managed Health Care Associates for about $1 billion. MHA also provides digital services to healthcare providers across the United States.
Taken together, these two acquisitions should pique investors' interest. While there is no guarantee that either pickup will be the game-changer that market-watchers anticipate, investors who fail to look more closely at Roper Industries, Inc. (NYSE:ROP) may miss a clear opportunity to buy into a hot firm at a discount.
Roper Industries is an equipment manufacturer that makes a variety of industrial equipment for utilities, logistics providers and healthcare companies. In addition to its burgeoning medical equipment and software segment, Roper also produces a variety of hydraulic pumps, energy storage devices and RFID tags. It employs slightly less than 10,000 people and operates on a global basis.
Comparisons with the Competition
As Roper Industries, Inc. (NYSE:ROP) expands into the laboratory services and medical software spaces, it will find itself locked in an increasingly intense struggle for market share with Agilent Technologies Inc. (NYSE:A). Although it is a bit larger and focuses more narrowly on the healthcare services industry, Agilent provides many of the same software and diagnostic solutions as Roper. Its signature products include liquid and gas chromatography as well as various techniques that involve gene analysis and manipulation.
In the industrial equipment space, Roper Industries, Inc. (NYSE:ROP) must contend with much larger Halliburton Company (NYSE:HAL), a diversified provider of field equipment and logistical services to oil companies, military clients and other concerns. Although much of Halliburton's energies are focused on providing essential field services like drilling support, transportation, and waste management the company also offers project management support and other value-added services.
Financially, these companies exhibit some variation. With a profit margin of about 16.2 percent to Agilent's 15.9 percent and Halliburton's 9.3 percent, Roper is the most profitable by a narrow margin. However, the company has $2 billion in debt to just $370 million in cash. This cash-to-debt ratio is far worse than Halliburton Company (NYSE:HAL)'s two-to-one spread and Agilent Technologies Inc. (NYSE:A)'s one-to-one balance. Roper Industries, Inc. (NYSE:ROP) compensates for this deficit with a robust free cash flow metric of about $580 million to Agilent's $737 million. Halliburton Company (NYSE:HAL) actually has a negative cash flow, burning through nearly $100 million of its reserves in 2012.
Managed Health Care Associates Acquisition
Roper's most recent acquisition confirmed market-watchers' suspicions that the company wishes to make a major push into the healthcare services space. Under the terms of its agreement with Managed Health Care Associates, Roper will purchase the company for $1 billion in cash. Since MHA provides healthcare software solutions to pharmacies and long-term care facilities, this deal looks to provide Roper Industries, Inc. (NYSE:ROP) with a foothold in an often-overlooked segment of the medical ecosystem.
According to the statement that it released in concert with the deal, Roper expects this pickup to add at least $95 million to its annual EBITDA figure. If everything goes according to plan, the deal looks poised to close by the end of May of 2013.