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Healthcare Services to Buy Platinum

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Recently, Healthcare Services Group, Inc. (HCSG - Free Report) inked a deal with Platinum Health Services, LLC to purchase all of its operating assets. Platinum is a provider of professional housekeeping, laundry and maintenance services to long-term and post-acute care facilities.

Per the asset purchase agreement, Healthcare Services Group will make cash payment of $3.8 million, assume debt of $1.2 million and issue 1 million shares. Healthcare Service’s solid cash position well supports the acquisition.

In addition, Platinum will also be entitled to receive contingent consideration, generated from future issuance of Healthcare Services stock, provided the pre-considered financial and retention goal is achieved.

Based in Bensalem, Pennsylvania, Healthcare Services is a provider of housekeeping, laundry, linen, facility maintenance, and dietary services to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. We expect the Platinum purchase to augment its performance going forward as it complements its operations.

In the last reported quarter, Healthcare Services generated $237.9 million in revenue, representing a year-over-year increase of 5.1%. We expect the acquisition to add substantially to the top line. Healthcare Services estimates the Platinum asset purchase to add $60 million annually to its top-line and be accretive to bottom line going forward. The Zacks Consensus Estimate for 2013 and 2014 is currently pegged at 81cents and 90 cents respectively.

Healthcare Services is expected to release its second quarter earnings results shortly. The Zacks Consensus estimate for the quarter is 20 cents, representing a year-over-year growth of 15.7%. In the first quarter, it reported earnings per share of 22 cents, exceeding the Zacks Consensus Estimate by 15.8%.

Healthcare Services currently carries a Zacks Rank #3 (Hold). With optimism over the recent deal, we expect upward directional pressure on the Zacks Rank. National Research Corp. , RPX Corporation and SouFun Holdings Ltd. (SFUN - Free Report) all carry a favorable Zack Rank #1 (Strong Buy).

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