If you believe time heals all wounds, then it cannot be long...

If you believe time heals all wounds, then it cannot be long before radiology juniors Integral Diagnostics and Capitol Health are back at the negotiating table.
And this time, it could be Integral Diagnostics in the driver's seat.
It's four months since the smaller Capitol gave up on its pursuit of Integral, after failing to make any headway with the target's board or its doctor shareholders. The rationale for the merger was easy to understand, a bunch of Integral's institutional shareholders offered their pre-bid support, and the two parties were well known to each other after 12 months of on-and-off takeover talks.
But cultural problems got in the way of the scrip-heavy deal; issues around who would oversee the combined entity and some caution on the Integral doctors' part about who would be signing their paychecks.
It left a bitter taste in the mouths of both parties. And it was particularly bitter because they knew at the end of the day, it was a logical deal.
Street Talk understands Integral had another option up its sleeve. Sources said I-MED's now owner Permira, a global private equity firm, approached Integral informally soon after the Capitol situation came to a head. Permira was thinking about Integral as it studied the prospect of consolidating the Australian imaging diagnostics industry. It would be a logical bolt-on to I-MED.
But Integral's shares ran fast and put it out of reach to its private equity suitor.
So Capitol, again, seems to be the most logical option. And if four months is long enough to heal wounds in the long term interests of shareholders, Integral would be well positioned to turn the tables on its smaller rival and turn predator.
Integral shares are up 58 per cent since Capitol's November offer, taking its market value to $457 million and forward EBITDA multiple to 10-times. Capitol's shares are up just 15 per cent over the same timeframe, to be trading at less than 8-times forward EBITDA for a $242 million market cap.
It means Integral shouldn't struggle to make the numbers stack up. With synergies, Capitol's multiple could fall to less than 7-times. Offer a takeover premium and it would still be accretive.
It also shouldn't be too hard to win over Capitol's shareholders. Despite what small cap fund managers say, most love liquidity. Capitol's biggest shareholders include Paradice, Australian Ethical and Wilson Asset Management – and would be expected to understand the logic behind a tie-up.
The question is whether the tie up would be attractive enough to overcome the bad blood. Capitol's board knows the company is a sitting duck should Integral make a move, but isn't expected to give up without a fight.