Investment outfit Wilson Asset Management (WAM) is always on the hunt for undervalued growth shares. Which might be why ASX healthcare share Sigma Healthcare Ltd (ASX: SIG) is a pick inside one of WAM's listed investment companies (LICs).

A LIC invests in shares/assets that it believes can produce good returns for shareholders, and WAM Research Limited (ASX: WAX) has a deep research process to find such opportunities. It looks at factors like free cash flow, return on equity (ROE), meeting management, and a company's overall quality.

On paper, Sigma may not sound like a rapidly growing business. It describes itself as a leading Australian full-line wholesale and distribution business to pharmacies. It has retail pharmacy brands, including Amcal and Discount Drug Stores, as well as an independent offering called PriceSave.

But there's one key reason why WAM likes the ASX healthcare shares so much.

Potential merger with Chemist Warehouse

Sigma is currently attempting to merge with Chemist Warehouse, the biggest pharmacy business in Australia.

Combining the two companies would lead to significant scale, adding revenue and cost synergies. A combined business would have the potential to generate much bigger profits than if the two companies stayed separate.

The Australian Competition and Consumer Commission (ACCC) is considering this proposed merger carefully because it could reduce competition in the pharmacy space.

The ACCC said it had concerns, including "the potential harm to pharmacies currently supplied by Sigma and the potential for Chemist Warehouse to access these pharmacies' data in ways that damage competition".

However, Sigma recently offered a number of court-enforceable undertakings to attempt to allay the ACCC's fears.

WAM noted that despite the ongoing regulatory process, the market appeared more confident that the proposed merger with Chemist Warehouse would be approved.

The investment team said the Chemist Warehouse management remained confident in its ability to expand in Australia and overseas.

If the merger does get the go-ahead, the WAM team is "excited at the prospect of owning one of the country's best retailers with a global store roll-out on the horizon".

What will the ASX healthcare share do to get the deal across the line?

Sigma's undertakings include not preventing or hindering franchisees who entered into their franchising arrangements before 1 January 2024 from terminating their franchise agreements with Sigma for a period of three years.

Next, it would place restrictions on the collection, use and disclosure of confidential data and information from Sigma's wholesale customers and customers for a period of three years.

Finally, Sigma would also remain a participating pharmaceutical wholesale under the Commonwealth Government's Community Service Obligation (CSO) arrangements for at least five years.

The ACCC is seeking feedback about these moves to address competition concerns, and it continues to investigate the impact of the proposed acquisition.

Sigma Healthcare share price snapshot

The company's stock has climbed a hefty 85% since the start of 2024, as shown in the chart below.