Quest
Diagnostics to Buy AmeriPath for $2 Billion
Here’s
the latest shake-up to the laboratory testing marketplace. Quest
Diagnostics Incorporated announced this morning that it will
acquire AmeriPath, Inc.
in a transaction valued at $2 billion.
Both parties expect the deal to close before June 30, 2007. AmeriPath’s
annual revenues are in excess of $800 million. Quest will pay
$1.23 billion in cash and assume about $770 million of debt when
the transaction closes.
With its purchase of AmeriPath, Quest Diagnostics picks up three
diverse businesses in laboratory testing. First, it acquires Specialty
Laboratories, Inc., based in Valencia, California. Specialty
Labs provides reference and esoteric testing services to hospital
and certain physician specialists.
Second, it will own AmeriPath Dermatopathology. This business
division employs 80 pathologists located in offices across the
United States. This business line is fast-growing and very attractive
to Quest Diagnostics.
Third, it will come into ownership of the remaining anatomic pathology
assets owned by AmeriPath. The largest component of this business
division is the hospital-based pathology group practices that
AmeriPath acquired over the past 10 years. There are also several
pathology subspecialty centers in areas such as gastroenterology,
oncology, women’s health, and urology.
For Quest Diagnostics, the timing of this acquisition allows it
to shift the attention of Wall Street away from the UnitedHealth
contract. The AmeriPath acquisition also allows it to gain lab
testing revenues that will more than offset expected losses from
the UnitedHealth contract. AmeriPath’s revenues will keep
Quest Diagnostics on a growth track for 2007.
But with every laboratory acquisition comes with its own set of
unique challenges. It has long been known that AmeriPath has struggled
to find the right key to unlock financial success from its multiple
business models. In buying AmeriPath, Quest Diagnostics will need
to move carefully to integrate AmeriPath’s laboratory testing
assets into its existing national laboratory network to maximize
the benefits from this acquisition. These issues will be explored
in the upcoming issue of The
Dark Report.
Finally, one particularly happy party to AmeriPath’s sale
is Welsh, Carson, Anderson
and Stowe, AmeriPath’s majority shareholder. In March
2003, it paid approximately $840 million to buy the public stock
of AmeriPath and take the company private. Then, in January 2006,
AmeriPath paid an estimated total of $314.7 million to buy all
the public shares of Specialty Laboratories. The impending sale
to Quest Diagnostics comes only four years after Welsh Carson
acquired AmeriPath and allows the private equity company to cash
out its investment.
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