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Quest Diagnostics to Pay $740 Million to Acquire Athena Diagnostics from Thermo Fisher

It’s a strong price to pay for this specialty clinical pathology laboratory company

Today, Thermo Fisher Scientific Inc. (NYSE:TMO) announced that it was selling its Athena Diagnostics clinical pathology laboratory business to Quest Diagnostics Incorporated (NYSE:DGX). The purchase price will be $740 million, making this the highest-priced medical laboratory acquisition of 2011.

Based in Worcester, Massachusetts, Athena Diagnostics is known for its expertise in diagnostic tests for neurological and other diseases. Back in the 1990s, Athena was one of the earliest clinical laboratory companies to build a business around developing proprietary diagnostic tests, then introducing them into the clinical marketplace. Athena Diagnostics currently offers about 350 different assays.

Large Purchase Price Multiple for a Clinical Laboratory Company

Both companies believe this transaction will close “following the satisfaction of customary conditions.” Thermo Fisher disclosed that, during 2010, revenue at Athena Diagnostics totaled approximately $110 million. Thus, it appears that Quest Diagnostics was willing to pay a premium price to acquire Athena Diagnostics. The purchase price of $740 million is 6.72 times Athena’s 2010 revenues of $110 million.

Quest Diagnostics to Pay $740 Million to Acquire Athena Diagnostics

Quest Diagnostics to Pay $740 Million to Acquire Athena Diagnostics

It is likely that financial analysts will evaluate this purchase price against at least two other recent sales for a pathology laboratory company. In October, 2010, GE Healthcare,  a unit of General Electric Company (NYSE:GE) announced an agreement to acquire Clarient, Inc. (NASDAQ:CLRT) for a price of $587 million. Clarient had revenue of about $110 million in 2010. Thus, GE paid a multiple of 5.3 times Clarient’s annual revenue.

Just one month earlier, in September, 2010, Laboratory Corporation of America (NYSE:LH) agreed to purchase Genzyme Genetics Corp’s. (NASDAQ:GENZ) fetal genetics and oncology testing division for $925 million in cash. Genzyme’s diagnostic testing revenue was approximately $375 million per year. This works out to a purchase price that is a 2.5 times multiple of Genzyme’s annual lab testing revenue.

More Consolidation in the Pathology Lab Testing Industry

By scooping up Athena Diagnostics, Quest Diagnostics continues the trend of consolidation within the clinical laboratory and anatomic pathology testing industry. With each passing year, the nation’s two national laboratory companies remain opportunistic buyers of any sizeable lab testing company which puts itself up for sale.

The implications of Thermo Fisher’s divestiture of Athena Diagnostics to Quest Diagnostics will be discussed at the upcoming Executive War College on Laboratory and Pathology Management, which takes place on May 3-4, 2011 at the Sheraton Hotel in New Orleans, Louisiana.

The aspects of these recent clinical laboratory acquisitions will be addressed during several special sessions, including “Acquisition and Deal Review for 2010 and 2011 Year-to-Date” and “Current Trends in Valuations of Clinical Laboratories and Pathology Practices.” Christopher Jahnle, Managing Director of Haverford Healthcare Advisors will conduct these sessions and provide analysis of these and other clinical pathology laboratory acquisitions.

All of this happens during the full day workshop on “Mergers and Acquisitions in Clinical Laboratory and Pathology” scheduled to take place on Thursday, May 5, immediately following the Executive War College. The full agenda of topics and speakers is available (or copy and paste this URL in your browser: http://www.executivewarcollege.com/agenda.htm).

Indications are that 2011 will be an active year for mergers and acquisitions of clinical laboratories and anatomic pathology groups. One factor driving this is the rapidly-approaching retirement of baby boomer pathologists who are partners in their professional corporations. This year’s Merger & Acquisition workshop at the Executive War College is expected to attract a larger number of laboratory buyers and laboratory sellers than in previous years.

Related Information:

Thermo Fisher Scientific Signs Agreements to Sell Athena Diagnostics and Lancaster Laboratories Businesses for a Total of $940 Million

Quest Diagnostics to Acquire Athena Diagnostics, Establishing Leading Position in Rapidly Growing Neurology Testing Market

GE Healthcare Pays $587 Million to Purchase Clarient, the Specialty Pathology and Cancer Testing Firm

LabCorp to Acquire Genzyme’s Genetics Pathology Laboratory Testing Business for $925 Million

2011 Executive War College on Laboratory and Pathology Management

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