PathGroup of Nashville raises $100 million; OncoDiagnostic Laboratory is acquired

For the business of anatomic pathology, the new year got off to a fast start with two different deals announced yesterday. The biggest transaction was major capital infusion at PathGroup, Inc., one of the nation’s regional pathology supergroups. The other transaction was the acquisition of a pathology group practice in Cleveland, Ohio, by Predictive Biosciences, Inc., of Lexington, Massachusetts.

Yesterday, PathGroup, Inc., of Brentwood, Tennessee, announced a leveraged recapitalization which raised more than $100 million for the pathology services company. This transaction signals a shift in the business strategy for one of the nation’s larger pathology laboratory companies and gives it an ample war chest to fund acquisitions, as well as further expansion of its ongoing lines of laboratory testing.

PathGroup of Nashville raises $100 million; OncoDiagnostic Laboratory is acquired

CEO Ben Davis, M.D., confirmed PathGroup’s interest in acquiring other pathology laboratories, stating that “This investment partnership positions us to accelerate our growth, both organically and through select acquisitions.”

Along with providing a source of funding for future acquisitions, it is likely that some of the capital infusion will be used to help the pathology group cash out partner-pathologists who are ready to retire. Notably, this transaction leaves majority control of PathGroup in the hands of its pathologist owners.

“This transaction enabled PathGroup shareholders to achieve significant liquidity while maintaining majority ownership and also providing capital for acquisition opportunities,” said Kevin Murphy, managing partner of Brentwood Capital Advisors, LLC , the capital investment firm which operated as PathGroup’s exclusive financial advisor throughout the recapitalization.

With 50 pathologists and 300 employees, PathGroup is one of the nation’s regional pathology supergroups. PathGroup provides clinical pathology services and its subsidiary, Associated Pathologists, delivers anatomic pathology services, including all pathology subspecialties.

In a separate transaction, Predictive Biosciences acquired OncoDiagnostic Laboratory, Inc., of Cleveland, Ohio. The pathology laboratory was opened in 1985 by founder and CEO Cirilo F. Galang, M.D., and has seven pathologists. Predictive Biosciences was started in 2006 and is a molecular diagnostics company developing proprietary assays. Nichols Management Group (NMG)  announced the acquisition and assisted in aspects of the transaction.

The $100 million capital infusion at PathGroup is the second time in recent months in which a regional pathology “super group” has accepted substantial capital from private equity investors. On October, 13, 2009, Pathology, Inc.,  in Torrance, California, announced it received a ‘Series A’ investment led by ABS Capital Partners.  No dollar amount on this transaction was mentioned.

These transactions demonstrate that investor interest in anatomic pathology continues at a high level. Investors understand that personalized medicine and companion diagnostics will fuel high demand for laboratory testing services. They also recognize how, as baby boomers enter their sixth and seventh decades, demographics will drive the incidence of cancer. Both trends point to much higher utilization of anatomic pathology testing services in coming years.

Related Information:

100 Million Dollar Recapitalization Puts PathGroup Inc., in Buy Mode

ABS Capital Invests in Pathology, Inc in Torrance, CA