Anatomic pathology firm hopes proposed sale of stock will bring in up to $150 million
Anatomic pathology company Aurora Diagnostics, Inc., of Palm Beach Gardens, Florida, just announced a new credit facility that will give it access to as much as $335 million should all conditions be met. Aurora Diagnostics hopes to raise $150 million from an initial public offering (IPO) of its stock, for which it filed registration documents in April.
Aurora Diagnostics was founded in June 2006, by former Ameripath, Inc., executives James New and Marty Stefanelli and was originally funded by Summit Partners and GSO Capital Partners. Over the past four years, Aurora Diagnostics says it has acquired 17 pathology practices. Its revenue for 2009 totaled $171 million, with EBIDTA (earnings before interest, depreciation, taxes, and amortization) of $28 million and net income of $9 million.
The company’s stock registration documents provide a useful look at how the company is developing its acquisition strategy. Aurora Diagnostics says it has acquired three pathology group practices during 2010. They are Bernhardt Laboratories Inc., of Jacksonville, Florida; Pinkus Dermatopathology Laboratory PC, of Monroe, Michigan; and Pathology Solutions LLC, of Eatontown, New Jersey.
There are approximately 16 pathologists affiliated with these three groups. Aurora Diagnostics said that up-front cash payments for the three acquisitions totaled $39.5 million. The three acquired pathology groups can also earn contingent payments of as much as $39.9 million during the coming years. It should be noted that Aurora is most interested in acquiring dermatopathology practices, so most of the pathologists practicing in the three pathology groups acquired during 2010 are dermatopathologists.
In June 2009, GSO Capital Partners sold its stake in Aurora Diagnostics to KRG Capital Partners. Currently Summit holds 51% ownership of Aurora, stake, KRG holds 34% ownership and company management holds the remaining 15% ownership. As part of its planned IPO, Aurora Diagnostics expects to trade under the symbol ARDX on Nasdaq.
The last anatomic pathology company to file registration documents for an IPO was Bostwick Laboratories, Inc. of, Virginia. In documents filed with the SEC on March 7, 2008, the company stated its intent to raise $100 million in its IPO. Bostwick Laboratories disclosed annual revenue of $102.8 million in 2007. However, the IPO was never conducted and Bostwick Laboratories continues to operate as a private company.
One has to go back to the year 2000 when the last major IPO of an established national laboratory company occurred. Specialty Laboratories, Inc.—which was then based in Santa Monica, California—raised $86.3 million in its IPO that year. (See The Dark Report, “Specialty Laboratories Prepares for Initial Public Stock Offering,” October 2, 2000.) Specialty Laboratories was eventually acquired by AmeriPath, Inc., in 2006 and AmeriPath was itself acquired by Quest Diagnostics Incorporated (NYSE:DGX) in 2007.
In the decade since, there were IPOs for at least two companies that either had a focus on cancer testing or brought proprietary cancer tests to market. That would include Genoptix, Inc. (NASDAQ:GXDX) of San Diego, California, which sold $85 million of shares in its October 2007 IPO; and Genomic Health Inc. (NASDAQ:GHDX), of Redwood City, which brought in $60.2 million from its IPO in November 2009.
These examples show that, over the past decade, the challenges of completing an IPO for a clinical laboratory or pathology company have sometimes been significant. Further, the long-lasting economic recession has been a drag on the public equity markets over the past few years. That means it will be no “slam dunk” for Aurora Diagnostics to successfully place all $150 million of its stock with investors on terms that it finds acceptable.