When completed, this acquisition will give Quest Diagnostics a major laboratory presence in the backyard of competitor Laboratory Corporation of America
Another big lab domino fell in the continuing consolidation of the clinical laboratory testing industry. This time it was Solstas Lab Partners, which announced that it would be acquired by Quest Diagnostics Incorporated (NYSE:DGX).
The agreement was announced by both companies earlier this week. Quest Diagnostics will pay $570 million to acquire Solstas, which is based in Greensboro, North Carolina. Solstas provides medical laboratory testing services to clients in nine states across the South. Quest Diagnostics says it expects to close the sale by the middle of this year, subject to the usual regulatory reviews of such transactions.
Quest Diagnostics Gains Big Lab Presence in North Carolina
One interesting consequence to this sale is that it gives Quest Diagnostics a significant foothold right in the backyard of competitor Laboratory Corporation of America (NYSE: LH) (LabCorp). The main lab facility for Solstas in Greensboro is located just 25 miles from LabCorp’s big lab in Burlington, North Carolina.
Solstas was among a handful of privately held independent lab companies remaining with annual revenue in excess of $100 million. Several published estimates put the annual revenue of Solstas Lab Partners in the range of $350 million. If that number is accurate, it indicates that Quest Diagnostics paid 1.6 times revenue, and that would be a rather low multiple when compared to other lab sales in recent years.
A low sales price would be consistent with lab industry scuttlebutt that has circulated in recent weeks as it become known that the owners of Solstas Lab Partners were looking to sell the company. It was said that LabCorp was concerned that, if it bought Solstas, it might by challenged by federal antitrust regulators because it already has a substantial share of the medical laboratory testing market in the Carolinas. LabCorp did face such an antitrust challenge when it acquired Westcliff Medical Laboratories of Irvine, California, in 2010, but overcame issues involved in that situation and was able to complete that purchase.
It can be assumed that Sonic Healthcare Ltd. (SHL: AU) of Sydney, Australia, was offered the opportunity to submit a bid to buy Solstas Lab Partners. However, during the past 36 months, Sonic has not been willing to pay as much as other buyers of certain clinical laboratory companies offered for sale in the United States. Thus, Sonic may have only been interested in Solstas at a purchase price that was considered too low by Welsh, Carson, Anderson and Stowe (WCAS) , a private equity firm and owner-seller of Solstas.
Third Sale of a WCAS Lab Company to Quest
In fact, this is at least the third time that Welsh, Carson, Anderson and Stowe has been involved in the sale of a laboratory company to Quest Diagnostics. In May 2007, Quest Diagnostics purchased AmeriPath, Inc., from WCAS for a price of $2 billion. Just two years earlier, in November 2005, Quest Diagnostic also acquired LabOne, Inc., a company in which WCAS was a shareholder. The LabOne purchase price was $934 million.
Solstas Laboratory Partners has had a colorful history. It was founded in 1997 as Spectrum Laboratory Network Spectrum Laboratory Network. It was owned by three healthcare systems: in 2006, Spectrum Laboratory Network was sold to Apax Partners. Next, in 2010, Apax sold the lab company to Welsh, Carson, Anderson, & Stowe for a sales price of $230 million. (See Dark Daily, “Spectrum Laboratory Network Sells to Welsh Carson for $230 Million,” December 19, 2009.)
Finally, the sale of Solstas Lab Network is one more capstone in the career of its CEO, David Weavil. From the early 1980s, Weavil worked at Roche Biomedical Laboratories, based in Burlington, North Carolina. He served as CEO of Unilab Corporation in the late 1990s. After Welsh Carson bought Solstas in 2010, Weavil assumed the CEO role, working out of Greensboro, just down the road from where he had spent decades working in Burling for Roche and LabCorp.