Carilion Clinic and Novant Health will continue to own equity in the new clinical laboratory company

It was big news in the clinical laboratory industry yesterday when Spectrum Laboratory Network of Greensboro, North Carolina announced a merger with Carilion Labs of Roanoke, Virginia. The combined enterprise will have annual revenue of approximately $300 million and immediately becomes one of the nation’s larger clinical laboratory companies.

As announced by the parties involved, Carilion Clinic will hold a 33% ownership interest in the new laboratory company. Novant Health, which holds a minority interest in Spectrum Laboratory Network, will continue as an equity owner and will have a seat on the new board of directors, once the two laboratory organizations are merged into one company.

Welsh, Carlson, Anderson and Stowe (WCAS) of New York New York will be the majority owner. It was early in December when Welsh Carson paid $230 million to acquire Spectrum Laboratory Network from Apax Partners. (See Dark Daily, December 16, 2009; “Spectrum Laboratory Network Sells to Welsh Carson for $230 Million”.)

Merger of Spectrum Laboratory Network and Carilion Labs Creates Big Clinical Laboratory Company 
Carilion Labs will merge with Spectrum Laboratory Network and the transaction is expected to be completed by the end of February (photo © Carilion Labs)

Regulatory approval of the merger by the Federal Trade Commission is required and the principals expect to close the transaction by the end of February 2010. David Weavil, who was appointed CEO of Spectrum Laboratory Network as part of its acquisition by Welsh Carson last month, will serve as CEO for the new laboratory company.

One interesting aspect to the merger of Spectrum and Carilion Labs is that it strengthens the closest competitors to what has traditionally been “LabCorp territory” around the North Carolina and Virginia markets served by Laboratory Corporation of America’s (NYSE: LH) biggest regional laboratory, located in Burlington, North Carolina. Spectrum is based in Greensboro, just west of Burlington, Carilion’s Roanoake, Virginia, location is northeast of Burlington.

The transaction demonstrates the continued interest by private equity investors in the clinical laboratory testing business. Among its earlier investments over the years, Welsh Carson has held an equity ownership in LabOne, Inc. and owned 100% of AmeriPath, Inc. Welsh Carson eventually sold both laboratory companies to Quest Diagnostics Incorporated (NYSE: DGX) for sales prices of approximately $934 million and almost $2 billion, respectively.

Further, this merger demonstrates once again how laboratory testing outreach programs are finding increased favor by hospital and health system CEOs. The continuing involvement of both Carilion Clinic and Novant Health as equity owners is a sign that both health systems want to continue to benefit from the financial, operational, and clinical value that a dynamic, fast-growing outreach program can deliver.

Clinical laboratory and pathology merger and acquisitions will be the topic of a special extended session at the upcoming Executive War College on Laboratory and Pathology Management. This will take place at the New Orleans Sheraton Hotel on April 27-28, 2010.
 

Related Information:

Carilion Labs to Merge with Spectrum Laboratory Network: Merger creates new and stronger regional hospital laboratory company

Carilion Labs merger to form one of the largest lab service companies in U.S.

Carilion Labs, Spectrum Laboratory Network Announce Merger