News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel

News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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Lab Acquisition Activity Stays Busy as Stanford and Carilion Negotiate with Buyers

With demand driving prices to record levels for clinical laboratory companies and anatomic pathology practices, merger and acquisition (M&A) activity in the lab industry continues to grow across the United States.

Just two weeks ago, Sonic Healthcare, Ltd. announced that it was purchasing Clinical Laboratories of Hawaii, LLP for an estimated $121 million dollars. That sale is expected to be completed by the end of third quarter this year. (See Dark Daily, June 30, 2008)

Still unannounced as of this date are the winning bidders for the laboratory outreach business of Stanford University Medical Center and the laboratory testing division of Carilion Clinic. Earlier this year, officials from both institutions disclosed that their laboratory businesses were up for sale. (See Dark Daily, April 15, 2008)

At this year’s Executive War College in May, attendees participated in the lab industry’s first-ever conference on “Mergers & Acquisitions in Clinical Laboratories and Anatomic Pathology,” a program designed to bring potential sellers of clinical labs, pathology groups, and hospital lab outreach programs together with experts in law, valuation, negotiation, and financial planning.

Two speakers attracted particular attention: Doug Brown, Managing Director of Wachovia Securities and attorney Antony Konkoly, Esquire, of McDonald Hopkins.

Brown provided a concise review of the factors supporting higher valuations for laboratory assets and discussed details of some recent noteworthy lab acquisitions. According to Brown, lab owners need to recognize that there is no simple way to establish a single value for their laboratories because different buyers will place different values on a lab company’s existing assets and future growth prospects.

Brown also discussed details of the 2007 acquisition of AmeriPath, Inc. by Quest Diagnostics, Inc. for approximately $2 billion. With annual revenue of $750 million, it was estimated that the multiple paid in this transaction was as high as 17 times EBITDA (earnings before interest, taxes, depreciation, and amortization). Brown pointed to several unique factors, including market timing, that supported AmeriPath’s top-of-market valuation at the moment the deal was inked. He also explained that these same factors were not likely to be seen in the laboratory industry again anytime soon.

In this same session, Antony Konkoly offered some important M&A do’s and don’ts based on his considerable experience representing various parties in the sale of laboratory businesses, the establishment of laboratory joint ventures and the formation of new lab companies.

If you weren’t able to participate in this exciting new M&A conference, here’s another opportunity to hear Doug Brown’s take on the current state of mergers and acquisitions in laboratory and pathology.

Attorney Antony Konkoly, Esq. will once again join Doug Brown in this discussion. From Konkoly, you’ll learn about the mistakes lab sellers often make, and how you can fix those issues before offering your laboratory for sale. You’ll also get several proven recommendations on how to minimize tax consequences and maximize the net proceeds from the sale.

Whether you’re a lab owner or pathologist, you won’t want to miss this comprehensive new audio conference. Join Dark Daily and The Dark Report as they present, “Lab and Pathology Mergers & Acquisitions: Must-Have Essentials To Learn Before You Buy Or Sell A Lab,” on Wednesday July 30, beginning at 1:00 p.m. EDT (10:00 a.m. Pacific) and running for 90 minutes.

Don’t miss this special audio conference and your chance to listen to and ask questions of these two veteran lab industry dealmakers.

Register on or before July 18, 2008 and you’ll save $50. So don’t wait-Register today!

Quest Diagnostics to Buy AmeriPath for $2 Billion

Here’s the latest shake-up to the laboratory testing marketplace. Quest Diagnostics Incorporated announced this morning that it will acquire AmeriPath, Inc. in a transaction valued at $2 billion.

Both parties expect the deal to close before June 30, 2007. AmeriPath’s annual revenues are in excess of $800 million. Quest will pay $1.23 billion in cash and assume about $770 million of debt when the transaction closes.

With its purchase of AmeriPath, Quest Diagnostics picks up three diverse businesses in laboratory testing. First, it acquires Specialty Laboratories, Inc., based in Valencia, California. Specialty Labs provides reference and esoteric testing services to hospital and certain physician specialists.

Second, it will own AmeriPath Dermatopathology. This business division employs 80 pathologists located in offices across the United States. This business line is fast-growing and very attractive to Quest Diagnostics.

Third, it will come into ownership of the remaining anatomic pathology assets owned by AmeriPath. The largest component of this business division is the hospital-based pathology group practices that AmeriPath acquired over the past 10 years. There are also several pathology subspecialty centers in areas such as gastroenterology, oncology, women’s health, and urology.

For Quest Diagnostics, the timing of this acquisition allows it to shift the attention of Wall Street away from the UnitedHealth contract. The AmeriPath acquisition also allows it to gain lab testing revenues that will more than offset expected losses from the UnitedHealth contract. AmeriPath’s revenues will keep Quest Diagnostics on a growth track for 2007.

But with every laboratory acquisition comes with its own set of unique challenges. It has long been known that AmeriPath has struggled to find the right key to unlock financial success from its multiple business models. In buying AmeriPath, Quest Diagnostics will need to move carefully to integrate AmeriPath’s laboratory testing assets into its existing national laboratory network to maximize the benefits from this acquisition. These issues will be explored in the upcoming issue of The Dark Report.

Finally, one particularly happy party to AmeriPath’s sale is Welsh, Carson, Anderson and Stowe, AmeriPath’s majority shareholder. In March 2003, it paid approximately $840 million to buy the public stock of AmeriPath and take the company private. Then, in January 2006, AmeriPath paid an estimated total of $314.7 million to buy all the public shares of Specialty Laboratories. The impending sale to Quest Diagnostics comes only four years after Welsh Carson acquired AmeriPath and allows the private equity company to cash out its investment.

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Taking Back Pathology Business from Urologists and GIs: Pathologists Sodeman, Wright, and Petras Take Action

Growing numbers of urology and gastroenterology (GI) physician groups are taking deliberate steps to capture the revenues from anatomic pathology (AP) services generated by their patient referrals, The trend is already recognized to be one of the most destructive forces now confronting the pathology profession.

So it should be no surprise that some of pathology’s more notable leaders are raising the alarm. Just in the past seven days, an array of lab industry heavyweights stepped up to speak to the pathology profession. The goal was to define the problem, create awareness, and stimulate action.

Last week at Amelia Island, Florida, current College of American Pathologists (CAP) President Thomas M. Sodeman, M.D. joined with Louis D. Wright, Jr., M.D., Chairman of Pathology Service Associates (PSA) to speak to this threat at the 2006 PSA Strategic Business Retreat. To add force and emphasis, also participating in the program was Dennis Weissman, President of Dennis Weissman &Associates, LLC and Robert L. Michel, Editor-in-Chief of The Dark Report. Their perspectives provided optimism that pathologists could act effectively to counter the interest of specialist groups in creating their own in-house AP services.

Adding his own voice to this issue last weekend was Robert E. Petras, M.D., National Director for Gastrointestinal Pathology at AmeriPath, Inc. of Oakwood Village, Ohio. Dr. Petras hosted an entire morning on this topic at the ASCP (American Society of Clinical Pathology) Annual Meeting in Las Vegas, Nevada. His panel reflects the recognition that this trend needs high visibility and immediate action. Speakers included Jane Pine Wood, Attorney for McDonald Hopkins, based in Cleveland, Ohio, Robert L. Michel of The Dark Report; James M. Crawford, MD, Ph.D, Professor and Chair, Department of Pathology at the University of Florida in Gainesville; and Jeff Jacobs, who works in the Washington, DC office of the ASCP.

Laboratory directors, pathologists, and practice administrators should take note of these developments. Capture of anatomic pathology specimens and revenues by specialist physicians like urologists and GIs is gaining recognition as one of the most serious threats to the economic viability of the pathology profession. The willingness of these prominent individuals to step forward and detail the nature of this trend shows that a competitive market battle is about to unfold. The laboratory industry is building energy to confront specialist physicians and restore the primacy of pathologists as the best, most appropriate provider of diagnostic services.

You can contribute to the success of this effort. If your pathology group or laboratory has succeeded in developing a win-win outcome with a urology or GI group that wanted to get into the anatomic pathology business, we would like to hear about it. We are collecting success stories and preparing a briefing on effective techniques pathologists can use to respond to the interest of their local specialists in launching an in-practice AP service. E-mail Robert at