Alliance acquisition of Mobile Technology will unite largest players in mobile market

Alliance owner Apollo is driving industry consolidation

The two largest companies in the mobile imaging services market this month announced plans to join forces in a move that would drive the industry even closer to consolidation. Alliance Imaging of Anaheim announced on Jan. 13 that it has signed a deal to acquire Mobile Technology of Los Angeles, creating a mobile giant with 180 systems in the U.S.

Alliance said it planned to acquire MTI in a deal worth $100 million, including the assumption of debt. MTI will be incorporated into Alliance, rather than be run as a separate subsidiary, as is Alliance's sister company, SMT Health Services (SCAN 1/14/98). The agreement is expected to close by the end of February.

Privately held MTI was founded in 1983 and at one time was the largest mobile provider in the U.S., with over 100 units in service at its peak. Like much of the mobile industry, however, MTI ran into financial difficulties in the early 1990s due to declining prices, an aging fleet, and a high debt load. The company in 1995 implemented a restructuring that converted debt to equity, streamlined operations, and reconfigured mobile routes. MTI completed the restructuring in 1996, and now the company may be in the strongest shape it has ever been in, according to Joseph Cilurzo, president and CEO.

MTI shrank its mobile fleet as part of the restructuring, however, and now operates just over 70 systems. While Alliance experienced financial woes of its own over the same period, the company continued to expand, to the point where it surpassed MTI in size several years ago, Cilurzo said. Alliance now operates over 100 mobile systems.

Alliance is pursuing the acquisition as part of its drive to consolidate the fragmented mobile imaging industry, according to Matthew Webb, senior financial analyst at Alliance. That drive gained momentum after Alliance was acquired by Apollo Management, a New York City investment firm that also acquired Pittsburgh-based SMT Health Services.

Both Alliance and Apollo saw that the mobile market was ripe for consolidation. After Apollo beat out Alliance in bidding for SMT, Alliance decided to join forces with Apollo rather than compete with the company for acquisitions.

"The industry had started to consolidate on its own, and it wasn't clear who the winner was going to be," Webb said. "The fear was that we'd end up with two or three big guys competing. If you had just one (making acquisitions), it would have greater success."

MTI agreed to the acquisition for similar reasons. MTI considered casting itself in the role of an acquiring company, according to Cilurzo, but saw that segment becoming crowded with the rise of companies like Medical Resources, U.S. Diagnostic, and Apollo.

"There is only room in an industry for so many consolidators," Cilurzo said. "I don't know what the right number is, but it is a finite number, and we felt it was getting there. Rather than go and make a large number of small acquisitions, we feel we would be better off joining a premier player."

MTI operates mobile routes in 31 states, with strongholds in the Northeast, South, and Midwest. Alliance is strong in the West, the Mid-Atlantic region, and the South. Although the companies do have routes operating in the same areas, the overlap is considered complementary rather than redundant, Cilurzo said.

Alliance's Webb believes the acquisition will produce synergies by enabling the companies to make neighboring mobile routes more efficient. Webb does not believe that that the deal will result in the elimination of a large number of routes.

The two companies are still in discussions over how MTI will be integrated with Alliance. For example, MTI's Los Angeles operations may be relocated to Alliance's Anaheim headquarters. It's still unclear whether there will be a personnel reduction at MTI due to redundancies, but a large number of job cuts is unlikely as both companies are advertising for personnel, Cilurzo said. Richard Zehner will remain chairman and CEO of Alliance, while Cilurzo's role in the new company is being negotiated.

Whatever the structure of a post-acquisition Alliance, it is certain that the resulting entity will be in the driver's seat regarding the consolidation of the mobile imaging market, with few potential competitors on the horizon. Alliance will likely continue its acquisition drive, with the goal of creating a dominant, nationwide mobile imaging services company.