Alliance drives mobile consolidation with American Shared imaging deal

Company also closes Mobile Technology acquisition

Imaging services provider Alliance Imaging is serious about consolidating the fragmented mobile market. The Anaheim, CA, company announced March 12 that it has reached an agreement to buy the imaging business of American Shared Hospital Services, one of the largest remaining independent mobile imaging services companies. Acquiring American Shared's mobile routes will move Alliance further down the road to becoming the dominant mobile imaging firm in the U.S.

Alliance has agreed to pay $13.6 million in cash for American Shared's medical imaging assets, and to assume liabilities associated with imaging that the San Francisco company incurred, including $26.1 million in debt. Alliance will also buy American Shared's cardiac catheterization laboratory and respiratory therapy services businesses. American Shared operates about 30 MRI and 15 CT routes, as well as a handful of ultrasound and nuclear medicine routes. The company operates in 23 states, spread across the U.S.

After acquisition is completed, American Shared will continue to provide Gamma Knife radiosurgery services to hospitals through its GK Financing subsidiary. The company has three Gamma Knife units operating, with others under development. American Shared will also continue to develop its "Operating Room for the 21st Century" concept. Dr. Ernest Bates will remain as American Shared chairman and CEO.

Like many other mobile imaging providers, American Shared has been emerging from a period of financial turbulence in the early 1990s. The company struggled under a heavy debt load that it began restructuring in 1994 through debt-for-equity swaps. With the restructuring completed, American Shared has been reporting profitable results for the last several financial quarters. For its third quarter (end-September), the company posted revenues of $9.4 million and net income of $446,000.

At the same time that it began returning better financial results, however, American Shared was operating with a working capital deficiency, and remained highly leveraged. The company began entertaining bids from possible suitors, and in December 1996 announced that it was prepared to accept an acquisition offer from U.S. Diagnostic (SCAN 12/18/96). USDL's proposal eventually failed five months later due to the controversy that erupted regarding USDL's relationship with a mergers and acquisition consultant. The turmoil prevented USDL from proceeding expeditiously with the acquisition, and the companies called off the deal.

The failure of the USDL bid left American Shared in need of a new partner. In September 1997, American Shared reported a working capital deficiency of $8.1 million and a net capital deficiency of $9.5 million, conditions that made it difficult for the company to continue as a going concern, according to documents filed by American Shared with the Securities and Exchange Commission. American Shared also recognized that the imaging services industry was entering into a period of dramatic consolidation, in which firms like American Shared must either grow through acquisition or become part of a larger entity.

While American Shared decided to play the role of acquisition candidate, Alliance has taken a different route. The company was acquired earlier this year by New York City investment firm Apollo Management, which also bought SMT Health Services of Pittsburgh. Apollo has recognized that the fragmented mobile industry is ripe for consolidation and is using Alliance as its vehicle for rolling up the U.S. market.

Another recent Alliance acquisition proposal, that of Mobile Technology of Los Angeles (SCAN 2/4/98), closed on the same day that the American Shared deal was announced. Alliance now operates 180 mobile MRI systems in the U.S.