Center purchase effort stays close and personal

April 8, 1992

Purchasing and operating successful imaging centers requires afocus on the personalities behind these businesses. A center runby a physician who maintains good relationships with doctors inthe community offers an acquiring imaging center chain

Purchasing and operating successful imaging centers requires afocus on the personalities behind these businesses. A center runby a physician who maintains good relationships with doctors inthe community offers an acquiring imaging center chain positivecash flow potential and minimal turnaround headaches, accordingto Arthur Quillo, president of MRI Medical Diagnostics of SanDiego.

Chains attempting to grow from a small base would be wise toseek out physicians with the right personal touch, he said.

Quillo is a veteran medical imaging equipment and servicesexecutive with experience at Technicare, Scientific Imaging andDiasonics. He joined MRI MD in August. The four-year-old centerfirm has partnership positions in two imaging centers.

Since August, MRI MD has been spun off from its Canadian parentand transformed into an independent firm, traded publicly on theNASDAQ stock exchange. Rather than launching an initial publicoffering, a public company with minimal activities in the miningfield was acquired, the name was changed to MRI MD, and the businessrefocused on medical imaging, Quillo said. The company tradesunder the symbol MRMD.

MRI MD is too small to qualify for the $50 million net tangibleassets safe harbor in federal regulations restricting referring-physicianownership of medical facilities. The move to become a public company,however, is part of an expansion effort aimed at buying independentphysician-owned centers that have been forced into restructuringby safe harbors and other regulations, he said.

"Our approach is to look at centers that have a strongphysician involved. These are centers that wouldn't be for saleexcept for safe harbors. Then we want to keep that physician involvedwith us," Quillo said.

A letter of intent was signed by the company last month forthe total acquisition of Nuclear Medicine Imaging Center of Roseville,CA, marking the first step in MRI MD's expansion effort, he said.

The nuclear imaging center is operated by a nuclear medicinephysician but is 60% owned by the referring cardiologist, andthus has been forced to restructure. The center has been healthyfrom the start, with annualized revenue of $975,000 and a profitof about $300,000 following its opening in March 1991.

"This is a nuclear medicine imaging center that concentratesmainly in the cardiac area. You don't have the kind of price discountinggoing on in nuclear medicine that you have in MRI centers. Therefore,the return is a little higher in terms of percentage (of revenue),"Quillo said.

The letter of intent calls for the purchase to be funded bya combination of cash and stock in the company, paid to the centerowners over a minimum of a year, based on the continued performanceof the center.

"It is an earn-out approach based upon the continuingrevenue level of the business that we are buying," he said.

While MRI MD will grow in size as it adds on centers, the hopeis that the firm will not lose its focus on the people who standbehind successful imaging ventures, he said.

"One of the pitfalls of being too big in the imaging businessis to assume it can be done impersonally. So much of the successof any individual center is based upon personal relationships.If you become too detached, you will miss the ingredient thatmakes a center successful," Quillo said.

MRI MD plans to raise $3 million to $5 million in capitalthrough a private placement of stock over the next few monthsto support short-term growth. The firm then hopes to launch asecondary stock offering in 12 to 18 months in order to raise$20 million to $25 million more in expansion funds, he said.