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No firm details yet on how GE will handle purchaseGE Medical Systems last month demonstrated the depth of its commitment to the ultrasound market by announcing its intent to acquire Diasonics Vingmed Ultrasound from Elbit Medical Imaging of Haifa,
No firm details yet on how GE will handle purchase
GE Medical Systems last month demonstrated the depth of its commitment to the ultrasound market by announcing its intent to acquire Diasonics Vingmed Ultrasound from Elbit Medical Imaging of Haifa, Israel. Once completed, the deal will make GE a force to be reckoned with in the fast-growing echocardiography market, and could blunt the efforts of radiology ultrasound companies to expand in the cardiac segment.
GE on Feb. 13 announced that it plans to purchase Diasonics Vingmed for $230 million, with the acquisition expected to close in April. Few details about the deal are available, such as whether GE would change Diasonics Vingmed's name or maintain the company's headquarters in Santa Clara, CA. GEMS president and CEO Jeffrey Immelt declined to provide specifics of the acquisition, as the companies are still in the due diligence phase.
One thing is clear, however: GE's interest in the System Five echocardiography scanner developed by Diasonics Vingmed. GE sees System Five as a high-end product that will enable the Milwaukee vendor to enter echocardiography, a market in which GE does not participate. Diasonics has been successful with the product, but GE's sales and marketing muscle could carry the system to new heights.
"We like System Five, it is a nice cardiology platform, and there is more we think we can do with it," Immelt said.
Entering the echocardiography market would be a nice complement to the radiology ultrasound business that GE has painstakingly built over the last several years. Conventional wisdom in the early 1990s was that multimodality vendors were unable to keep up with the fast pace of technological change required in ultrasound, and GE's early efforts did little to disprove this belief. The company thought it had a winner when it unveiled the premium Logiq 700 scanner at the 1993 Radiological Society of North America meeting, but shipments of the system were slow to pick up (SCAN 12/15/93).
GE continued plugging away, however, inspired by the long-term growth prospects of ultrasound. The company's fortunes slowly improved, particularly with the release of new upgrades, such as the Maximum Resolution package, which unlocked the potential of Logiq 700. Other systems in GE's product line, such as the Logiq 500, have also performed well.
In addition to improving its technology, GE beefed up the personnel ranks in its ultrasound business by hiring executives from other ultrasound vendors. Perhaps the most notable hire was that of Omar Ishrak, a high-level Diasonics executive who was responsible for some of the technology that put the company on the map in the early 1990s. Ishrak was tapped to lead GE's ultrasound business in 1995, six months after Diasonics was acquired by Elbit.
Elbit's ultrasound story. Elbit has traced a somewhat different history in ultrasound. The company is the parent of multimodality vendor Elscint, and like GE, saw ultrasound as a modality with a promising future. Elbit acquired Diasonics in October 1994 for $70 million (SCAN 7/27/94).
At the time of Elbit's acquisition, Diasonics was struggling with profitability issues, and was widely rumored to be a takeover target. To make the firm more attractive, the company's executives had spun off or divested other businesses, such as the c-arm unit that became OEC Medical Systems, and an ultrasound ablation business, Focus Surgery, that later filed for bankruptcy.
In an effort to build a stronger company following its acquisition, Elbit added other ultrasound firms, such as Ausonics of Australia, and also folded into Diasonics Elscint's small ultrasound operations. But almost from the start, Diasonics was plagued by problems. A large number of Diasonics executives, including Ishrak, left the company in the months after the acquisition, and Elbit was forced to implement cost-cutting measures to return the company to profitability.
Things finally appeared to be falling into place by 1996, with Diasonics reporting a profit of $3 million on revenues of $208 million. More importantly, however, was the fact that Diasonics appeared to be regaining the reputation for technological leadership that it enjoyed prior to the Elbit acquisition. The main factor in this resurgence was System Five, which makes generous use of digital technology and is capable of imaging at very high frame rates, a major benefit when capturing fast-moving cardiac images. Diasonics also sells the CFM echo system, as well as the Gateway fx and Synergy radiology scanners.
In spite of the trials and tribulations it may have suffered during its ownership of Diasonics, Elbit will probably walk away from the deal satisfied: GE's asking price of $230 million is a hefty premium over the $70 million the company originally paid. Elbit executives said the sale would allow their company to pursue other strategic opportunities, which could be a boon for Elscint as its parent puts the windfall to work.
For its part, GE does not believe it is overpaying for Diasonics, given the amount of energy Elbit put into the business and the growth potential of ultrasound in general, according to Immelt.
"I think if you look at the market values of what ultrasound businesses are worth, this falls nicely into that pattern," he said. "(Elbit) put money into it, there was more than what you saw in the first place to the Diasonics purchase, and we are comfortable with the price."
Diasonics Vingmed's 900 employees around the world will probably also be comfortable with their new owners. Although there is still uncertainty as to where they will be located, GE probably offers a more compatible corporate culture that did Elbit. And many are looking forward to having GE's vaunted marketing and distribution prowess behind their products.
"It's a perfect fit for GE. It will allows us to capitalize on the GE presence and remove that doubt that the market has as to our viability," said Ken McDonnell, vice president of marketing at Diasonics. "This rounds out the GE line and allows us to take advantage of their national accounts."
How will a GE/Diasonics combination affect the ultrasound market? It will probably mean tougher competition for Hewlett-Packard, by far the leader in echocardiography. But it will also impact manufacturers of general radiology scanners, such as Acuson, ATL, Toshiba, and Siemens, which are trying to build their shares of the echo market. Stay tuned to see how the acquisition affects this fiercely competitive segment.