Investment strategy pays big dividends for DVI

Quarterly revenues and earnings for DVI Financial more than doubledin the second quarter as the company increased its holdings injoint-ventured diagnostic imaging centers.

The Irvine, CA, company's break neck growth corresponded witha shift in strategic focus engineered by president David Higgins.DVI is the first finance company to aggressively buy minorityshares of joint-ventured diagnostic imaging centers.

DVI's revenues jumped to $7.5 million in the quarter endingJune 30, compared to $2.5 million for the same period in 1990.Net earnings totalled slightly more than $500,000, up from $250,000for the second quarter in 1989 (see accompanying graph).

DVI is publicly traded. About 40% of its stock is controlledby the Pritzker family, owners of the Hyatt hotel chain. The companyleases more than 80 MRI systems. As much as 80% of its new businessis connected with acquiring equity positions in imaging centers,Higgins said.

Higgins found a strong buyer's market for this new line ofbusiness. Federal safe harbor regulations governing Medicare anti-kickbacklaw enforcement mandated in July that joint-ventured imaging centerswould not be protected if more than 40% of the business's stockwere owned by referring physicians. Many centers immediately wenton the hunt for financial angels to help them comply.

DVI has played that role for about a year, according to Higgins.

"We've really not responded to the safe harbors. It justso happens that the safe harbors are consistent with the businesswe're in," he said.

It is a risky business, according to competitors in a positionto take the same approach. The LINC Group, a Chicago-based financialservices company, is one of them. It owns minority interests inan undisclosed number of centers, according to president MartinZimmerman. LINC obtained $50 million for possible acquisitionsfrom the April 1990 sale of its mobile imaging subsidiary to MobileTechnologies in Los Angeles.

But LINC is not ready to take the plunge. "It is timeto be deliberate," Zimmerman said.

In contrast, Higgins' aggressiveness has been a main ingredientin DVI's success, industry officials said.

"(DVI) specializes in high-risk, high-return situations,"said George P. Conbeer, senior vice president of Comdisco MedicalLeasing Group in Rosemont, IL.

Problem accounts and imaging center start-ups needing creativefinancing have been DVI's specialty, according to Lon Gilette,a consultant with Medical Ventures in Solana Beach, CA.

"DVI likes deals that carry a high rate of return becauseit's good at helping these businesses get organized," hesaid.

Gilette sensed changes at DVI about a year ago when Higginsexpanded the staff by 50% and negotiated additional lines of credit.

"Then the safe harbors fell into everybody's lap. Thisdevelopment presented Higgins with a good opportunity to pursueacquisition," he said.