Management buy-out privatizes Esaote Biomedica

February 16, 1994

No changes are expected in Esaote Biomedica's ultrasound marketingstrategy or its emerging niche MRI effort, following a managementbuy-out of the firm, according to Fabrizio Landi, deputy generalmanager. Landi is one of four senior managers involved in

No changes are expected in Esaote Biomedica's ultrasound marketingstrategy or its emerging niche MRI effort, following a managementbuy-out of the firm, according to Fabrizio Landi, deputy generalmanager. Landi is one of four senior managers involved in purchasingthe Italian medical imaging vendor from its parent, Finmeccanica.A letter of intent was signed earlier this month.

"All of Esaote will remain as is with the new investment,"Landi told SCAN. "In the last three or four years, (Finmeccanica)has not provided specific fuel to support our growth."

Finmeccanica is a large Italian conglomerate with a focus onaerospace. Esaote constituted only about 1% of total sales ofthe parent, he said.

"They (Finmeccanica) were in medical, but it was not likethe commitment of Siemens or GE to medical, which is one of theirkey activities," Landi said.

Despite spending 10% of sales on R&D, Esaote has kept costslow enough to maintain profits in the context of a very tightworld ultrasound market, he said. The vendor earned about $125million in worldwide consolidated revenues in 1993 (end-December),of which 60% involved ultrasound.

Because of a devaluation in the Italian lira, revenue in dollarsremained level from 1992 to 1993, he said. In local-currency terms,however, Esaote's revenue grew about 5% last year, while profitremained even with the last year.

"We have traditionally been a producer of mid/low-end(ultrasound) products," Landi said. "This has givenus the knowledge to produce not only for performance but withvery tight control of cost. We have been able to compete in theprice war everywhere in ultrasound, while keeping enough margin."

Financial support for the MBO was provided by a consortiumof five Italian and foreign institutional investors, includingthe large U.S. venture capital firm Advent International of Boston.

The buy-out, while small compared to some U.S. deals, was largefor Europe, Landi said. It will be the largest or second largestMBO ever transacted in Italy, although the record may not standlong. Italy, in the throes of kickback scandals and a radicalchange in government structure, is heading full-throttle intothe privatization of government-owned companies.

Four years ago, being part of a government-backed conglomerateprovided ready access to credit. That type of support is fastevaporating, Landi said.

"The credit we obtained in the last year was because Esaoteis a solid and trustworthy company," he said.

Esaote remains little-known in the U.S., in part because ofits decision to market products through companies with establishedpositions in the market. However, the 12-year-old Italian firmhas made a push into the American market, centered around thepurchase of Indianapolis-based Biosound in 1990, he said.

Biosound sells Esaote-produced ultrasound equipment largelyinto the cardiology market, although a radiology-targeted scannerwas introduced as a works-in-progress at the December RadiologicalSociety of North America meeting, Landi said.

The vendor has a two-pronged marketing strategy: Domestically, Esaote sells its own ultrasound and MRIproducts and serves as a distributor of electromedical and imagingequipment made by other vendors; and Esaote sells only its own technology internationally.The vendor is building up a direct presence worldwide, havingestablished subsidiaries in France, Germany and the U.S. overthe past four years.

Esaote is a distributor of Hitachi imaging equipment in Italy,including CT, MRI and high-end ultrasound. Combining sales ofthe Hitachi and Esaote ultrasound scanners, Esaote has the largestItalian market share in this modality, Landi said.

The Italian ultrasound market is in the area of $100 millionannually, of which Esaote sells about $35 million, he said.

MRI is a newer venture for Esaote. Although the firm has soldHitachi MRI systems for years, it introduced its own scanner onlyslightly over a year ago. The Artoscan is a small-bore, desk-sizesystem dedicated to extremity imaging. Esaote is marketing thesystem through bone densitometer supplier Lunar in the U.S. (SCAN10/07/92 and 10/6/93).

Artoscan sales were initiated in Europe last September, Landisaid. It obtained about a dozen orders in the first three months.Installations of the MRI system are approaching 10. Artoscan receivedFood and Drug Administration approval for U.S. marketing latelast year (SCAN 11/3/93).