Market forces drive SourceOne, Merry X-Ray deal

December 19, 2005

Merry X-Ray acquired SourceOne Healthcare Technology, increasing U.S. distribution of medical imaging equipment, supplies, and services.

Platinum Equity's investment in SourceOne Healthcare Technology ended in the week leading up to the RSNA meeting with the acquisition of SourceOne Nov. 18 by competitor Merry X-Ray.

The distributor, named for its founder George Merry, described the acquisition as part of an effort to extend its reach nationwide with thousands of imaging products and services. Prior to the deal, SourceOne was the largest distributor of medical imaging equipment, supplies, and services in the U.S. Merry X-ray had 32 branches in 25 states.

"The acquisition of SourceOne not only enables us to strengthen our national presence but also assures our continued growth and provides greater security for our employees," said Larry Lawson, president of Merry X-Ray.

The union may produce cost efficiencies that will help the combined company fight mounting cost pressures arising from the commoditization of products in the two firms' portfolios and rising transportation expenses.

"It's a challenging environment, particularly when you don't control many of the variables," said Jerry Cirino, who served as SourceOne CEO.

The biggest variable was film sales, which have been declining as healthcare providers move to digital imaging.

"It was difficult to predict the rate of decline of film," Cirino said. "Even the film companies have difficulty doing that. Together, we tried to prognosticate where it was going to go, but there is no oracle to seek out."

SourceOne's main product was medical x-ray film. The company was the world's largest distributor of the film. The sale of the company was preordained, according to Cirino.

"They asked me to get it into the right condition to be attractive to a buyer, and that is exactly what happened," he said.

SourceOne was forged in 2002 by the merger of two major distributors: the Diagnostic Imaging unit of PSS World Medical and Health Care Products (HCP), which had gained prominence as a unit of Picker International and, later, Marconi Medical Systems. (HCP was acquired by Royal Philips Electronics when it purchased Marconi Medical in 2002.)

Cirino took the helm at SourceOne soon after the merger between HCP and Diagnostic Imaging. Under Platinum Equity's tutelage, he and his staff achieved more than $1 billion in annual sales. His primary charges during his tenure were to integrate the two distributors, streamline sales and service operations, and engineer a transition from film to digital imaging.

"We successfully completed the integration very early. We then completed the financial turnaround, making the company profitable and were well along the way on our analog-to-digital strategy," he said.

Efforts at SourceOne were similar to those under way at Merry X-Ray, which formed its Digital Imaging Division in 1998.