New CEO plans merger of HCP and DI to create powerhouse distributor

January 8, 2003

Combined company firms up industry networks in U.S.Two distributors of imaging equipment--Health Care Products (HCP) and Diagnostic Imaging (DI)--are being merged into a single company under the ownership of Platinum Equity. The

Combined company firms up industry networks in U.S.

Two distributors of imaging equipment--Health Care Products (HCP) and Diagnostic Imaging (DI)--are being merged into a single company under the ownership of Platinum Equity. The merged company, which will be called SourceOne Healthcare Technologies, could help an industry that recently has fallen into economic disarray.

Suppliers have expressed concern about the viability of distribution networks in the U.S., particularly those involving consumables, according to SourceOne CEO Jerry C. Cirino. The bankruptcy of Medical Imaging Technologies, which specialized in radiographic consumables and sold its assets in mid-2002 to HCP, offers one example.

"I have had some very supportive and positive reactions from manufacturers because of the perception that we are going to be a strong and dynamic company that will be able to reinvest in itself to continue to offer capabilities that serve both the customer and supplier," said Cirino, who was appointed chief exec of SourceOne Nov. 21. "Bringing HCP and DI together really puts us in a new league."

Platinum finalized its acquisition of the two distributors Nov. 20. HCP was bought from Royal Philips Electronics, which had earlier acquired the distributor as part of its deal for Marconi Medical Systems. DI (which is not related to Diagnostic Imaging magazine or DI SCAN) was acquired from PSS World Medical. The new name of the combined company was announced at the RSNA meeting.

Platinum Equity, a holding company that invests in technology companies, announced its intention to buy HCP and DI on Sept. 11 and Oct. 28, respectively. Cirino and a senior management team drawn from the ranks of HCP and DI will guide the merger.

When operating independently, the two companies were complementary in the markets they served. DI focused mostly on physicians' practices and clinics, while HCP addressed primarily hospitals. Most of their products were consumables such as radiographic film or accessories such as lead aprons. In recent years, however, HCP had started to branch out to include selected capital equipment such as mobile x-ray equipment from Philips Medical Systems.

"The consumable piece is still the bulk of the business, and we will continue to focus on that," Cirino said. "But equipment will be a very big part of our strategy, and I am anxious to grow this within the organization."

Shimadzu and SwissRay have been major sources of capital equipment to HCP. They may be joined by other equipment vendors in the future, according to Cirino, who noted that major OEMs such as Philips and Siemens still use distributors in some parts of the U.S.

"To the extent that we can make ourselves an effective and attractive distribution channel, suppliers--including the big OEMs--very well may be interested in tapping into that," he said. "I wouldn't put any brackets around where we could go."

Along with consumables and selected capital equipment, the two companies had also offered service contracts to clients. As SourceOne, they will continue to do so. But the newly merged company will go beyond its core strengths in distribution and service to assist customers in making the transition to digital technology. Before its acquisition by Philips as part of the deal for Marconi Medical, HCP had been getting progressively involved in image management products and services, and DI had established a business in PACS.

"Our strategy is to grow the breadth and depth of products and services we offer in image management," Cirino said. "We are going to be looking for the right business partners to get us there."

Cirino was president of HCP before ascending to executive vice president for global sales, service, marketing, and operations at Marconi Medical and a seat on the company's board of directors. As a consultant to Platinum Equity, he assisted in efforts leading up to the acquisition of HCP and DI. As CEO of the new company, he is now charged with creating a vision for the combined company.

"I have lots of ideas, but they have not yet been developed into a strategic plan," he said.

That plan could be formulated, however, by the end of January. When ready, it will be implemented by a team of industry veterans. Fred Keller, vice president of service for DI, will be service vice president for SourceOne. David Georges, vice president of marketing for DI since 1999, will be marketing vice president. Allen Christensen, the director of marketing and e-business at HCP, will assume the role of manufacturing vice president. Joe Alpeza, director of HCP distribution services, will become vice president of operations. Chris O'Brien, who joined Diagnostic Imaging in 1998 as manger of contracts and pricing, will be vice president of merger implementation.

Cirino introduced the new senior managers and rebranded DI and HCP as SourceOne Healthcare Technologies in meetings with suppliers and customers at the RSNA show. Staff also spread among the exhibit booths of Shimadzu and other capital equipment suppliers, representing the suppliers and selling for SourceOne.

"The RSNA meeting was really a great opportunity to do a lot of different things, and it was great timing for us as we came out with this new company," Cirino said.

I addition to the issue of strategy development and implementation, Cirino and colleagues must grapple with operational tasks. Mundane but essential transitions must be completed in tasks related to the infrastructure of the new company. Some economies of scale will be achieved, leading very likely to a reduction in the workforce, although no final decisions have been made on how or when this may happen.

Illustrating Cirino's management style, SourceOne may have not a single headquarters but a virtual one operating at two separate locations: HCP's Cleveland digs and those of DI in Jacksonville, FL. Senior staff will be at both offices, as well as other places.

"We live in a virtual world," Cirino said. "I am wide open to a virtual executive program."