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Purchase would be second with Cardinal HealthAfter months of planning and negotiations, InSight Health Services Holdings has signed an agreement with Cardinal Health to acquire 22 diagnostic imaging centers. The agreement calls for

Purchase would be second with Cardinal Health

After months of planning and negotiations, InSight Health Services Holdings has signed an agreement with Cardinal Health to acquire 22 diagnostic imaging centers. The agreement calls for the purchase of all the stock of Cardinal Health's wholly owned subsidiary Comprehensive Medical Imaging (CMI) and its subsidiaries.

The 22 centers are located in California, Arizona, Texas, Kansas, Pennsylvania, and Virginia. Cardinal Health initially acquired the centers Jan. 1, 2003, through its purchase of Syncor International.

The deal for their sale to InSight should be done by the end of March, pending standard closing conditions, including lender consent. It was a long time coming.

Shortly after closing on the purchase of Syncor, Cardinal Health announced plans to sell to InSight all or most of the imaging centers obtained in that acquisition. The sale was expected to involve a series of transactions beginning about Jan. 31 and running until early May 2003 (SCAN 1/22/03). The first, completed in April, involved 13 imaging centers in Southern California. That deal was valued at $47 million. Negotiations to buy other centers, however, haven't panned out until just now.

Several of the centers included in the most recent agreement will help round out InSight holdings in California, Texas, Pennsylvania, and Arizona. Two others offer new opportunities.

"Virginia is a CON (certificate of need) state, so the center there will give us the chance to expand," said Steve Plochocki, InSight CEO. "The one in Kansas has the fastest growth and best margins of any of the centers."

The deal for Cardinal Health's 22 imaging centers in the six states carries a $48.3 million price tag, including $35.6 million in cash and $12.7 million in debt assumption and transaction costs. InSight plans to use its existing credit facilities and additional debt financing to fund the purchase price and future capital expenditures related to the acquisition.

This would be the company's third major acquisition in the past 12 months. A deal struck with CDL Medical Technologies and completed in August involved 22 mobile facilities operating in the mid-Atlantic states and was valued at $48.5 million.

Privately held InSight, based in Lake Forest, CA, serves managed-care entities, hospitals, and other contractual customers. If the latest acquisition with CMI goes through, company assets will include 114 fixed-site imaging centers and 117 mobile facilities serving patients in 33 states. The 300 staff at the additional 22 centers will boost the company's payroll to about 2300 employees.

Unaudited financial information provided by CMI for the nine months ended Sept. 30 indicates that the 22 centers had revenues of approximately $37.8 million and net income of approximately $4.8 million. The addition of the centers is expected to contribute $4 million of EBITDA (earnings before interest, taxes, depreciation, and amortization) to InSight's revenues for the quarter ending June 30.

Plochocki characterized the deal as a grand slam in terms of pricing and strategic value.

"We bought this thing at one times (annual) revenues and about three times (annual) EBITDA," he said. "I don't think anybody has purchased something this big at that multiple ever in this sector."

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