Parker/Standard merger will add new player to distibution market

Parker also finalizes acquisition of EmPower

The launch of a major new x-ray distribution company is set for mid-August with the expected completion of a merger between E. M. Parker of Wilmington, MA, and Standard Medical Imaging of Columbia, MD, both long-established, family-owned distributors. The new company will be called MedImaging Technology.

Even before its formal inception, MedImaging has been scouting out prospective acquisitions of smaller independents who might be interested in choosing an alternate route through the ongoing consolidation of the x-ray distribution industry in the U.S. (SCAN 2/4/98).

"We would like to be perceived as an option for those companies that want to maintain a regional focus and want to be part of something that stays private and independent," said Edward Parker, president of E. M. Parker.

In one of its most recent acquisitions, Parker last month finalized the purchase of Glen Cove, NY-based EmPower from Swissray International, which announced earlier this year that it would sell EmPower to focus on its core digital imaging business (SCAN 3/4/98). EmPower is centered in the New York metropolitan area, with $6 million in annual sales. The acquisition raises Parker's total annual sales to $90 million.

MedImaging will be based initially at Standard's headquarters in Maryland. Eventually, a more centrally positioned base should be established, Parker told SCAN. No details are being given out yet as to the management structure of the new firm. The combination of Parker and Standard will result in a company with more than $160 million in annual sales.

While greater size provides leverage in negotiating lower supplier prices and in serving larger customers, this is not the only reason behind the merger. Perhaps more important is the synergy expected through the combination of Parker's focus on imaging supplies distribution and Standard's imaging equipment and service expertise, Parker said.

Large and sophisticated customers expect to be given state-of-the-art alternatives in the purchasing and tracking of their imaging supplies, such as film and film chemicals, he said. These customers also want access to the latest imaging equipment technology and service.

"There is an increased need for data, and we are in a position to accommodate that with a highly sophisticated information systems infrastructure," Parker said. "At the same time, (Standard) will drive the technology side of the business, maintaining a strong technology focus and moving us into emerging areas, such as new printing technologies, PACS, miniPACS, and teleradiology."

While not ruling out any future expansion, MedImaging will focus primarily on building its base in the northeastern U.S., he said.

"Healthcare remains a regional business," Parker said. "The Northeast is a unique regional market in which we have a long history and a great deal of knowledge. We will continue to look for opportunities through expansion and growth to strengthen our regional position."

Consolidation continues. Although the pace of imaging distribution consolidation has slowed somewhat from last year, Picker International of Cleveland and Diagnostic Imaging, a subsidiary of PSS World Medical of Jacksonville, FL, both remain active in the market and expect additional acquisitions of independent distributors before the end of this year.

Picker's Health Care Products division reported last month that it will purchase the imaging supplies distribution business of Milwaukee-based Delta Medical Systems, adding about $12 million in annual sales. This follows Picker's acquisition earlier this year of the imaging supplies business of Cassling Diagnostic Imaging, amounting to $42 million in sales throughout five Great Plains states.

These two purchases highlight Picker's eagerness to build the imaging supplies side of the business, as distinguished from equipment distribution. One reason that Picker is building in this direction is that it has the only supplies distribution organization with operations throughout the U.S. This has proven attractive to vendors, such as x-ray film companies.

Picker Health Care Products is the only firm with authorization from all the film companies to represent them throughout the U.S., according to Jerry Cirino, Picker vice president and general manager of Health Care Products.

Consolidation in imaging supplies distribution will continue to be propelled by the need of the film companies to rationalize their channels, he said.

"The film companies are probably going to look to further reduce the number of dealers representing them, which will put other businesses in play," Cirino said.

Picker may acquire another two to three independents this year, he said. A pace any faster than that creates problems in integrating the businesses into Picker's organization.

Diagnostic Imaging has also purchased two distributors this year: Medical Imaging Services of Little Rock, with $18 million in annual sales, and North Central X-Ray of Danville, PA, with $12 million in sales. DI is being selective in choosing its acquisition targets, focusing on distributors that will help the company build a nationwide presence and those that offer expertise in equipment sales and service, said CEO Kirk Zambetti.

"We see an opportunity to take a fragmented industry, consolidate it, and streamline the distribution channel so as to better serve the customer," he said.

DI's parent, PSS World Medical, instituted a change internally this year that has made the evaluation of potential acquisitions more rigorous, according to Thomas Crowley, Jr., executive vice president of investor relations. A separate mergers and acquisitions group was established nine months ago at the firm's headquarters. The group provides dedicated staff to review potential purchases. Previously, acquisition evaluation was an additional responsibility of line management.

"This improves the quantity and quality of acquisitions that we are involved in and gives us a better look and fairer evaluations of companies," Crowley said. "It also lets us see the longer term potential of acquisitions."

Along with a more thorough review of acquisitions, PSS has also had to renegotiate a number of its prospective deals that were based on a pooling of company stock. The value of PSS stock dropped significantly earlier this year when market analysts reacted negatively to issues surrounding the acquisition of long-term-care supply company Gulf South.

The renegotiations have resulted in only a temporary delay in the growth of DI, according to Zambetti.

"Our acquisition mode will definitely continue. I see us picking up the pace," he said.