Platinum Equity seeks to enter imaging with corporate acquisitions

Firm specializes in buying 'mission-critical' castoffs

The planned acquisition of Philips' Healthcare Products Division (HCP) and the purchase on Nov. 19 of the diagnostic imaging (DI) division of PSS World Medical promises to instantly transform Los Angeles-based Platinum Equity into a billion-dollar-plus player in the imaging industry.

These two companies together could post revenues up to $1.3 billion this year. Their addition will increase Platinum's overall revenues by one third, according Mark Barnhill, Platinum senior vice president.

HCP and DI are among the leaders in their market segments. Jacksonville, FL-based DI distributes a range of imaging equipment and supplies. The national imaging distributor operates 38 service centers across the U.S., serving more than 50,000 customer sites, including hospitals, imaging centers, and physician offices. The company sells a vast array of capital equipment and supplies manufactured by such companies as Philips, Agfa, and Canon.

Cleveland-based HCP primarily addresses the sale and distribution of consumables such as medical film and processing agents, but also makes some imaging equipment available. Companies including Kodak, Agfa, and Shimadzu sell products through HCP, which has some 900 employees and a customer base of more than 20,000 healthcare providers in the U.S., according to its current owner, Philips Medical Systems.

"We want our companies to be market leaders, not only from a market share standpoint but from an intellectual and thought leadership standpoint," Barnhill said. "We think they're going to be important players in helping the industry deal with the technology evolution over the next generation."

With no current holdings in the imaging industry and a vow not to flip these companies for a quick profit, Platinum appears to have only two options regarding HCP and DI: Operate them separately or combine them. There is precedent for the latter.

In July 2001, Platinum announced plans to merge Amisys 3000 and Pathways Managed Care, two of its then-recent acquisitions, into a single company called Amisys. At the time, Amisys 3000 was an information management firm involved with payer-based organizations charged with assuming financial risk for the delivery of healthcare services, while Pathways was an information management "solution" targeting provider-based managed-care organizations.

A decision on HCP and DI, however, has not yet been made, according to Barnhill. Platinum has subjected neither company to the kind of scrutiny necessary to identify the direction it will take. Strategists must fully evaluate the customer bases and other aspects of these businesses, he said, and that cannot happen until sometime after their acquisitions are final. Only then will Platinum develop and implement long-term business plans for each acquisition.

The future course of these two firms might be predicted to some degree, however, by examining the way Platinum does business. The international global acquisitions firm has more than 40 holdings worldwide. The acquisition of HCP and DI will mark Platinum's first involvement in medical imaging. Barnhill said other imaging acquisitions might be forthcoming, although none is currently on the table. Nor does Barnhill expect to use the newly acquired companies as the base for a future healthcare division, he said.

The agreement to acquire HCP, the last vestige of Marconi Medical Systems, was signed Sept. 10 after four months of negotiation (SCAN 9/25/02). The agreement to acquire DI, a wholly owned imaging subsidiary of PSS World Medical, was announced Oct. 28, also several months after negotiations began.

Both are distributors of other companies' products. HCP will generate revenues of more than $600 million in 2002, Barnhill said. DI revenues are expected to total about $700 million in 2002.

HCP's revenue may have been attractive to its current owner, Philips, but not its approach. HCP's reliance on products made by other companies did not fit the strategic plan of Philips, which acquired HCP along with its purchase of Marconi Medical in late 2001.

Platinum would not disclose the terms under which either company is being acquired. However, PSS World Medical said its transaction involves $45 million in cash and the assumption of $71 million of liabilities associated with the imaging business. Like all of Platinum's acquisitions, HCP and DI have significant long-term potential, Barnhill said.

"The companies we acquire are typically mission-critical technology providers," he said. "They support the technology applications that compose essential business services. That might include software, hardware applications, and any of the other solutions that are involved with such things as billing, record keeping, telecommunications switching, and network infrastructure."

Platinum looks at the imaging departments of hospitals and healthcare providers as customers that fit naturally into its concept of "solutions-oriented, mission-critical technology businesses," Barnhill said. HCP and DI not only fit the Platinum business philosophy but have considerable potential for growth and development.

"We typically buy companies that are either noncore or underperforming divisions of larger companies," Barnhill said. "We wouldn't be buying HCP or DI if we didn't think they were fundamentally sound, with significant upside."