Shareholder group shelves plan to take InSight Health private

June 9, 1999

Firms call off bid due to “business opportunities” at InSight A group of shareholders has called off its plan to take imaging services firm InSight Health Services private, the company announced on June 2. The group said it was

Firms call off bid due to “business opportunities” at InSight

A group of shareholders has called off its plan to take imaging services firm InSight Health Services private, the company announced on June 2. The group said it was withdrawing the proposal due to “recent potential business opportunities that may be available to InSight,” the company said.

InSight announced the acquisition offer on May 17, when it reported that it had received an unsolicited bid from investment firm the Carlyle Group and a partner, the Halifax Group (SCAN 5/26/99). The Carlyle Group already owns 33% of InSight, and the two firms made an offer to purchase the remaining shares owned by the public for $10 a share, to be paid in cash. Other than the Carlyle Group’s position, about 36% of InSight is owned by General Electric, the parent of MRI vendor GE Medical Systems, through its GE Capital unit.

Although the offer was unsolicited, InSight management was seriously considering the bid because of benefits the company saw in going private. InSight is one of the largest U.S. imaging services firms, but its shares are thinly traded on the NASDAQ stock exchange due to its ownership structure. Mutual fund managers and other stock buyers might be more eager to invest in the company if there were a greater opportunity to buy shares, according to Larry Atkins, president and CEO of the company.

In addition, the booming high-tech sector has drawn investment funds away from healthcare, which has led to languishing share prices for many healthcare companies. InSight shares have been trading between $4.50 and $12.88 for the last year, and were trading at around $8.63 last week. At the same time, InSight and other public firms must deal with such drawbacks of being publicly traded as shareholder litigation.

Given the shifting market dynamics, it’s no surprise that many imaging companies are looking to go private. InSight competitor Alliance Imaging of Anaheim, CA, went private in 1997 after it was purchased by New York City investment firm Apollo Management. Another company that has recently gone private is independent service organization COHR of Chatsworth, CA, which was acquired by Three Cities Research, another New York City investment firm.

InSight declined to state the nature of the “business opportunities” that prompted the Carlyle Group to cancel its bid. InSight management has stated its intention to continue to invest in acquisitions, which—along with increased numbers of imaging procedures—has fueled rapid revenue growth at the company, Atkins said. The company took in $119 million in revenue in fiscal 1998. So far this year, InSight is on track to do at least $160 million in business. Procedures at existing InSight businesses (apart from new acquisitions) have been growing at about a 7% annual rate for centers and 6% for the mobile business, he said. Same-store revenue has trailed procedural growth by about 2%, due to declining reimbursement.

InSight will continue with its current business plan, which calls for aggressive acquisitions, particularly in MRI, Atkins said. Indeed, the company last month bought five imaging centers in Phoenix from Princeps. In general, the MR and multimodality imaging services business in the U.S. can look to continued growth in coming years as procedural volume increases faster than reimbursement declines, Atkins said. Consolidation of centers and mobile operations will also continue, as smaller operators yield to the expertise of the larger service firms in negotiating the risks and rewards of today’s healthcare environment.