Strategic differences abort center merger effort

November 3, 1993

Consolidation continues to elude the U.S. imaging center industry.Merger discussions between NMR of America and Medical Resourcesfell through last week. The two center firms had signed a letterof intent to merge earlier in October (SCAN 10/6/93).

Consolidation continues to elude the U.S. imaging center industry.Merger discussions between NMR of America and Medical Resourcesfell through last week. The two center firms had signed a letterof intent to merge earlier in October (SCAN 10/6/93). Differencesin management philosophy intervened to stop a combination thatboth sides continue to feel made sense strategically.

Until one or more center firms prove that their operationalstrategies are clearly superior in terms of profit, revenue growthand shareholder value, chances are that the executives in chargeof these existing chains will have trouble getting together, saidErnest J. DeSalvo, president and CEO of Clifton, NJ-based MedicalResources.

"Consolidation is the right way to go," he told SCAN,"but you also have to have a coherent operating strategy."

Both companies will continue to look for center acquisitions,mergers and other ways to grow their businesses. The logic ofcombining centers to create strong regional service networks continuesto hold force.

"Nothing has changed in that regard. Every day we seeevidence that reinforces this opinion," said Joseph G. Dasti,president and CEO of Murray Hill, NJ-based NMR of America.

NMR has focused on streamlining its operations and providinglow-cost services that will be attractive to managed care purchasers.Medical Resources, on the other hand, is a believer in the valueof the latest MR technology, even at a price.

Managed-care operators are willing to pay a premium to obtainsuperior image quality, although they do drive down prices throughquantity discounts and hard bargaining, DeSalvo said.

Medical Resources recently illustrated this strategy followingits acquisition of a Naples, FL, imaging center that had operatedan aging Fonar MRI system, he said.

"We immediately threw out the old Fonar and put in a newGE 1.5-tesla system. The volume for that center has gone up 40%,"DeSalvo said.

The two firms departed the bargaining table amicably, althoughdisappointed. Neither side wanted to risk a union in conflictwith itself.

"We reached a consensus between both managements that,at this time, it wouldn't benefit either side to go forward,"Dasti said.