Tough multivendor service market leads InnoServ to court GE acquisition

ISOs face stiff competition from OEMs

Independent service organization InnoServ Technologies has agreed to be acquired by GE Medical Systems of Milwaukee for $16 million in cash. GE intends to use the acquisition to add to its growing multivendor service operation, according to GEMS president and CEO Jeffrey Immelt. The agreement is expected to close in the next six to eight weeks.

InnoServ provides third-party service of medical imaging equipment, and its offerings include multivendor service and asset management, as well as single-unit maintenance of CT and MRI scanners. The company previously was known as R Squared Scan Systems until it changed its name to InnoServ in 1994.

Although multivendor service is a hot topic in equipment maintenance circles, ISOs like InnoServ have had a tough time competing with multimodality vendors that offer third-party service, such as GE, Picker, and Siemens. InnoServ has posted a string of money-losing quarters, with its most recent results for the third quarter (end-January) including a net loss of $849,000 on revenues of $9.2 million.

InnoServ began reorganizing its operations earlier this year in response to the company’s declining gross margins. In March it issued a statement in Securities and Exchange Commission filings that it might not be able to meet working capital requirements if it was unsuccessful in reducing its losses and expanding its revenue base. The company also said it was “investigating alternative strategies to deliver maintenance and repair services while capitalizing on our core competencies.”

The GE deal was the result of that search, according to Thomas Hoefert, vice president and CFO of InnoServ. The two companies began discussing an acquisition as long ago as September, he said.

InnoServ found itself in a predicament due to the massive resources required to offer multivendor service and asset management, Hoefert said. Hospitals are demanding the one-stop convenience that multivendor service offers, yet smaller firms are finding it difficult to fund the massive investment in service expertise and spare parts required to maintain multiple equipment models from multiple vendors.

“It is very difficult for an independent to compete in the comprehensive multivendor arena,” Hoefert said. “We found that we didn’t have the infrastructure, and we couldn’t adequately finance the infrastructure, to service that wide an array of equipment.”

GE and InnoServ have not yet decided on how InnoServ will be integrated into the Milwaukee company’s operations. Hoefert said that GE has indicated that it intends to keep InnoServ’s Arlington facility. InnoServ estimates that of its 300 customers, about 55% to 60% use GE equipment.