Trex Medical to build R/F businessthrough plan to buy Continental X-Ray

April 24, 1996

Trex also lays groundwork for forthcoming public offeringTrex Medical's pending acquisition of Continental X-Ray is thelatest move in Trex's ongoing drive to become the dominant independentx-ray company. Chances are it won't be the last

Trex also lays groundwork for forthcoming public offering

Trex Medical's pending acquisition of Continental X-Ray is thelatest move in Trex's ongoing drive to become the dominant independentx-ray company. Chances are it won't be the last acquisition forthe Danbury, CT, firm, however. Trex president and CEO Hal Kirshnersees more acquisitions on the horizon as Trex looks for opportunitiesin the consolidating medical imaging market.

Trex and Continental announced last week that they had signeda letter of intent in which Trex would buy Continental for anundisclosed amount of cash. The deal would end a long historyof independence for Continental, which was founded in 1934 byLoyal Worden. Continental is owned equally by Loyal's daughter,Julia Worden, and Continental president Patrick Fitzgerald. Continental'sannual revenues are $25 million.

Trex Medical has been on an ambitious acquisition spree inthe last year as it seeks to add product lines to its core Loradbusiness. It purchased Bennett X-Ray last year and signed a dealin February to acquire cardiac cath lab and angiography vendorXRE (SCAN 9/27/95 and 2/28/96). The XRE deal is still in progress.

Even with those acquisitions, Trex Medical still lacks a strongpresence in the radiography/fluoroscopy market, according to Kirshner.Buying Continental will give Trex access to the company's R/Fline, which includes the highly regarded Digispot digital R/Fsystem introduced at last year's Radiological Society of NorthAmerica meeting.

"What attracted us to Continental is that it has one ofthe best R/F systems (Digispot) in the world, and that's somethingwe don't have either at Bennett or XRE," Kirshner said.

Continental also has a thriving electrophysiology business,another product segment in which Trex does not participate. OtherContinental businesses include conventional radiography and mammography.

Both firms believe that the acquisition will make Trex a moreattractive partner to the x-ray dealers who handle their products.Continental and Lorad share some dealers for mammography systems,although the companies view this as complementary rather thanduplicative.

"Some of our dealers are already Continental dealers.There is a very good synergy there," Kirshner said. "Someof the Continental dealers will have an opportunity to get involvedin other products as well. When you have good dealers, you wantto get them as many products as you possibly can to help solidifyyour partnerships. " In addition to its dealer network,Continental has been successful in landing preferred-providerdeals with major hospital chains. On April 17 it announced thatit had signed a two-year deal to supply Columbia/HCA with radiographyequipment on a preferred-provider basis. Continental thus joinsGE Medical Systems as one of two such providers supplying radiographysystems to the hospital giant. Other Continental partners includeAmerinet and Intermountain Health Care.

Continental will be operated as a separate subsidiary, similarto the strategy that Trex has taken with Bennett X-Ray. Continentalwill remain at its Broadview, IL, headquarters, and plans areto keep the firm's management team in place.

Fitzgerald said that he and Worden decided to sell to Trexdue to the increasingly competitive x-ray market, which is makingit more difficult for independent vendors to compete against thelikes of GE and Siemens. The situation is crucial when competingfor the attention of x-ray dealers.

"The market is becoming a lot more competitive, and witha dealer organization you really need to strengthen the varietyand range of products that you make available to your dealers,"Fitzgerald said.

Additional synergies may result from Trex Medical's ongoingdigital detector R&D program. The first detectors from thateffort will be used for full-view digital mammography applications,but Trex intends to develop a second-generation detector for conventionalradiography and R/F systems.

Trex has not yet determined which of its myriad products willreceive the detectors, but some of those products could be fromthe Continental line. Kirshner believes that outfitting bread-and-butterx-ray systems with digital detectors will make those productsmore competitive with the more advanced CT and MRI scanners thatgrab so much of the medical imaging community's attention.

"With the application of digital detectors, we feel thatmany of the things we are involved with at XRE, Continental, andBennett will offer more cost-effective solutions than CT and MRIscans," Kirshner said.

Trex thus far has funded its acquisition drive with the deeppockets of corporate parents ThermoTrex and ThermoElectron, aswell as through an $18 million private offering completed in October.Trex is laying the groundwork to access additional capital throughan initial public offering to take place in coming weeks. Trexplans to offer 2 million shares of common stock.

The offering will boost Trex Medical's acquisition war chest,but the question now is, what is left for the company to buy?Will Trex continue to set its sights on the few independent x-rayvendors left in the industry, or will it look outside the modalityfor new targets? Or will it simply take a break from its acquisitionspree?"We are going to take some time to digest what we'vedone, but we are going to continue the acquisition strategy,"Kirshner said. "When opportunities arise, we are going totake advantage of them."