USDL closes Quantum purchase,but Alliance deal falls through

Quantum buy makes USDL the largest center chain

You win some, you lose some. U.S. Diagnostic Labs suffered a setbacklast month after acquisition talks with mobile imaging providerAlliance Imaging broke down. The failure to close the Alliancedeal has not deterred consolidation-minded USDL, however: Justa few days later, USDL announced that it has completed an acquisitionof Quantum Imaging, which owns 10 imaging facilities in the Houstonmetropolitan area.

The Quantum acquisition brings the total number of USDL centersto 63, vaulting the company past Health Images of Atlanta andinto first place as the largest imaging center chain in the country(SCAN 8/28/96). USDL, of West Palm Beach, FL, has deals pendingto acquire another 22 imaging centers, including Medical ImagingCenters of America (SCAN 7/31/96).

The Alliance deal fell through in part because of changes inthe stock prices of the respective companies. A stock swap wasa major portion of the deal, and the price changes made the ratiooriginally proposed less attractive.

When talks between the companies began in June, USDL's stockwas trading at about $14 a share, according to Alliance chairmanand CEO Richard Zehner. When USDL called stock purchase warrantsin July, the price began dropping, and fell as low as $9 beforerebounding to $10.

"They were hoping, after issuing the warrants, that it wouldgo to the $13 or $14 range," Zehner said. "It didn'trecover."

At the same time, Alliance's stock had been rising as rumorsof the discussions leaked out, and USDL was forced to publiclyannounce the talks before a deal had been signed.

Also hindering USDL's stock was the investment community's apparentlack of enthusiasm for the deal, according to USDL chairman andCEO Jeffrey Goffman.

"There were reservations from many analysts because theyfelt (the deal) was very large, and they wanted to see our companyshow internal growth," Goffman said. "They felt it mighthave been too much too soon."

USDL also had difficulty reaching agreement with Alliance'slenders on a restructuring of the company's debt. Alliance hasabout $50 million in debt outstanding, which had to be restructuredfor USDL to agree to the deal.

Despite the collapse of talks, USDL and Alliance may cooperatein the future, such as through joint-venture centers, Goffmansaid.

"They have a great business," Goffman said. "Maybewe will revisit the opportunity down the road."

For its part, Alliance has been participating in the imagingindustry's consolidation trend. The Orange, CA, firm last monthmade its fourth acquisition of the year, buying Sun MRI Services,a mobile MRI provider based in Half Moon Bay, CA. Sun has sixhospital customers and annual revenues of over $1.2 million. Allianceplans to make two more acquisitions this year, according to Zehner.

Meanwhile, USDL's acquisition of Quantum adds to the company'sstrong concentration in the Houston market. USDL now has overa 50% market share in the metropolitan area, Goffman said. TheQuantum centers add $12.5 million in revenue and $2.5 millionin net income after taxes to USDL's bottom line. USDL owns 70%of Quantum, with 15% owned by the company's business manager and15% by its radiologist owner.