M&A Update | Healthcare

Sector spotlight: Radiology The $18.0+ billion radiology/diagnostic imaging market is forecast to grow at an annualized rate of 1.8 percent over the next five years, driven by favorable demographics (aging population), increased private health insurance coverage and the renewed recognition of imaging as a cost-effective and noninvasive diagnostic alternative to investigative surgery or curative care. The high level of market fragmentation and the presence of many radiology groups that can act as platform investments to scale to regional or national providers has garnered significant attention from both private equity and strategic acquirers who recognize the tremendous opportunity that exists to scale the business model. Drivers for radiology practice consolidation include: • Highly fragmented market: The Radiology Business 2017 rankings showed that the top 50 groups had a combined 3,837 radiologist full-time employees, representing just 12 percent of the more than 30,000 radiologists estimated nationally. • Central role in population health management: Imaging is increasingly becoming more critical to improving the overall quality of care, including for care coordination, utilization management, big data and improved quality and outcomes. • Evolving healthcare landscape: Due to the shifting reimbursement model from volume to value-based care, continuing hospital consolidation and rising technology and infrastructure costs, independent radiology groups increasingly determine that they need a partner to remain competitive. • Importance of scale for success: Larger group practices will be at an advantage over smaller groups and provide for increased leverage with payers and downstream customers, such as physicians and hospitals who have grown larger through increased M&A activity and begun to bring radiology services in-house. • Personal liquidity: Significant interest from private equity investors has led to attractive valuation multiples for radiology practices, providing an exit strategy for retiring radiologists who are often being replaced by younger radiologists who are less interested in running the business side of the practice.

Table 1: Recent radiology practice transactions

Closed Date

Acquirer (Financial Backer)

Target

Target Business Description

4/5/2018

Five Imaging Centers In Fresno, California Radiology Associates of Florida, P.A.

Comprises imaging centers.

RadNet, Inc. (NasdaqGM:RDNT)

4/3/2018

Offers radiology services. The company was founded in 1970 and is headquartered in Tampa, Florida.

Radiology Partners, Inc. (New Enterprise Associates)

3/27/2018

Cool Springs Interventional, PLLC Provides outpatient diagnostic and therapeutic radiological services. The company was founded in 2008 and is based in Franklin, Tennessee. Outpatient Imaging Affiliates, LLC Owns and operates outpatient imaging centers in Alabama, Colorado, Illinois, Kentucky, Maryland, Nebraska, New Jersey, North Carolina, Pennsylvania, Tennessee and Virginia. Chandler Radiology Associates LLP Provides radiology services. The company is based in Chandler, Arizona.

MEDNAX, Inc. (NYSE:MD)

3/13/2018

ICV Partners, LLC

2/28/2018

Envision Healthcare Corporation (Maverick Capital, Ltd.) West County Radiology Group, Inc.

2/8/2018

South County Radiologists, Inc.

Offers radiology services. The company was founded in 1978 and is based in Saint Louis, Missouri.

1/24/2018

Atlantic Imaging Group

Offers diagnostic imaging services.

Concordia Care, Inc.

1/4/2018

Renaissance Imaging Medical Associates, Inc.

Provides diagnostic imaging and radiology services. The company was incorporated in 1999 and is based in Northridge, California.

Radiology Partners, Inc. (New Enterprise Associates) Radiology Partners, Inc. (New Enterprise Associates)

12/12/2017

Southwest Diagnostic Imaging, Ltd. Provides radiology and imaging services. The company was founded in 2004 and is based in Phoenix, Arizona. Synergy Radiology Associates, P.A. Provides medical imaging services. The company was founded in 2011 and is based in Houston, Texas.

10/18/2017

MEDNAX, Inc. (NYSE:MD) MEDNAX, Inc. (NYSE:MD) MEDNAX, Inc. (NYSE:MD)

9/28/2017

Jefferson Radiology, P.C.

Private practice radiology group, provides diagnostic and therapeutic radiology services at various hospitals in Connecticut. Provides radiological services to patients in hospitals and outpatient centers in Miami and South Florida. The company was founded in 1960.

8/23/2017

Radiology Associates of South Florida, PA

8/8/2017

Diagnostic Imaging Associates, P.A. Owns and operates imaging centers in Northern Delaware. The company was founded in 1984 and is based in Wilmington, Delaware.

RadNet, Inc. (NasdaqGM:RDNT)

Source: S&P Capital IQ; IBISWorld; AMB; Baker Tilly Capital insights (April 2018)

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