Nichols Institute Planning to Buy 3 Labs in Midwest

Continuing its expansion strategy, San Juan Capistrano-based Nichols Institute said Monday that it is nearing an agreement to purchase three Midwestern clinical laboratories that would boost its profits and revenues by 25%.

Dr. Albert Nichols, the company’s chairman and chief executive officer, said the firm is ironing out details of a plan to buy Clinical Laboratories of Lincoln, based in Lincoln, Neb., and two affiliated laboratories in Omaha, Neb., and Sioux City, Iowa. The three facilities serve more than 250 hospitals in the Midwest.

While Nichols was not prepared to disclose the offering price, he said it ranged between 65% and 100% of the laboratories’ combined annual revenue of more than $19 million. He said the acquisition would be made with cash, preferred stock and notes.

Nichols’ treasurer, Norman Achen, said the acquisition would increase Nichols’ net income and revenues by 25%. In 1987, Nichols posted earnings of $1.4 million and revenues of $55 million.

The company said it intends to raise the cash portion for the acquisition through a private sale of $27 million in long-term notes that will be managed by Prudential-Bache Financing Corp. The money will also be used to restructure Nichols’ debts.

Announcement of the prospective purchase of Clinical Laboratories of Lincoln comes on the heels of Nichols’ acquisition in February of another clinical laboratory in Sioux Falls, S.D., which added $12 million to the company’s annual revenue base.

Achen said Nichols Institute is following an industrywide trend in its expansion move, which began in 1986.

Because of an increased emphasis on cost savings in the medical laboratory business, he said, individual laboratories generally have not been able to remain competitive against laboratory networks that benefit from higher volume business.

“You have to be a big player to stay healthy in the field,” said Achen.

Currently, Nichols has five laboratories in Oregon, Iowa, Minnesota, South Dakota, in addition to its laboratory in San Juan Capistrano.

Nichols Institute is known primarily for its specialized tests in such fields as endocrinology and oncology. The laboratories it has bought since 1986 conduct more routine medical tests and refer specialized work to the San Juan Capistrano facility.

Nichols said Clinical Laboratories of Lincoln was founded and operated by a group of pathologists who will stay on as medical directors at the three laboratories.