Buyout Firm KKR to Take Control of Alliance Imaging
Kohlberg, Kravis, Roberts & Co., the New York investment firm that gained renown during the 1980s for making breathtaking acquisitions involving huge amounts of debt, said Tuesday that it will acquire control of a small Anaheim medical concern for $313.5 million in cash.
KKR said it will buy 90% of Alliance Imaging Inc. for $55 a share, more than three times the $17.50 Alliance was worth on Sept. 2, when the thinly traded stock last traded. Tuesday, Alliance shares soared $32.50, or 186%, to close at $50. Only 1,700 shares exchanged hands in over-the-counter Bulletin Board trading.
Alliance, the largest provider of magnetic resonance imaging services to hospitals and other health-care operations, is thinly traded because New York investor Leon Black’s Apollo Management Inc. owns nearly 83% of the shares. Apollo paid $270 million for the stake in 1997. At $55 a share, Apollo stands to about break even on the deal. It will retain a small stake in the company.
Executives at Alliance, KKR and Apollo could not be reached Tuesday.
Alliance, which has more than 1,600 employees, has benefited from the boom in the use of imaging technologies in medicine, providing mobile systems and services to hospitals and other health-care providers. The company earned $2.6 million in 1998 and has earned $2.5 million in the first half of this year. Its sales have risen each of the last five years, with last year’s revenue of $199.4 million more than doubling that of the year before.
“It’s a company that has built an absolutely unassailable market position in a business with fairly decent growth potential,” said Alex Geier, an analyst with Warburg Dillon Read. “The bigger you are, the tougher it gets.”
Since last year, Alliance Imaging has made at least five acquisitions, the most recent in April, when it agreed to buy Three Rivers Holding Corp., the parent of SMT Health Services Inc. of Wexford, Pa.
If the deal is completed, KKR will own 90% of Alliance’s common shares. KKR invests in management buyouts for its investors, which include U.S. pension funds, banks and university endowments.
Apollo owns stakes in a number of companies, including Shoemaker, Florsheim Group and Internet venture-capital company Rare Medium Group Inc. Its funds have more than $10 billion invested. Black, who was head of mergers and acquisitions for Michael Milken’s former firm, Drexel Burnham Lambert, is among the biggest real estate investors in the United States.
The magnetic resonance imaging industry has been surging in recent years, pushed by new technology that has improved image quality and lowered costs, industry experts said.
New types of magnets that can be used in less confining areas have reduced the threatening nature of MRI machines that had induced claustrophobia in some patients. Improvements have also broadened the machines’ range of applications.
The price of the magnets has come down, making it easier for a company such as Alliance to afford a fleet of 250 MRI systems that serves 1,044 customers in 44 states.
“Before, you pretty much had to have a diagnosis in mind before you could afford to get an MRI,” said Fred Goeringer, an imaging consultant with Informatics Applications Group in Huntington, Conn. “Now you can use it as a screening device to rule out things. Because it’s cheaper, you do it more.”
Instead of being confined to neurological use, MRIs now are used for mammograms and orthopedic and spinal applications, Goeringer said. Alliance Imaging has been able to take advantage of that.
“They are right in the middle of the market,” Goeringer said. “They’re well known and riding the crest of this trend.”
As part of the deal, KKR will assume Alliance’s debt, last pegged at $520.1 million, and pay an additional $17.8 million for its preferred shares.
* Bloomberg News was used in compiling this report.
