Equipment distribution has been one of the toughest markets in radiology recently, with margins eroding across the board, and several major distributors filing for bankruptcy last year. But crisis can be a time of opportunity, as they say. Into the breach has stepped SourceOne Healthcare Technologies, the product of a merger between two of the largest players in distribution.
SourceOne debuted on January 1, when former rivals Health Care Products and Diagnostic Imaging officially merged. Presiding over the marriage was Platinum Equity, a Los Angeles-based venture capital firm that bought each company independently and then merged them into a single entity.
Diagnostic Imaging was the radiology subsidiary of PSS World Medical, a Jacksonville, FL, distributor that divested DI to focus on the physician and long-term care markets. PSS reported that for the fiscal year ended March 29, 2002, DI had revenues of $712 million and a net loss from operations of $2.4 million.
For Health Care Products, the deal completes a saga that in recent years has seen its share of twists and turns. HCP’s roots reach back to the early 20th century, when in 1915 pharmacist James Picker founded a medical supplies distributor that evolved into Picker International, a medical equipment manufacturer. The British firm General Electric Co. (unrelated to General Electric of the U.S.) purchased Picker in 1982, and formed Health Care Products (HCP) as a separate division within Picker.
General Electric (U.K.) rebranded itself as Marconi in 1999, changing the name of its distribution arm to Marconi HCP. In October 2001, the parent company sold Marconi Medical Systems (of which HCP was a division) to the Dutch company Royal Philips Electronics. When the deal was finalized, Philips decided to sell off HCP because it fell outside its core business, and Platinum Equity agreed to purchase HCP last September. HCP had annual sales of over $600 million in 2002.
With $1.3 billion annual sales, SourceOne becomes the largest provider of radiological supplies and services in the U.S. The firm has focused its sales force into two distinct segments, one focusing on capital equipment and the other on consumables. SourceOne will maintain executive offices in both Cleveland, the home town of HCP, and Jacksonville, where Diagnostic Imaging was based.
Leading the company is a former HCP president from its Marconi years, Jerry Cirino. Diagnostic Imaging veteran Ron Cronin has been named vice president of sales in the consumables division, while former HCP executive Dennis Runyan will lead the capital equipment group. Another high-level executive appointment is the naming of Alex Donofrio to the post of vice president of strategic accounts.
SourceOne should be greater than the sum of its parts, Cirino said in an interview with AuntMinnie.com. Customers should see a larger, stronger, more financially viable firm than were the individual companies alone. Although there will be a melding of business models, product offerings will remain the same while the new company looks at additional products and services, he said.
The DI division handled some imaging equipment, representing companies such as Hologic of Bedford, MA, and R2 Technology of Sunnyvale, CA, while HCP was just getting started in the equipment distribution realm, having previously specialized in consumables. SourceOne has had discussions with a number of large and small companies about representing their products, Cirino said.
Entering the PACS market will be a priority for the company, due to the increasingly strong relationship between big iron and digital image management. The vendor’s strategy will not be to develop its own PACS product offerings but to distribute off-the-shelf PACS solutions, according to Cirino.
A Wall Street Journal article said SourceOne will control 10% of the imaging supplies market, quoting research from Frost & Sullivan of San Jose, CA. SourceOne’s closest competitor would be NHD of Beachwood, OH, a cooperative of independent dealers.
Cirino said most of SourceOne’s competition will be the traditional radiology distributors and med-surg players like Owens & Minor of Glen Allen, VA, McKesson of San Francisco, and Cardinal Health of Dublin, OH, which also carry imaging supplies.
Platinum Equity owns more than 20 companies with more than 15,000 employees and has combined annual revenue of more than $4 billion. It is a private equity company, and Cirino said he knows of no plans for it to go public. It is unique in that it is not comprised of capital funds made up of investment contributions from lots of investors who want a quick return on their investments -- as most private equity companies are.
"Those kinds of companies want to take acquired companies and turn around and sell them quickly," Cirino said. "Tom Gores is the founder and chairman. It is his fund. He is the company. We have not articulated an exit strategy for this business. They want us to take this business and grow it."
By Robert BruceAuntMinnie.com contributing writer
January 16, 2003
Related Reading
Platinum Equity renames HCP distributor unit, 12/5/02
Cirino named to head merged DI and HCP group, 11/21/02
PSS completes sale of distributor Diagnostic Imaging, 11/20/02
Distributor Diagnostic Imaging sold to L.A. equity firm, November 4, 2002
Philips to sell HCP group, September 11, 2002
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