Expanding its presence in northern California, LabCorp (Burlington, N.C.) has paid a rumored $30 million to acquire Stanford Hospital & Clinics basic outreach testing services, which has a reported annual revenue of $30 million. The acquisition includes patient service centers, as well as rapid response laboratories throughout the San Francisco Bay Area, although Stanford officials wouldn’t disclose exactly how many of these facilities were included in the acquisition.
Of the approximately 200 basic outreach testing employees, more than half have been either hired or offered a position by LabCorp, according to Stanford Hospital & Clinics spokesman Gary Migdol.
This move gives LabCorp more of a footprint in Quest-dominated California, and with a valuation of 1x revenue, it is in line with what the testing provider is currently pursuing in terms of acquisition valuations. "I think 2x revenue is the high end of the range that we will be looking at," said Brad Hayes, LabCorp’s executive vice president and chief financial officer, in the company’s recent Q2 earnings call with analysts. "We look at the internal rate of return and our return, but 2x revenue would have to be something that we thought was pretty strategic."
LabCorp executives have touted their interest in the hospital outreach market, but at least one industry insider questions the synergy of these two diverse businesses. "In my mind, there is still a philosophical and strategic disconnect," said Earl Buck, vice president of the consulting company Chi Solutions. "There is a natural disconnect between a for-profit, publicly traded company and a not-for-profit health system. There is a constant struggle that neither of the big labs has found a way to work effectively in those markets."
But since LabCorp appears uninterested in pursuing international opportunities, unlike Quest, it must pursue the hospital outreach market because of its estimated $30 billion in annual revenue, according to Doug Brown, managing director of health care investment banking for Wachovia Securities (Charlotte, N.C.), who spoke recently at an audioconference on mergers and acquisitions sponsored by
September 2008 - Table of Contents
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