Alliance Healthcare selling for $820M

HEALTHCARE: Florida’s Akumin taking ownership

Irvine-based Alliance Healthcare Services Inc., already one of the nation’s largest provider of MRI services, is about to become an even bigger powerhouse in the radiology and oncology industries.

Alliance’s China-backed owner, Tahoe Investment Group Co., is selling the provider of outpatient radiology and oncology services for health systems to Akumin Inc. for $820 million (Nasdaq: AKU).

The combined company is expected to have pro forma revenue topping $730 million and adjusted EBITDA more than $210 million, based on the last 12 months ended March 31.

Alliance is the larger of the two companies with

revenue approaching $500 million, according to regulatory filings.

“The Alliance-Akumin combination will accelerate our presence as a full-service provider in the marketplace,” Rhonda Longmore-Grund, chief executive of Alliance, told the Business Journal.

“It’s one of the biggest transactions in the space. It’s an exciting combination.”

The deal is expected to close in the next three months.

Fast Grower

Plantation, Fla.-based Akumin, which has 1,500 employees, provides outpatient diagnostic imaging services in eight states to 137 owned and/or operated imaging centers.

It’s been a fast grower as sales climbed 48% to $154.8 million in 2018 and another 59% to $247.4 million in 2019. During the 2020 COVID year, its sales growth slowed 1.6% to $251.3 million.

Despite the revenue growth, investors have been lukewarm as Akumin has a relatively small market cap of $231 million at $3.24 a share at press time.

It began trading on Nasdaq last September around $3, with a high around $3.84 last March.

It’s adding a larger partner in Irvine’s Alliance, whose 2,500 employees work in 45 states to provide services to more than 1,000 hospitals, health systems and physician practices.

Akumin CEO Riadh Zine praised Alliance’s “longstanding hospital and health system relationships.”

“The acquisition of Alliance is transformative in a changing healthcare ecosystem that continues to shift toward outpatient, pricetransparent, value-based care,” Zine said. “There’s no other organization that has the complement of attributes we will offer together as outpatient healthcare services experts.”

After closing, Akumin will be able to provide services in 46 states to more than 1,100 hospital and health system customers, 154 outpatient radiology centers and 34 radiation therapy centers.

Akumin’s purchase of Alliance isn’t the first transaction it announced this year, though it is by far the largest.

Akumin in May acquired a 34% stake in an unnamed artificial intelligence firm as part of its plan to develop enterprise resource planning software. In May, it also acquired six freestanding imaging centers in Florida for $39 million.

In its presentation to investors on the deal, Akumin said the radiology industry has an estimated market size of $17 billion in annual sales with annual growth rate in the low single digits. Oncology has $3 billion in annual sales with annual growth rate in the mid-single digits.

The presentation said radiology has 6,500 outpatient centers while oncology has 2,300.

“These are highly competitive, fragmented services,” the deck noted.

Outpatient Accelerant

Alliance, which began as a mobile imaging company in 1983, grew through radiology-focused acquisitions and became the nation’s largest provider of mobile MRI services by the late 1990s. It was purchased in 2001 by Kohlberg Kravis Roberts and subsequently raised $122 million in an initial public offering.

The company expanded into radiation therapy with the launch of its oncology division in 2005, and established itself as a national provider of radiosurgery and related services with 15 centers around the nation by 2011.

In 2016, the last year before Alliance was taken private, it reported $506 million in revenue.

Longmore-Grund, who was appointed Alliance CEO in 2017, said hospital customers want to offer outpatient services on premises, as well as expanding access to imaging and other diagnostic services through communitybased sites.

The former Printronix and Ingram Micro exec emphasized that the company is “deeply entrenched in the hospital space” and views the business combination as an opportunity “to help our hospitals move radiology and oncology services in a more robust manner to the outpatient environment.”

Big Debt

Tahoe Investment was first reported last August to be considering a sale of the Irvine firm for some $300 million to $400 million, according to a Bloomberg article.

The final price for Alliance, whose headquarters are in the Von Karman Towers office complex near John Wayne Airport, is more than double that amount.

Tahoe Investment is the major shareholder in Chinese luxury real estate developer Tahoe Group Co., which became China’s first major residential developer to default on a bond in five years as the coronavirus outbreak brought the housing market to a standstill, Bloomberg said.

Tahoe Investment, formerly known as Fujian Thai Hot Investment Co., in 2016 bought a majority stake in Alliance Healthcare from funds managed by Oaktree Capital for about $103 million. A year later, the Chinese firm bought the shares it didn’t own in the health care provider in a $75 million deal.

The Alliance transaction marks the second notable sale of late of a local company by a Chinese investor; this month saw the completion of the sale of Irvine tech distribution giant Ingram Micro by an affiliate of China’s HNA Group.