When Chicago-based GTCR Golder Rauner planned to take its medical testing portfolio company American Medical Laboratories Inc. public last year, strategic buyers started to consider the company for themselves.
As a result, Quest Diagnostics Inc., based in Teterboro, N.J., recently bought American Medical for $500 million, giving GTCR a roughly $205 million profit on its initial investment of $7.5 million. GTCR owned 60% of American Medical, which it bought in May 1997.
“We felt the offer we received was very attractive in the process of going public,” said David Donnini, a principal with GTCR.
Quest, itself a large diagnostic testing business, will pay $340 million in cash to shareholders of American Medical, which is based in Chantilly, Va., and will also assume about $160 million in long-term debt as part of the transaction.
Donnini said GTCR bought American Medical at a time when much of the medical testing industry was bankrupt.
“The clinical laboratory industry was at an artificial low point in the late 1990s,” he said. “It was going through a difficult period when re-regulations took effect.” But he added that GTCR always believed the fundamentals were good and that the regulatory issues would ease over time. “We were right,” he said.
Moreover, American Medical is in a high-growth niche, in what is called esoteric or reference testing, where rare tests are prescribed and growth rates are higher than in the basic business.
When GTCR acquired control of American Medical, the company’s annual revenue was $80 million. Today, that number is $285 million. Similarly, under GTCR’s ownership, Ebitda grew from $2 million to a current annual rate of $40 million.
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