One independent lab operator from the Golden State is now looking to shine on the public market. Unilab Corp., the largest independent clinical laboratory testing company in California, tossed its S-1 into the pile last week.
The $115 million offering is lead managed by Salomon Smith Barney with Credit Suisse First Boston signing on as an underwriter. Unilab intends to use the net proceeds to repay outstanding indebtedness and to compensate Kelso & Co., the New York-based buyout firm that owns roughly 83% of the company. Share amounts and size have not yet been released.
Based in Tarzana, Calif., Unilab is still under federal investigation in connection with lab testing from the mid- to early 1990s. According to its filing, the investigation is focused on billing of medical tests during that time period, and “we cannot at this time assess what the result of the investigation might be,” the filing said. The company had already settled with federal and California governments and insurance companies for $7.8 million in previous marketing and billing cases, the S-1 also stated.
Unilab was originally a spin-off of Corning Inc., which is now known as Quest Diagnostics Inc. Kelso & Co. acquired its large stake of the company’s stock for $484 million in November 1999, at which time Unilab pulled its stock listing from the American Stock Exchange. About $2.5 million in proceeds will be used to pay Kelso, which will no longer be paid for its financial advisory services, the filing stated.
Unilab serves independent physicians and physician groups, as well as managed care groups and hospitals and offers more than 1,000 different lab tests via 300 patient service centers in California. Unilab performed about 30 million tests last year, a portion of which were the result of the $13.5 million acquisition of Pathology Associates Laboratories in August of last year.
With approximately 3,550 employees, Unilab is profitable. It reported a net income of $41.6 million on sales of $337.5 million for 2000. That year, the company saw its sales jump 18.4% over 1999. And in the first three months of 2001, net income was $3.2 million, double the $1.5 million it recorded for the same period last year
According to the Health Care Financing Administration, 4,500 independent clinical laboratories operate in the United States – approximately 600 of which are located in California. Competition includes Quest Diagnostics and Laboratory Corp. of America, or LabCorp.
“Investors are fundamentally underestimating the role diagnostic providers will play in medicine over the next several years,” said analyst David Lewis, of Thomas Weisel Partners, in a recent First Call report. A broader acceptance of molecular testing, from care providers to the government, should have far reaching implications on the industry. “Payers are willing to fund preventative care by paying more for better technology now in an effort to reduce total clinical expenditures later,” he wrote. “This movement from a detect and treat’ to predict and prevent’ delivery model should continue to drive growth in the industry, in our view.”
According to Deutsche Banc Alex. Brown, year-to-date, lab stocks have declined 5% on average, compared to a 2% increase in the Dow Jones Industrial Average and a 4% decline in the S&P 500. Hospital and rehab stocks have declined 16% and 22%, respectively.