Sonic Healthcare Buys Clinical Pathology Labs

Nation’s largest private commercial lab firm will be acquired by Australia’s largest lab

Share on facebook
Share on twitter
Share on linkedin
Share on print
Share on email

CEO SUMMARY: It’s one of the most interesting lab acquisitions to take place in the past decade. Pathologist-owners of Austin, Texas-based Clinical Pathology Laboratories, Inc. are selling up to 85% of their lab company to Sonic Healthcare, Ltd, Australia’s largest laboratory firm. The acquisition brings a new lab competitor into the U.S. market and is likely to trigger significant changes to the status quo.

IN A TRANSACTION SURE TO ROIL the competitive lab testing marketplace, Australia-based Sonic Healthcare Ltd. will acquire a majority interest in Clinical Pathology Laboratories, Inc. of Austin, Texas.

The announcement was made on August 23, 2005 and capped a lengthy bidding process for Clinical Pathology Labs (CPL). The sale of CPL is a significant event for two related reasons. First, it means that local pathologists will no longer fully own and operate the nation’s largest, private lab company providing laboratory testing services to office-based physicians. This continues a trend of local pathologists selling their lab company to bigger firms.

Second, the sale of CPL brings a new and credible competitor into the U.S. laboratory testing market. Sonic Healthcare is the largest laboratory services company in Australia. It also owns and operates laboratories in New Zealand, Germany and the United Kingdom.

Sonic Health will pay approximately US$300 million to acquire between 80% and 85% ownership of CPL. Under the terms of the deal, between 2009 and 2012, Sonic Healthcare will purchase the remaining equity from CPL management and pathologists.

CPL Management To Stay

CPL, with annual revenues approaching $190 million, was paid “a prospective EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] multiple of approximately 9.5.” The deal is expected to close by September 30, 2005 and Sonic Healthcare wants CPL’s management team to remain and continue to play an active role following the sale.

In fact, both CPL’s corporate culture and its management talent were major motivations for Sonic Healthcare to pursue this acquisition. “I’m particularly excited about the Sonic–CPL partnership,” stated Colin S. Goldschmidt, M.D., CEO and Managing Director of Sonic. “Both our companies have very similar values and philosophies.

“Sonic’s success over the past decade has been predicated on our steadfast commitment to a concept of ‘Medical Leadership’,” he explained. “Unlike some of our major competitors, we have institutionalized a model that has pathologists directly involved in the management of our businesses.

Physician-Centric Model

“This higher level of personalized service we deliver resonates much more effectively with our number one customer—the referring physician,” observed Goldschmidt. “I was thrilled to discover that CPL has the exact same model and has used this model effectively to compete in the United States.

“We consider the ‘pathologist and physician-centric model’ (Medical Leadership) as the only way to achieve excellence in pathology,” emphasized Goldschmidt. “Under the leadership of Robert Connor, M.D., his team of pathologists and COO David Schultz, CPL has created the exact same model in the United States.”

Sonic Healthcare’s business strategy also differs significantly from that of Quest Diagnostics Incorporated and Laboratory Corporation of America, in at least one dimension. “Sonic Healthcare operates a ‘federation’ model for its subsidiary practices, whereby each member of the group enjoys management autonomy,” stated Goldschmidt.

In contrast, the business strategy of the two blood brothers has been different. Each company has worked to develop a unique and unified national brand. As part of this strategy, regional lab facilities tend to take their direction from corporate headquarters. Autonomy in these regional business units is relatively limited as their parent companies pursue consolidation, integration, and uniform policies and procedures throughout their business.

“Under the Sonic business model, CPL will retain its current management structure, its local flavor, and its name,” observed Goldschmidt. “Sonic provides the central resource whereby group synergies and other improvements may be achieved—these include financial and operational benchmarking, pathologist interaction between entities, group-wide purchasing, sharing of sales and marketing information, IT and e-health synergies, expert systems, and lab design.

“Our pathologists, managers and staff are quite comfortable with this model—and it works to lift performance and service levels to the highest common denominator,” he said.

Goldschmidt, himself a pathologist, believes that new technologies in laboratory medicine reinforce the value of pathologists to referring clinicians. “The style of pathology service that CPL delivers—in particular its ‘pathologist-centric’ model of personalized service to physicians—not only fits perfectly with the style of pathology that Sonic delivers but also provides differentiation in the U.S. independent pathology sector.

Supporting The Clinician

“The interpretation of pathology tests has become much more complex, particularly with the broad array of new tests that are now available. More than ever before, physicians deserve to have the benefit of clinico-pathological consultation with a pathologist, whenever appropriate. This is the essence of Sonic’s style of pathology service and, indeed, that of CPL.”

Another unique perspective that Sonic Healthcare will bring to the laboratory services marketplace in the United States is its experience in other healthcare systems, including Australia, New Zealand, Hong Kong, United Kingdom, and Germany. “There are many areas where CPL and Sonic’s Australian, U.K., and German practices will share practice information. This will be a bilateral process, with inter- change of know-how moving in both directions,” stated Goldschmidt.

More Lab Acquisitions

Independent laboratories will be interested to learn that Sonic Healthcare does want to pursue other acquisitions in the United States. “Yes. Sonic and CPL are very similar in culture, in particular their common commitment to a ‘medical leadership’ philosophy. As I mentioned earlier, this is where pathologists and other experienced healthcare personnel are directly involved in the operation and management of our practices. Close, efficient, and personalized service to physicians is a fundamental part of our existence. If we identify like-minded practices with this commitment, we would be delighted to partner with such groups.”

Once this transaction closes, pathologists and laboratory managers can expect to see Sonic Healthcare move with deliberate speed to execute its growth strategy. This Australian-based company has a reputation for delivering high-quality laboratory testing services. This reputation is based on a solid track record of accomplishment.

Screenshot 2016-06-29 13.29.58

 

Screenshot 2016-06-29 13.30.10

Radiology In The U.S.A?

Because Sonic Healthcare is a major player in radiology in Australia and other countries, it will be interesting to see whether or not the company will acquire radiology assets in the United States. It has an existing core competency in both laboratory medicine and radiology. Were Sonic Healthcare to expand into radiology in this country, it would represent the first significant example of a single large company offering both radiology and laboratory testing services in the United States.

Comments

Leave a Reply

You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.