Investors Returning To Lab Industry

Investors Returning To Lab Industry

SOMETHING BIG IS HAPPENING to the clinical laboratory industry and the anatomic pathology profession. For the first time in six or seven years, the investment community is paying close attention to the laboratory industry. This should be a welcome development for commercial lab owners and anatomic pathologists.

Behind the scenes and out of the headlines, a number of venture capitalists are looking for business opportunities. These companies want to emulate the success of the private equity investors who funded Dynacare, Inc., American Medical Laboratories, Inc., and Unilab, Inc. during the past three years. These companies have also studied the financial performance of AmeriPath, Inc., DIANON Systems, Inc., IMPATH, Inc., and watched the two blood brothers return to financial stability.

Collectively, investors consider this to be evidence that laboratory testing services can generate worthwhile profits. Of course, today’s crop of independent commercial laboratory owners knows that making profits is not a guaranteed thing. The same problems of lab overcapacity, declining reimbursement, and decreased test utilization continue to challenge lab owners. Profits remain in a squeeze and the existing generation of lab owners, having survived the 1990s, are somewhat risk averse.

Agree with these assumptions, and you know why it will be outside money and outside management which creates the next generation of laboratory companies. These investors don’t care what happened to labs during the last ten years. They concentrate on today’s opportunities to make money by providing testing services. They see the passive business strategies of many independent lab companies as leaving the field wide open. They are ready to out-compete existing lab owners.

Overall, I believe renewed interest by professional investors in the clinical laboratory industry will prove to be a healthy development. It will energize the commercial laboratory marketplace while stimulating hospital-based laboratories to become more customer-friendly. Furthermore, it gives owners of today’s independent laboratories better opportunities to sell their business, or partner with investors who have the capital and skills to expand their lab’s test volumes and revenues.

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