"Dark Index"

Dynacare Expands Into Chicago With Purchase of 2 Small Labs

Slow pace of independent lab acquisitions demonstrates that few lab prospects remain

IT’S A BUSINESS STRATEGY BUILT AROUND “go where they ain’t!” In recent years, Dynacare, Inc. has found its best growth comes from acquiring laboratories in areas somewhat underserved by larger national competitors.

It then uses that regional base to expand outward into nearby regions. Examples of this market strategy have been Seattle, with expansion into the northwest; and East Texas, with expansion into Arkansas, Oklahoma, Louisiana, Mississippi and Alabama.

This strategy seems to be in play again. Last week Dynacare disclosed that, through its joint lab venture with Froedert Health System, Inc. of Milwaukee, it had acquired two relatively small laboratory operations in the Chicago area.

Both acquired labs, Midwest Regional Laboratory Consultants and Almar Molay Clinical Laboratories Inc., are located north of downtown Chicago. Combined, their annual revenues are approximately $5 million.

Expanding From Milwaukee

For several years, Dynacare has maintained a joint venture with Froedert in Milwaukee. Downtown Chicago is only about 100 miles from Milwaukee, so these two new lab acquisitions are a sign that Dynacare is prepared to begin a serious sales and marketing campaign in the Chicago area.

Since there have been a relatively small number of independent lab acquisitions by other potential buyers during the past year, it can be reasonable to conclude that few large independent laboratories remain. Those that do seem to be fiercely guarding their independence and resist regular offers to sell.

Stock Price Climbing

Evidently the investment community is regaining its interest in Dynacare. The company recently reported second quarter revenue increases of $101.9 million, a 10.9% increase over same quarter 2000. Its share price, which had fallen to as low as $3.50 within weeks of the November initial public offering, is now trading back in the $11.00 range.

Dynacare’s arrival in the Chicago market is sure to trigger some interesting changes in the competition on for physicians’ office testing. Currently Quest Diagnostics Incorporated dominates this market. However, a number of hospital laboratory outreach programs tell THE DARK REPORT that they are having substantial success competing against commercial laboratories in Chicago. This would indicate that physicians are still willing to “buy local” when it comes to lab testing services.

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