CEO SUMMARY: American Medical Laboratories’ sale to new owners is a major event. Not only does the new management team have a reputation for top performance in selling clinical laboratory services, but they also arrive with an ample war chest. When the revamped AML hits the competitive laboratory marketplace, they are sure to shake things up.
SALE OF American Medical Laboratories (AML) to an investment consortium which included former executives from National Health Laboratories surprised the laboratory world.
When the actual sale of AML was concluded last Monday, May 5, it marked the arrival of a high-powered executive team to the Virginia-based laboratory. New purchasers include Timothy Brodnik, Jack Bergstrom, Jerry Glick and the Chicago-based investment firm of Golder, Thoma, Cressey, Rauner, Inc.
Two other investors in the transaction were AML co-founders Ira Goodwin, M.D. and C. Barrie Cook. Both individuals will continue to participate in the management of AML. Dr. Goodwin is expected to retain his responsibility as Director of Laboratories. Goodwin and Cook’s support of the new owners indicates that no major change of direction is planned for American Medical Laboratories.
The sale of AML is important for several reasons. First, at almost $85 million in annual revenues, AML is the largest laboratory to be acquired in the last three years. THE DARK REPORT believes AML’s sale will trigger a new wave of commercial laboratory acquisitions.
Second, the fact that knowledgeable industry executives were willing to invest tens of millions of dollars to acquire an independent commercial laboratory confirms the market dichotomy which exists today. Independent regional laboratories are making money even as most public laboratories post losses.
Third, if the new owners of AML live up to their past reputation, AML may become a supercharged laboratory competitor. Were this to occur, expect AML to have increasing clout, particularly in the field of hospital reference testing.
During the next 12 months, AML becomes a perfect management case study. The company’s business strategy is straightforward. It already participates in two market segments, clinical testing and reference testing.
The primary market segment is clinical laboratory testing. “This is the majority of our revenue base,” stated Robert Collier, Vice President of Marketing and Major Accounts at AML. “We offer clinical and anatomic testing in the Southeast, Mid-Atlantic, Northeast and Southwest.”
“From what I understand, the new owners intend to upgrade our service infrastructure,” he continued. “This includes our laboratory information system and other key components. They will use these infrastructure upgrades to enhance our testing services and add new capabilities.
“Even as this occurs, I believe that the sales and marketing program here will be intensified,” Collier predicted. “I think our new owners intend to develop a high-powered sales program that matches our consistent level of customer service. This new sales program will stress bringing on new accounts. The profitability of individual accounts will be monitored, because the goal will be to acquire only profitable business.”
Collier’s observations coincide with THE DARK REPORT’s conclusions. Knowledgeable laboratory managers will recall that Tim Brodnik’s reputation was made at National Health Laboratories, where he was the Executive Vice President of Sales and Marketing.
In this position, Brodnik achieved something unmatched by any large commercial laboratory during that era. He developed a sales and marketing team that generated annual growth in revenues and profits of 10% to 15% per year from new client sales. His laboratory competitors achieved growth only through acquisition, not through new sales.
“Everyone at AML is excited about the fact that our new owners are full of innovative ideas and have capital for expansion.”
For precisely this reason THE DARK REPORT predicts that the “new” AML will become a super-charged competitor within 12 months. Brodnik possesses a knowledge of sales and sales management unmatched by any current laboratory industry executive.
It is the opinion of THE REPORT that the sale of American Medical Laboratories represents the first example of a new business strategy affecting commercial laboratories. Clients and regular readers know that independent regional laboratories do not share the poor financial performance of publicly traded commercial laboratories in recent years.
It would be reasonable to assume the AML’s new owners realized that independent commercial laboratories in the United States are not “going broke.” To the contrary, even in California’s managed care disaster zone, some independent laboratories still earn reasonable profits.
The new owners of AML apparently spotted this business opportunity. They believe that the future of clinical laboratory services is rooted in locally-based laboratories which provide testing and support services tailored to the specific requirements of that community.
They also contribute something very tangible to AML’s future. Their “value added” contribution will be to bring a higher level of management execution to AML. They believe that AML’s strong service base, combined with new management concepts, will permit AML to increase revenues and operating profits.
Should AML’s new owner’s make this strategy work, then THE DARK predicts that a number of acquisitions will take place among the remaining regional independent laboratories. It will be ownership generation of the 1980s selling their laboratories to a new generation of executives schooled in the quality management techniques of the 1990s.
AML’s current level of operating profits did play a part in the sale of the laboratory to its new owners. According to Collier, AML’s profit performance during the previous two years was a key factor in the deal. “Financial performance during the last two years was good,” he noted. “In particular, we had a strong year during 1996.”
AML’s revenue performance would be in keeping with other reference testing labs such as ARUP Laboratories and Specialty Laboratories. Growth in specimen volume and revenue at both companies has been excellent in recent years.
Such revenue growth by independent laboratories may be what encouraged Golder, Thoma, Cressey, Rauner, Inc. to provide capital and financing for AML’s buyers. It is also relevant that Golder, Thoma was the company which helped Dynacare of Canada buy its public stock and return to private status.
Golder, Thoma has a reputation for consolidating companies within the industry sectors it has targeted. For that reason, THE DARK REPORT expects that Golder, Thoma will probably continue funding future laboratory acquisitions.
It would be reasonable to assume that Golder, Thoma would fund additional laboratory acquisitions for its existing clients. That means if both Dynacare and American Medical Laboratories wanted to buy more independent laboratories, Golder, Thoma would logically participate in the financing. Were other laboratory acquisitions to occur, then important shifts would take place in the balance of power among commercial laboratories.
American Med Labs At-A-Glance
- Laboratories in Chantilly, VA (250,000 sq. ft.); Orlando, FL (20,000 sq. ft.), and Richmond, VA.
- 33 Primary phlebotomy sites.
- 7 Stat laboratories.
- 1,100 Employees; 810 FTEs.
- SAMSA certified for toxicology testing.
- American Medical Laboratories offers clinical laboratory services in Maryland, Virginia, District of Columbia, North Carolina, South Carolina and Florida.
- AML offers hospital laboratory reference testing as far west as Texas.
- Company is private and new owners are Timothy Brodnik, Jack Bergstrom, Jerry Glick, Ira Goodwin, M.D.,
C. Barrie Cook, M.D. and Golder, Thoma, Cressey, Rauner, Inc.