CEO SUMMARY: General Health System of Baton Rouge decided to “cash in” the capital value of its consolidated laboratory organization by selling it to Dynacare. It will use the money for other corporate projects. This sales transaction validates that there is still considerable value to a profitable laboratory outreach program.
BATON ROUGE-BASED Louisiana Reference Laboratories has been acquired by Dynacare, Inc. of Toronto, Canada. It is Dynacare’s first laboratory operation in Louisiana.
Louisiana Reference Laboratories (LRL) is one of the largest commercial laboratory operations in the state. It was owned by General Health System, an integrated healthcare system in Baton Rouge that operates its own HMO. Besides an extensive outreach program, LRL provides testing to Baton Rouge General Hospital and Baton Rouge General Medical Center from its core laboratory in Baton Rouge.
“Dynacare is here to stay. Our company is committed to expansion in Louisiana and the surrounding states.”
Motives of the buyer and seller demonstrate that outreach laboratory volume still has considerable market value. As the seller, General Health System liquidated a capital asset. It intends to use the money from the sale of Louisiana Reference Laboratories to strengthen its clinical service infrastructure in Baton Rouge. In so doing, General Health System shows that it appreciates the capital value created by a dynamic outreach program.
As the buyer, Dynacare intends to use LRL as the springboard for a major marketing program in Louisiana as well as the neighboring states of Mississippi and Arkansas. Dynacare believes it can generate substantial operating profits by building its outreach business in the multi-state region.
“LRL is dominant in its primary market,” stated Osama Sherif, Executive Vice President of Dynacare U.S. “This is consistent with our strategy of opening new markets by acquiring a dominant laboratory or partnering with an established laboratory in that area.
“From a competitive perspective, LRL has no entrenched competition within Louisiana,” continued Sherif. “None of the national laboratories operate a sizeable laboratory facility in the state. Because LRL is viewed as a local provider, we feel that will provide us a sizeable advantage in our sales efforts.”
As a private transaction, terms of the sale were not revealed by either the seller or the buyer. It is estimated that Louisiana Reference Laboratories generates about $25 million per year in revenue. Of that total, about 75% comes from outreach and 25% would come from hospital in/outpatient work. Rumors place the sales price at approxmately $15 million. Dynacare will provide testing to the hospitals under a seven-year agreement with General Health Systems.
Currently the President of LRL is Steven R. Shumpert. Under Shumpert’s leadership, LRL grew steadily and avoided many of the management mistakes made by the national laboratories. To the disappointment of Dynacare, Shumpert tendered his resignation. He will stay during the transition period and has not stated his future plans.
There is an interesting historical footnote to Louisiana Reference Laboratories. It originally was a joint venture between the hospital and International Clinical Laboratories (ICL) in the 1980s. Sometime after ICL was purchased by SmithKline Beecham Clinical Laboratories, General Health Systems exercised its option and bought out SmithKline’s interest. From that time forward, LRL operated as an independent laboratory.
For Dynacare, the acquisition of Louisiana Reference Laboratories is the first step in a regional strategy. “Already we operate in Houston, through our partnership with Hermann Hospital,” explained Sherif. “We are discussing partnership or acquisition opportunities in both Arkansas and Mississippi.”
According to Sherif, Dynacare’s business plan has three components. “One, we will build the operational base to support our regional goals through acquisitions and joint ventures. Two, we will develop an expanded sales and marketing program in our service area. Three, we will construct a new core laboratory in Baton Rouge to improve our operational flexibility.”
Dynacare is a laboratory to watch. Most of their laboratory divisions and joint ventures seem to be growing. As many hospital lab administrators know, Dynacare is pursuing joint venture opportunities in a number of cities. Announcements of other deals may be just around the corner.
Dynacare Growing Rapidly in the U.S.
Since entering the United States in 1994, Dynacare has steadily expanded its activities. It follows a strategy based on acquiring strong regional labs or partnering with hospital laboratories.
Dynacare Cheyenne Laboratories;
Cheyenne, WY: Acquired in 1994, owned and operated by Dynacare.
Dynacare Skagit Valley Laboratories;
Mt. Vernon, WA: Acquired in 1994. Owned and operated by Dynacare.
Dynacare Laboratories; Seattle, WA: Acquired in 1995. Owned and operated by Dynacare. Serves Swedish Hospital under a long term contract.
Dynacare Hermann Laboratory Services; Houston, TX: Partnership with Hermann Hospital. Launched in September, 1995.
Dynacare Ellis Laboratory Services;
Schenectady, NY: Partnership with Ellis Hospital. Launched in June, 1996.
United/Dynacare; Milwaukee, WI: Partnership with Froedtert Memorial Lutheran Hospital’s United Regional Medical Services Division. Agreement effective August 1, 1997.
Louisiana Reference Laboratories;
Baton Rouge, LA: acquired Dec. 1, 1997