Proving the Business Case for the Internet of Things

Mednax buys telemedicine firm VRad for $500m

Steve Rogerson
June 2, 2015
 
Florida-based Mednax has bought Virtual Radiologic (VRad), a radiology physician services and telemedicine company, for $500m. Mednax is a national medical group specialising in neonatal, anaesthesia, maternal-foetal, paediatric cardiology and other paediatric physician services.
 
“We believe VRad is an excellent platform for growth in teleradiology and the broader telemedicine market,” said Roger Medel, chief Executive Officer of Mednax. “Radiology is a large, fragmented industry with total revenue of roughly $18bn, and it is evolving rapidly to include teleradiology as an economic and clinical necessity for customers. We believe the opportunities for organic growth at VRad and for cross-selling between the company’s and Mednax’s customer bases are compelling.”
 
Minnesota-based VRad generates annual revenue of roughly $185m through its network of more than 350 US-board certified and eligible radiologists, more than 75 per cent of whom are subspecialty trained. The company reads and interprets more than five million diagnostic imaging studies annually, which are included in its Pacs proprietary picture archiving and communications system.
 
“This acquisition also further broadens the scope of services we can provide to our hospital partners,” said Medel. “VRad’s extensive investments in information technology and data analytics align well with our own commitment to improving both the quality and cost effectiveness of care.”
 
The company provides radiology coverage to more than 2100 healthcare facilities across all 50 states and internationally. Its proprietary technology and workflow platform, database, and analytic capabilities enable real-time distribution of studies to appropriately trained, licensed and credentialed physicians to improve clinical outcomes, increase speed of diagnosis and reduce the cost of care.
 
VRad’s management team will remain with the company as part of Mednax.
 
“We are excited at the opportunity to join a company founded and built by physicians, and we share Mednax’s commitment to providing the highest quality care,” said Jim Burke, chief executive officer of VRad. “Our executive management, medical leadership, physicians and team members all look forward to joining Mednax. VRad is proud to be recognised as a leader in radiology, an innovator in healthcare informatics and a pioneer in telemedicine. Together, we can offer our patients and hospital partners a broad array of services, now including access to an expanding national network of critical subspecialty expertise and support. This transaction is a testament to the strength of the VRad clinical and business model, and underscores the value of the organisation today, and for the future.”
 
This is a cash transaction, and it is expected to be accretive to earnings, including interest and non-cash amortisation expenses of about $20m. The price includes the assumption of certain net operating loss carryforwards.Mednax anticipates that the acquisition will add an initial $25m in annualised operating income and $0.10 in annualised diluted earnings per share. The company anticipates that this contribution will increase in the foreseeable future, based on expected percentage growth in organic revenue at VRad in the high single digits.
 
The company’s estimate of expected depreciation and amortisation expense is preliminary and remains subject to the completion of a third-party valuation to determine the fair value of the underlying net assets.