Imaging center operator Akumin taking on $700M in debt to fuel Alliance Healthcare Services acquisition
Publicly traded imaging center operator Akumin Inc. is taking on $700 million in new debt to help fuel its acquisition of Alliance Healthcare Services, officials announced on Monday.
First proposed in June, the merger would create one of the largest radiology services providers in the United States, S&P Global Ratings said in its own analysis July 26. If the $820 million deal is finalized, Plantation, Florida-based Akumin’s footprint would expand from seven states to 46, adding 1,000 contractual relationships with hospitals and health systems.
The acquirer is also adding an oncology service line, offering complementary care to its radiology patients, S&P noted.
“We believe the combination may strengthen Akumin's business due to likely increased scale and geographic diversity,” Standard & Poor’s analysts wrote July 26. “We also believe the increased scale should improve the company's purchasing power, which could reduce operating costs,” they added later.
In a second update provided Monday, Akumin and Alliance said they still hope to close the deal in the third quarter, subject to antitrust approval and other conditions. The two companies’ CEOs will remain on board as co-chief executive officers after the merger, while Alliance Chief Financial Officer William Larkin will retain his role and Akumin CFO Mohammad Saleem will become senior VP of financial reporting. Akumin is also expanding its board of directors to seven, adding three additional slots.
The combined company expects to generate $730 million in revenue (66% coming from Alliance, 34% from Akumin) alongside earnings—before interest, taxes, depreciation and amortization—of more than $210 million. About $52 million in EBITDA would come from Akumin with another $117 million from Alliance. The balance would include $24 million in cost synergies from the deal, $8 million from Akumin’s recent acquisition of several Florida imaging centers and other management adjustments of $12 million.
Akumin is proposing to issue $500 million in new secured notes due in 2028 and $200 million more in unsecured notes due in 2032 and 2033. S&P said it expects the imaging center operator to remain “highly leveraged” over the next several years, forecasting a debt-to-EBITDA leverage of 11 times in 2021, declining to 7.1 in 2022.
S&P believes Akumin could benefit from an ongoing industry shift toward outpatient imaging settings due to payer pressures, patient preferences and technological advances.
“Diagnostic imaging is a slow-growing, mature industry that struggles with chronic pricing pressures, partly attributable to some industry overcapacity,” the analysis noted. “However, we anticipate reimbursement rates to continue to stabilize over the next several years while demand continues to increase due to the needs of an aging population.”
In its own breakdown released Monday, Moody’s Investors Service said proceeds from the $500 million in new secured notes due in 2028 will go toward the $820 Alliance acquisition. Akumin will fund the balance through the $200 million in unsecured notes, equity issued to Alliance shareholders, funds from Stonepeak Infrastructure Partners, and cash from its balance sheet.
Echoing its previous analysis from June, Moody’s said it sees potential risk in Akumin’s aggressive, acquisition-fueled growth strategy. But the combined company will benefit from its nationwide presence, large scale, a fragmented imaging market, longstanding health system partnerships, a diversified payer base, and favorable industry trends.
“We believe the company will prioritize inorganic growth over the medium term, keeping leverage above target at closer to 5.5x,” Moody’s noted. “Although Akumin faces heightened execution risk with the Alliance acquisition, the company has a good track record of integrating smaller scale transactions, which will continue to be core to its growth strategy.”
Tahoe Investment Group, a China-based financial firm, is selling Alliance after previously purchasing it for $178 million. The combined company will use the Akumin name, operating a total of 154 outpatient radiology centers and 34 radiation therapy clinics. Irvine, California-based Alliance provides a host of other radiology services, including imaging joint ventures, assistance with center acquisitions, and outsourced care.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.