Lumexa Imaging no longer controlled by private equity following IPO

Radiology provider Lumexa Imaging is no longer controlled by private equity sponsors following its recent public stock offering, according to an analysis from S&P Global, published Monday. 

Formerly known as US Radiology Specialists, the imaging group launched in 2018 as a joint venture between Charlotte Radiology and New York PE firm Welsh, Carson, Anderson & Stowe. Last week, Lumexa completed a successful IPO, selling 25 million shares to raise a total of $463 million. 

S&P analysts noted Monday that they “no longer view Lumexa as controlled by private-equity sponsors” following the deal. PE ownership has now declined to about 30% after the IPO, with it at an estimated 43% earlier this year. 

“We view this as meaningfully credit positive for its financial policy because private equity investors tend to favor high leverage to enhance their returns,” analysts David A. Kaplan and Patrick Bell wrote Dec. 15. 

After the IPO, about 26% of Lumexa shares are owned by public stockholders, while 44% went to existing and prior employees, physicians and health system partners. S&P expects Welsh Carson to have one seat on the organization’s nine-person board, while six members will be independent. 

The agency also upgraded Lumexa’s credit rating from B- to B+ and issued a “stable” outlook for the imaging group, which has 184 outpatient centers in 13 states. Lumexa expects to use about $375 million of the $435 million in net proceeds to pay down debts. It also is in the market to issue a new $825 million term loan and $250 million revolving credit line to replace a nearly $1.2 billion term loan and $165 million revolver. 

S&P said it expects Lumexa’s debt-to-earnings ratio to fall below 5x, highlighting “the reduction in private equity ownership and management’s indications of a more conservative financial policy.” The company’s leverage was at about 7.4x as of Sept. 30, prior to the IPO. 

“Our expectations are supported by the strength of its business, improved free cash flow from a substantial reduction in interest expense, management’s stated financial policy priorities, and that public shareholders tend to be averse to companies maintaining very high leverage,” analysts wrote. 

S&P experts also highlighted positives for the imaging group’s outlook, including rising demand for imaging which will support “robust revenue growth.” An aging population, scientific advances in imaging, and payers’ push to shift radiology services away from costly hospitals also will benefit Lumexa. 

However, the organization is expected to face “modest margin pressure” due to wage inflation, driven by radiologist shortages. Lumexa has recently looked to hire more remote rads, S&P noted, providing physicians with “much-desired flexibility” while offering the company greater cost efficiencies. 
 

“Moreover, Lumexa’s variable compensation model with employee ownership also helps it absorb some of these labor pressures,” the analysis noted. “We expect margins will be modestly pressured as the increase in labor costs is outpacing reimbursement trends as both government and commercial payers seek to constrain rising healthcare costs.”

Lumexa is currently pursuing software tools to improve radiologist productivity and bolster profit margins. This includes externally developed AI modules that enhance physician efficiency and diagnostic accuracy. Furthermore, Lumexa is expected to expand its footprint by opening newly constructed imaging centers “where profitability is initially weaker.” This could contribute to margin compression in the near-term, S&P experts predict. 

“In recent years there has been increased regulatory scrutiny around private equity investors consolidating physician groups, including those owned by WCAS,” Kaplan and Bell wrote. “It’s unclear to us the extent to which the shift in control increases the potential for Lumexa to acquire other companies, but we expect it will primarily focus on expansion via de novos.”

Reimbursement also is a “modest persistent headwind,” they added. About 24% of Lumexa’s 2024 revenues were from Medicare, with compensation remaining flat in the payment program due to budget neutrality provisions. Commercial payers also have looked to limit reimbursement increases to below the pace of wage inflation in an “aggressive effort to constrain rising healthcare costs, even though outpatient imaging is reimbursed at a much lower rate than in a hospital facility.”