Industry giant RadNet Inc. is shifting its strategy toward building brand new outpatient imaging centers amid a challenging real estate market.
Executives discussed their pivot during the Los Angeles-based radiology firm’s quarterly earnings call on March 1. Typically, RadNet has sought to buy existing centers for between 3-6 times their earnings, before interest, taxes, depreciation and amortization. However, many of the larger acquisition targets it is assessing are for multiples much higher than that, CEO Howard Berger, MD, told investors.
Coupled with a dwindling number of available centers on the market, RadNet said building anew seems like a “more prudent use of our capital resources.”
“For us, and I think it's unique to our business model and strategy, it becomes substantially more opportunistic to build at this time rather than buy,” Berger said.
Increasing demand for imaging—along with COVID-related backlogs and an ongoing shift away from hospital-based care—are fueling the desire to build. The company currently has 15 new sites in various stages of construction and development, with almost half occurring in existing health system joint venture partnerships.
Berger said the additions are in areas where RadNet is unable to meet demand for services due to capacity constraints or not having enough overlapping locations to serve patients in densely populated areas. Adding additional equipment into already space-constrained centers did not make sense, he added. And with efforts to bolster adherence to annual mammograms, coupled with new artificial intelligence technology, Berger expects demand to continue climbing.
Such “de novo” sites will become “major contributors” to the company’s performance in the second half of 2022 and throughout 2023. Berger estimated that building new centers would cost less than 5 times EBITDA, shielding RadNet from the higher leverage that may have come with acquisitions.
“We are being careful and responsible in managing our cash flow and capital expenditures in a way that we think long-term will be far more beneficial for the company's strategic purposes,” Berger told investors.
Altogether, RadNet owns or operates 347 outpatient imaging centers in markets including California, Maryland, Delaware, New Jersey, New York, Florida and Arizona.
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.