In announcing the acquisition of the assets of Papastavros’ Associates Medical Imaging for $18 million in Delaware, Los Angeles-based RadNet has claimed a major stake in its first new market since the purchase of Radiologix. The transaction gives RadNet 12 imaging centers in Delaware, a market adjacent to its Maryland position, where the company is a leader outpatient imaging.

“This acquisition is consistent with our disciplined strategy for growth. We are entering a new market through the acquisition of an entrenched leader.”

— Howard Berger, MD

“Papastavros fits our model perfectly,” he continued. “It is a full-service freestanding outpatient operator whose centers have a presence across Delaware. We intend to use the Papastavros assets as a platform to pursue other opportunities for growth in this and neighboring markets.”

RadNet will purchase all of the assets of Papastavros’ Associates Medical Imaging and related entities for $18 million in cash, plus assume about $3.6 million of debt. The cash purchase price includes the purchase of certain real estate assets utilized by the business, which will be sold simultaneously with the closing of the transaction to a third party at its then-appraised value, estimated to be between $11.5 million and $12.5 million. As part of the agreement, RadNet will lease the real estate from the new owner on a long-term basis. The cash purchase price (not including the separately acquired real estate) will be funded by a portion of the previously announced $25 million incremental term loan provided by GE Healthcare Financial Services in August 2007. The operations of Papastavros have approximately $24 million in annual revenue.

In a press release that accompanied the news, Berger vowed to use the Delaware buy as a springboard for growth in the area. “We intend to use this transaction as a catalyst for future expansion in the mid-Atlantic region, where we plan to devote substantial efforts and resources to drive growth,” he said.

The deal includes an exclusive contract for Papastavros Associates to provide professional services, but details of that relationship were not provided. According to a description of the company’s business model in a November 14 quarterly filing with Securities and Exchange Commission, RadNet’s professional services reading contracts are established through the Radiologix subsidiary and are typically for 40 years. The document describes the relationship as follows: “Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, it provides management services and receives a fee based on the practice group’s professional revenue, including revenue derived outside of its diagnostic imaging centers. Radiologix owns the diagnostic imaging assets and, therefore, receives 100% of the technical reimbursements associated with imaging procedures.”

RadNet began its buying spree with Radiologix in July 2006, adding 72 centers to its existing 60. Subsequent RadNet transactions include:

• the purchase of Rockville Open MRI in March 2007 for $540,000 and the assumption of a $1.1 million capital lease
• the purchase of six centers owned by Rochester NY-based Borg Imaging for $11.7 million in cash plus $2.4 million in debt in May 2007.
• a contract to manage Nydic Open MRI, signed in August 2007
• the purchase of Walnut Creek Open MRI, Walnut Creek, Calif, in September 2007
• the purchase of three centers owned by Valley Imaging Center in Victorville, Calif, for $3.3 million, plus the assumption of $866,000 in debt
• the purchase of Liberty Pacific Imaging Center, Encino, Calif, for $2.8 million in October 2007
• the divestiture of one imaging center in Minnesota

Directly following the November 14 announcement of the Papastavros buy, RadNet shares were trading at $9.23, up 23 cents or 2.56%.