Mednax Inc. has inked a definitive agreement through which Radiology Partners will acquire the former's radiology solutions group for $885 million, with an eye toward creating a provider of comprehensive radiology and teleradiology services.

El Segundo, Calif.-based Radiology Partners is a physician-owned, on-site radiology practice that partners with about 1,600 radiologists providing services to nearly 1,300 hospitals, clinics and imaging centers across 26 states. When the transaction wraps up, the combined organization, operated under the Radiology Partners name, will include more than 2,400 radiology physicians who provide services in every state plus Washington.

The move comes about three months after Mednax, of Sunrise, Fla., said it intended to return to its original name – Pediatrix Medical Group – refocus as a dedicated pediatrics and obstetrics organization, sell its radiology solutions business and repay its revolving line of credit. Mednax Radiology Solutions was founded in 2015 and is an integrated provider of on-the-ground and in-the-cloud radiology services. It includes Virtual Radiologic (vRad), a teleradiology organization that was picked up in 2015 for $500 million.

Mark Ordan, CEO of Mednax, said the transaction will aim to increase his organization’s efficiency.

“...[W]e are pleased that the anticipated proceeds of this transaction, in addition to cash inflows we have already received this quarter and additional operating cash flow expected through the remainder of 2020, should significantly strengthen our balance sheet and provide a strong financial foundation for future growth,” he added.

Rich Whitney, CEO of Radiology Partners, echoed Ordan’s enthusiasm, adding that this acquisition will improve patient care and transform radiology. “The addition of these leading practices, as well as the nation’s premier tech-enabled teleradiology platform, presents an amazing opportunity to accelerate our progress on this important mission.”

Mednax said the transaction is expected to close during the fourth quarter, subject to customary closing conditions. Pending the closing of the transaction, it will report the operating results of Mednax Radiology Solutions as discontinued operations.

Big changes

Mednax has seen a host of changes in 2020, even with the pandemic. For example, in May, it revealed that North American Partners in Anesthesia had wrapped up the acquisition of American Anesthesiology, a Mednax medical group. In addition, during his company’s July 30 earnings call, Ordan, who the company revealed as its new CEO in July, reaffirmed his company’s intent to divest the radiology group.

“While radiology saw a steep follow-up in the spring through the COVID, it saw a very impressive bounce back in the early weeks of summer,” he explained. “It is a very strong business that will be very additive in the right hands.”

At the same time Ordan joined the company, the company revealed major board changes. Five new directors were appointed: Ordan, Thomas McEachin, Guy Sansone, John Starcher, Jr. and Shirley Weis. With these additions, directors Cesar Alvarez, Michael Fernandez, Pascal Goldschmidt, Carlos Migoya and Enrique Sosa stepped down from the board. Sansone succeeded Alvarez as chair.

These changes apparently satisfied Starboard Value LP and its affiliates, an investment firm that owned about 9.9% of the company’s outstanding common stock. With the changes, Starboard withdrew its director nominations and agreed to support the board’s full slate of directors at the annual meeting of shareholders. It also agreed to abide by customary standstill provisions and voting commitments.

Against this backdrop, analyst Kevin Fischbeck with Bank of America, suggested during the earnings call that Ordan had investigated the company’s plans and agreed with the ideas of the prior management.

“[I]n total, we have a group of 10 people, plus me, and I think we're very attracted to continuing to move this company forward because they see the incredibly strong position we have in its viral niche in medical services,” Ordan replied. He reiterated that radiology as performing well but would do better in other hands. Plus, the company could use the money to enhance its core business.

William Blair’s Nick Spiekhout asked Ordan how he would define success under his watch. “...[N]umber one, we have to be the absolute best in care,” Ordan explained. “Our core strength cannot be diluted one bit.” He went on to note the company will plan to stay strong financially so it can take advantage of future opportunities.

“We can invest where it makes sense, we can make changes where we need to make changes, and we can grow very responsibly and carefully,” he added.

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