Infratil, Morrison bid $524m for Australia radiology business

The deal would comprise A$550 million in equity – of which A$330 million would come from Infratil – and the rest in debt. Infratil and Morrison would hold interests of up to 60% and 15%, respectively, according to a filing. Doctor and management shareholders currently own 50% of Qscan. While some are expected to exit alongside Quadrant, the offer is conditional on others remaining invested in the business with a stake of 25-32.5%.

Quadrant invested in Qscan in 2017 and immediately combined the business with another diagnostic imaging provider, North Coast Radiology. The combined entity had 32 clinics across Queensland and New South Wales. Since then, there have been four more bolt-on acquisitions and six new clinic openings. Qscan now operates more than 70 facilities with 100 radiologists and 730 support staff, performing over 1.2 million procedures each year.

Infratil noted that Qscan is one of the top five players in Australia’s diagnostic imaging industry. That group already accounts for 50% of the market and further consolidation is expected. Moreover, demand is expected to remain strong, driven by the country’s aging population.

Revenue was nearly A$240 million for the 12 months ended June, up from approximately A$210 million a year earlier. Over the same period, EBITDA rose from around A$38 million to nearly A$48 million. CT and MRI scans are responsible for about half of revenue. The government funds more than 85% of revenue industry-wide.

“Qscan provides a high-quality entry point into a sector with structural long-term growth and potential to scale into a leading healthcare infrastructure program,” said Marko Bogoievski, CEO of Infratil. “The diagnostic imaging sector benefits from long-term demographic tailwinds and technological advances that will allow it to play a growing role in the early detection of diseases such as cancer.”

Radiology is a popular target among private equity investors in Australia. The largest deal in recent years saw Permira acquire I-Med Radiology Network for A$1.3 billion in 2018. Since then, Allegro Funds has backed Perth Radiologic Clinic and Quintet Partners has committed capital to Exact Radiology, which also counts Bridgeport Capital and Direct Capital among its investors.

The Perth Radiologic Clinic (PRC) deal is notable because Allegro was previously brought in by creditors to lead a restructuring of I-Med in 2011. A large group of doctors had already splintered off to form PRP Diagnostic Imaging and another group ended up doing the same to form PRC. When PRC wanted to raise external capital, Allegro was a familiar counterparty.

The turnover at I-Med and the fact that continued doctor participation is a condition of the Qscan deal underlines the importance of talent retention in radiology and other professional services businesses. Private equity investors can come in and take control, but they usually end up working in partnership with doctors and management, whose minority equity position belies their influence.

“There are corporate-led practices and doctor-led practices, and they are very distinct. Many groups are fiercely independent. You might have a few doctors who think it makes sense to do a deal, but more than 25% say no, so it doesn’t get done,” Chester Moynihan, a managing partner at Allegro, told AVCJ in 2018. “Corporate-led groups have acquired various practices, but if you asked a doctor-led group for its preference, most members would rather join with another doctor-led practice.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• Healthcare
• Buyouts
• Trade sale
• Australia
• Quadrant Private Equity