Tech-2503: Very Profitable, Well-Established Clinical Lab in the South East

Diversified Revenue Stream from Toxicology, Women’s Health, COVID and Respiratory Panel Testing


clinical_lab_analyzerThis ten-year-old Laboratory is a successful and profitable laboratory with a diversified revenue stream that will survive well past the COVID pandemic. The laboratory offers toxicology, and PCR testing for Covid, Women’s Health/UTI, and respiratory diseases. For several early years, its main revenue was from Toxicology. A few years ago, it did try entering the genomics market, but it soon exited this market because the reimbursement rates in its MAC did not make genomics testing very profitable. If the seller were to continue running this business, he would certainly investigate getting into parts of the genomics testing business by buying or establishing a small lab in a state which is under Novitas MAC. The lab also has machines to run many conventional clinical tests.

The lab comes debt-free with equipment whose replacement value is over $1.5 M and having the paid-off equipment would be a big plus for the buyer in conserving the cash flow.

The lab’s main business is from three states in Southeast and South-Central states and has just started marketing in another state. The lab is in network with many BC plans as well as many supplemental Medicare and Medicaid plans. Additionally, Multiplan allows it to bill to some of the other major payors such as Aetna, Cigna, and UHC.

The Lab employs 27 full-time and 14 part-time employees.

COVID-19 Revenue Helped Expand and Consolidate Other Testing Revenues

The Lab, as was the case with many other clinical labs in 2020, struggled a bit when the COVID-19 pandemic hit in March of 2020 because many physician clinics stayed closed. However, it did get into the COVID-19 testing business early enough and made good money in 2020. It also secured two lucrative contracts – one with a state and the other with a hospital. However, recognizing that COVID-19 revenue will not be there forever, it smartly used its profits to bolster its sales efforts into expanding its toxicology and Women’s Health / UTI business and is about to enter the respiratory testing business. Both UTI and respiratory testing using PCR methods, using similar machines used for COVID-19 testing, and these tests also have good reimbursement rates. The lab is also using its COVID-19 testing contract relationship with the state and the hospital to expand it into other testing areas.

Financial Performance – Robust Revenues and Profits Well After COVID

As a result of the smart business development, the Lab, unlike many other clinical labs coming to the market with hefty COVID revenue and profit bump in 2020, will remain strong financially well after COVID. It has the infrastructure, staff, payor contracts, and know-how to thrive past COVID.

The table below shows historic financials.

2021
(six months)
2020
(recast)*
2019 2018
GROSS REVENUE $3.36M $7.16M 3.54M $4.65M
EBITDA 1.31M $2.34M ($58K) $274K

Note that 2020 financials were recast because due to billing staff shortage and some billing errors, about $1.49M of revenue that was to come in 2020 is being realized in 2021,

The forecasted financials are shown in the table below. These are based on a realistic projection of sample volume that is expected in 2021. Of course, a lot of what happens in 2022 will depend on the buyer and the direction the buyer takes and could be much higher or lower. An assumption is made that in 2022, there will be the presence of a sister lab in a state in Novitas Jurisdiction and a small number of Genomics tests such as CGx and Cardiac Panels will be offered. However, even without it, by better marketing and geographic expansion, the Lab can still improve its results in 2022 over 2021.

With this caveat for 2022, the future projections for the current year (2021) and the next year are as follows:

2021 2022
GROSS REVENUE $6 M $9 M
ADJUSTED EBITDA $2 M $3 M

Asking Price

We are inviting offers and asking the buyer to give a fair multiple of the EBITDA, recognizing that this turn-key lab offers a great platform to expand their business, that this Lab has a diversified testing menu that offers strong revenues and opportunities for growth, and that it comes with well-trained staff, paid-off equipment, and many payor contracts.

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