Black Diamond-owned Center for Diagnostic Imaging hits the auction block

Center for Diagnostic Imaging, the country’s largest privately owned diagnostic-imaging company, is exploring a sale, according to people familiar with the matter.

The sales process for the Black Diamond Capital Management-backed company kicked off last week and will be aimed exclusively at private equity, the people said.

Jefferies has been engaged to provide sell-side financial advice, they said.

CDI, Minneapolis, is expected to generate about $75 million in adjusted 2018 Ebitda, according to one of the people.

The auction is also expected to produce a good level of interest, partly because until now sponsors have seen minimal opportunity in the segment, one of the people said.

It’s also a segment of the healthcare universe that has yet to consolidate. And based on CDI’s existing scale and proven ability to grow through tuck-in M&A, the asset could be viewed as an opportunity to become another industry consolidator.

The segment is also appealing in that it aligns with healthcare payers’ push to see more imaging work done outside hospitals, which are much higher cost settings for X-rays, MRIs and the like, this person added.

With a network of outpatient-based diagnostic-imaging centers spanning more than 40 states, CDI is the largest U.S. provider behind publicly traded RadNet, which has a market cap around $667 million.

RadNet, for its part, is concentrated largely in the Northeast, as well as in the California, Florida and Maryland markets.

in addition to the medical-imaging centers CDI operates, it has a physician-management business arm, through which it partners with doctors and health systems through various structures to consult on related reorganization needs.

Similarly, CDI provides imaging-support services, advising on everything from possible exit strategies to expansion into ancillary areas.

The company also offers mobile diagnostic imaging solutions for MRI, PET and CT scans to hospitals, clinics and other healthcare organizations.

For Black Diamond, the auction comes about six years after the Greenwich, Connecticut, alternative-asset manager acquired CDI from Toronto’s Onex Corp.

Full financial terms of the July 2012 deal weren’t disclosed, but Onex said at the time it received $91 million in proceeds through the sale of CDI, producing a 2x multiple of invested capital for the firm and a 10 percent rate of return.

Black Diamond concurrently merged CDI with existing portfolio company Insight Imaging, with the former’s management team staying on to lead the combined entity.

The sponsor inherited its majority stake in Insight in March 2011 in connection with the imaging company’s Chapter 11 restructuring.

CDI was founded in 1981 by radiologist Kenneth Heithoff. Richard Long is at the helm as CEO, while former CEO Robert Baumgartner has remained chairman.

Representatives of Black Diamond and CDI didn’t return requests for comment, while those with Jefferies declined to comment.

Action Item: Learn more about CDI’s history