KKR Looks to Acquire Company from Apollo –

Apollo Advisors giveth, and Kohlberg Kravis Roberts & Co. taketh away-at least in the case of Alliance Imaging Inc., an outsourcer of diagnostic scanning services that this month agreed to be recapitalized by KKR after having already been recapitalized by Apollo in 1997.

Due to the weak performance of health-care companies on the public markets, Alliance Imaging, advised by Salomon Smith Barney, opted to expand with capital from another private equity firm rather than through an initial public offering.

KKR beat out a group of rival private equity firms in the auction, according to Richard Zehner, Alliance Imaging’s chairman and chief executive, who declined to name the competing groups.

The deal gives KKR an approximately 90% stake in Alliance Imaging, valuing the transaction in excess of $900 million, Zehner said. KKR and Apollo did not disclose terms of the deal.

In December of 1997, Apollo acquired approximately 85% of Alliance Imaging for $258 million. Should the proposed transaction close, Apollo will maintain a roughly 10% stake in the company.

Apollo Spawns Acquisition Spree

Since its acquisition by Apollo, Alliance Imaging, based in Anaheim, Calif., and traded as an over-the-counter stock, has been aggressively acquiring similar companies-specifically, those that outsource the equipment and technicians necessary to do magnetic resonance imaging and CAT scans. Alliance Imaging now has contracts with nearly 1,200 hospitals and annual revenue of approximately $330 million. Zehner said his company will be making additional acquisitions as early as the first quarter of 2000. He added the market for outsourced diagnostic imaging services remains fragmented, and such companies now sell at multiples of between 3.5 and 5 times earnings before interest, taxes, depreciation and amortization (EBITDA). “Frankly, the market for these companies, securities-wise, is pretty beat up right now,” Zehner said.

KKR is not a newcomer to health care-in 1998, the firm acquired Medcath Inc. in conjunction with Welsh, Carson, Anderson & Stowe for $240 million (BUYOUTS July 6, 1998, p. 16). Medcath provides cardiology and cardiovascular services. Also in 1998, KKR exited its investment in Merit Behavioral Care, which it acquired in 1995.