In growth mode, Wellspring’s rebranded RAYUS Radiology is on a fast consolidation track

Founded as one center in Minneapolis 40 years ago, the company formerly known as Center for Diagnostic Imaging envisions doubling in size over the next two years as it looks to transform the industry with a multi-pronged strategy, CEO Kim Tzoumakas says.

Wellspring Capital Management is rebranding its radiology platform RAYUS Radiology as it strikes another deal. More acquisitions are also imminent, as a new CEO looks to crank up growth with a more holistic game plan.

Backed by Wellspring in 2019, the company formerly known as Center for Diagnostic Imaging has steadily scaled its national network to north of 400 aligned radiologists.

In its latest bet, RAYUS snapped up InHealth Imaging, pushing its footprint in Washington state’s Puget Sound market up from 11 locations to 14. The deal follows three acquisitions in 2020, including two late buys – US MRI and Open Imaging – through which it added an eight-location network out of the Salt Lake City area. US MRI is the official medical provider for US Ski and Snowboard, US Speedskating and US Bobsled and Skeleton.

CEO Kim Tzoumakas, who took the reins in March, told PE Hub that RAYUS – which was founded as one center in Minneapolis 40 years ago – has the ability to double in size over the next two years, with strategic M&A and new growth initiatives. She added that two more deals would be announced in the next month.

Tzoumakas most recently led the turnaround and sale of 21st Century Oncology, one of the largest integrated cancer care networks in the world, to KKR’s GenesisCare. The late 2019 deal was valued at approximately $1.1 billion, PE Hub wrote.

Sources familiar with RAYUS previously told PE Hub that the company, on the heels of recent and upcoming M&A, was projecting $115 million in EBITDA this year, up from $75 million in adjusted 2018 EBITDA.

As the name change reflects, RAYUS – a word that meshes radiology with the company’s national presence – has evolved into much more than a single diagnostic imaging center.

It encompasses more than 130 freestanding outpatient imaging centers and a growing number of hospital joint ventures. It also has a research arm through which it is involved in more than 150 clinical trial protocols, and is now offering radiologists another alternative — physician-employed radiology networks that allow radiologists to have skin in the game.

“There are a lot of different desires by radiologists today,” Tzoumakas said. “Some want to be acquired. Some want to be like many of ours have been historically, where they are managed by our company but they remain independent. You wouldn’t want to undo that, or disenfranchise something that has been successful, but we have an opportunity to use our platform and technology to expand the vision for our company.

“I feel really good about our ability to be that one-stop shop for radiologists to join.”

RAYUS is looking at acquisitions in all four subsets, she said, while aiming to address patient access problems and physician shortage issues as it grows its footprint. 

Tzoumakas said quality is key: “It’s one of those things where your doctor refers you to the radiologist; you don’t really ask about the radiologists, but every radiologist is not the same. It’s one of the few specialties we don’t probe more than others. A misdiagnosis on something could be life-threatening.” 

With Wellspring’s backing, the company has ample financial wherewithal to execute on M&A.

“We have always felt that the critical role radiology plays in the healthcare system is undervalued,” said Naishadh Lalwani, a partner who co-heads Wellspring’s healthcare effort. “It’s a large, fast-growing market with several opportunities for innovation to improve care quality. Our population continues to age and look for ways to provide quality care more affordably. Radiology is going to be a critical component of the solution.”

RAYUS also differentiates itself through its radiologists. More than 80 percent of its providers are subspecialists. 

From a broader healthcare perspective, the company is benefiting from another accelerating theme: the shift of care to outpatient settings.

Already a trend pre-covid, healthcare payers are pushing hard to drive care to the lowest-cost areas outside of the hospital, be they freestanding clinics or the home.

“We don’t have the cost overhang that hospitals do,” Tzoumakas said. “A lot of patients very quickly learned during covid that there was an advantage to quickly go in and out of an outpatient, freestanding unit. Our hospital partnerships have grown stronger. We were able to be there for them at a time no one ever expected.”

Although radiology has historically seen less private equity investment than other specialties – be it dermatology or physical therapy – attention in recent years has spiked.

On 25 June, Alliance – a US provider of radiology and oncology solutions backed by China’s Tahoe Investment Group – announced an agreement whereby it would be acquired for $820 million by publicly traded Akumin.

In mid-April, American Securities agreed to buy SimonMed in a deal valuing the founder-run radiology and imaging company at around $600 million, people familiar with the deal terms told PE Hub.

Elsewhere, Columbus, Ohio-headquartered LucidHealth fielded indications of interest in January in its William Blair-run sale process, sources previously told PE Hub. LucidHealth, a portfolio company of Denver’s Excellere Partners, has yet to announce a buyer.

In other high-profile activity, Rad Partners, the largest radiology physician practice in the country, has been an active buyer since its July 2019 investment from Starr Investment Holdings, which joined existing investor New Enterprise Associates. Rad Partners in December acquired the radiology business from Mednax, which commanded an approximately $885 million valuation.

Other notable platforms in the arena include the Welsh, Carson, Anderson & Stowe-owned US Radiology Specialists.