Investment Opportunity
The clinical laboratory business is a fragmented route-based service business characterized by an extensive network of route drivers that collect samples from laboratories and patient service centers. In 1983, the Mayo Foundation purchased Medical Laboratory Network, Inc.’s predecessor, an investment that proved to be profitable. However, subsequent growth of the Southern California laboratory met resistance from managers within the Mayo Foundation who wanted the Foundation to focus on their core business of clinics and reference testing. The Company therefore represented a highly attractive opportunity given its dominant share of several secondary markets and the laboratory’s reputation for quality. Additionally, from 1989 through 1992, the Company’s management had successfully increased revenues at an average rate of 28% per annum.

In the mid-1990s, the California clinical laboratory market was highly fragmented and represented approximately $4 billion in annual revenue. Consolidation in the industry had begun to occur, given the need for cost efficiencies, increasing demand for efficient testing services from high-capacity laboratories and limited supply of qualified laboratory personnel.

Business Description
Medical Laboratory Network, Inc. was a pre-eminent independent clinical laboratory headquartered in Ventura, California, with 280 employees and functionality to conduct 900 different laboratory tests, ranging from routine screening to advanced technical procedures, used in the diagnosis, monitoring and treatment of diseases and other medical conditions. By 1995, with $27 million in revenues, the Company was the seventh-largest independent clinical laboratory in California, with more than 80% market share in many of the communities it served, including Fresno and the Ventura, Santa Barbara and Sonoma Counties, in a network of one regional laboratory, five short turn around (“STAT”) laboratories and 31 patient service centers (“PSC”).

Transaction Description
In October 1993, Medical Laboratory Network, Inc. was acquired from The Mayo Foundation. The acquisition was completed through the contribution of approximately $5.6 million consisting of $4.5 million of common equity and $1.1 million of subordinated debt. A $20 million credit facility was arranged with Banque Paribas, of which $5 million was designated as a line of credit for future acquisitions. A co-investment and subordinated debt contribution was also secured from Paribas Principal, Inc., Banque Paribas’s equity subsidiary.