Eden Prairie's Virtual Radiologic Corp. said Monday that it has agreed to be taken private by an investment firm in a $294 million deal.
Providence Equity Partners of Rhode Island is offering $17.25 a share in cash for the company, whose radiologists analyze diagnostic images for clinics and hospitals nationwide.
The offer is just 25 cents more than Virtual's initial public offering price from late 2007. But analysts and major investors supported the move to go private, noting that the company's stock price has been muted in recent months.
Providence's offer was about a 42 percent increase from Virtual's average closing price of $12.18 a share for the 30 days through May 14.
"I don't expect a higher offer to materialize," said Brooks O'Neil, senior research analyst for investment bank Dougherty & Co. "I think they came to the conclusion it might make sense to give shareholders a reasonable reward while stepping out of the public eye for a period of time."
Virtual's stock jumped 30 percent on Monday, closing at $16.90 a share.
"I've spoken to virtually all of our major investors today and they are all very pleased," said Rob Kill, Virtual's chairman and CEO, adding that he believes the offer is a "great deal for shareholders."
Providence Equity Partners manages more than $22 billion of equity capital and focuses on media, entertainment, communications and information investments.
The investment firm Generation Partners, which owns a quarter of Virtual Radiologic's shares, has already agreed to vote in favor of the sale, Virtual and Providence said in a joint statement. So has Virtual's chief medical officer and co-founder, who owns 6 percent of shares.
Shareholders will vote on the offer in 45 to 60 days.
Virtual is a radiology company that connects radiologists nationwide with hospitals and clinics to analyze diagnostic images from X-rays to CT scans. The company has 236 employees and 145 radiologists who work on contract.
Virtual went public in 2007, raising $68 million in its initial public offering amid a boom for teleradiology. The sector has grown because the supply of radiologists hasn't kept up with an increased demand to analyze diagnostic images, especially for aging baby boomers.
But since Virtual went public in 2007, the stock has decreased in value, due to price pressures on preliminary radiology readings and a competitor's contract dispute.
Nonetheless, the company's financial performance was strong in the first quarter, with net income up 40 percent to $2.0 million. Revenue increased 8 percent to $30.8 million for the three-month period ending March 31.
Kill said the company will keep the same management and invest more in the technology side of its business. Virtual has offered contracts to hospitals and clinics to use "vRad Enterprise Connect," a virtual database that allows hospitals and clinics to connect with local radiologists. So far, 72 facilities are participating, Kill said.
O'Neil said he believes the company has the potential to substantially grow, but the economy has made it more challenging for smaller companies on the stock market.
"I think there is a bit of risk aversion on the part of public market investors," O'Neil said. He added that investors are also confused on what impact health care reform will have on the health service market.
Wendy Lee • 612-673-1712
