LifeLabs will keep its brand, its Canadian headquarters and its management team after the acquisition closes, which is expected to happen by the end of the year.DARRYL DYCK/The Canadian Press
Toronto-based pension fund Ontario Municipal Employees Retirement System (OMERS) has reached a deal to sell the country’s largest medical testing company, LifeLabs Medical Laboratory Services, to U.S.-based Quest Diagnostics Inc. for $1.35-billion including debt.
Secaucus, N.J.-based Quest is buying all of LifeLabs’ equity using cash and debt, and expects LifeLabs will generate about $970-million in annual revenue. LifeLabs will keep its brand, its Canadian headquarters and its management team after the acquisition closes, which is expected to happen by the end of the year, subject to regulatory approvals. Quest also plans to keep patients’ health data stored in Canada, according to a joint statement.
After the deal closes, however, Canada’s concentrated market for lab testing will be further controlled by U.S. owners. LifeLabs is Canada’s leading laboratory testing company and a household name for many people who have needed a blood test or a range of other screening, genetic and diagnostic procedures. The company, which employs 6,500 staff, performs 112 million tests each year at 382 collection centres and 16 laboratories in Ontario, British Columbia and Saskatchewan.
LifeLabs’ major domestic rival, Dynacare, is owned by one of the largest U.S. medical testing companies, Laboratory Corp. of America Holdings, commonly known as Labcorp. Together, LifeLabs and Dynacare form a key part of Canada’s lab-testing infrastructure, especially in the country’s most populous province, Ontario.
OMERS has owned LifeLabs for 17 years, and The Globe and Mail reported in January that the pension fund had put the testing company up for sale, drawing interest from multiple bidders. OMERS – which manages about $129-billion on behalf of approximately 600,000 Ontario public-service workers, including nurses, firefighters and police officers – pitched LifeLabs to potential buyers as an infrastructure-sector investment, with dependable revenues from providing medical services to an aging population.
The two leading contenders were Quest and Vaughan, Ont.-based Andlauer Healthcare Group, which runs a medical logistics business that delivers drugs to pharmacies and hospitals, and appeared to represent the best chance for LifeLabs to stay Canadian-owned.
By May, Quest emerged as the front-runner after a six-month auction, outbidding Andlauer by $100-million. The sale took months to negotiate because OMERS and the bidders were seeking to settle long-term contracts setting out the prices for tests with the Ontario Ministry of Health, which is LifeLabs’ largest customer. Other large clients include insurance companies, and clients have pushed laboratory testers and other medical suppliers to cut costs.
“Our purchase in 2007 and subsequent investments have helped LifeLabs grow into a great Canadian success story,” said Michael Hill, OMERS’s global head of infrastructure, in a statement. “Quest is uniquely equipped to expand the service offering at LifeLabs, bringing new innovations to this market while extending access for patients in Canada.”
An OMERS spokesperson declined to comment beyond the company news release.
Hannah Jensen, a spokesperson for Ontario Minister of Health Sylvia Jones, said in an e-mailed statement that “LifeLabs has ensured the Ministry that services will continue to be available for people across the province and there will be no changes to any staffing.”
The Saskatchewan Health Authority is nearing the end of a seven-year contract with LifeLabs, signed in 2018, for collection services in Saskatoon and Regina. The province’s Ministry of Health said in a statement to The Globe that it is “optimistic the quality service provided by LifeLabs over the last six years will continue under the new ownership group.”
Laboratories in Canada “are hurting right now,” suffering in particular from a shortage of qualified laboratory professionals to meet demand for testing, said Christine Nielsen, chief executive officer of the Canadian Society for Medical Laboratory Science, in an interview. But Quest is a sophisticated company with experience operating in a complicated U.S. regulatory system and could have the capacity to make investments that would expand community testing to more municipalities and provinces, she added.
“There’s no alarm bells for us with the sale of LifeLabs to Quest,” Ms. Nielsen said. “It’s a known entity in the community and we’re confident that the regulatory structure will be respected.”
LifeLabs and Quest already have business relationships through which Quest provided some advanced tests, and LifeLabs participated in a Global Diagnostic Network to share expertise, led by Quest.
“This transaction is predicated on our strong belief that we can help LifeLabs accelerate growth and improve health care,” Jim Davis, Quest’s chairman, chief executive officer and president, said in a company statement.
Evercore and CIBC World Markets Inc. served as financial advisers to OMERS, which had legal advice from Blake, Cassels & Graydon LLP. McCarthy Tétrault LLP advised Quest.
With a report from Andrew Willis.