LifeLabs signage outside of one of the lab's Toronto locations, on Dec. 17, 2019.Cole Burston/The Canadian Press
One of the largest U.S. medical-testing companies is the leading contender to acquire Canada’s biggest diagnostics platform, LifeLabs Medical Laboratory Services, from its pension plan owner.
Secaucus, N.J.-based Quest Diagnostics Inc. DGX-N is in the final stages of negotiations to buy LifeLabs from the Ontario Municipal Employees’ Retirement System (OMERS), after an auction that played out over more than six months, according to two sources familiar with the process.
The Globe and Mail is not naming the sources because they are not authorized to speak for the companies.
Quest has outbid Toronto-based Andlauer Healthcare Group Inc. AND-T by $100-million to buy the business for more than $1.3-billion, according to one of the sources. In January, The Globe and Mail reported the two companies were vying for LifeLabs, which OMERS has owned for 17 years.
If Quest is successful, it’s partly because the company knows LifeLabs’ operations well. In 2013, OMERS outbid the U.S. company for a predecessor to LifeLabs, then known as CML Healthcare Inc.
Toronto-based LifeLabs has 5,700 employees performing 112 million tests each year at facilities in three provinces, Ontario, British Columbia and Saskatchewan. The company runs 382 collection centres and 16 laboratories.
OMERS and Quest are expected to announce an agreement in the next few weeks, but the sources caution the transaction could still fall apart. Spokespersons for OMERS and Quest declined comment.
The potential sale has taken months to negotiate because OMERS and the possible buyers are trying to strike long-term contracts on the price of tests with the Ontario Ministry of Health, LifeLabs’ single largest customer. Along with governments, LifeLabs’ other primary clients are insurance companies. Both are pushing testing centres and other medical suppliers to cut costs.
Quest has expanded in the United States, Europe and South America over the past two decades through a series of takeovers. Its 47,000 employees perform tests on one in three Americans each year, in 2,000 facilities. The New York Stock Exchange-listed company has a US$15.4-billion market capitalization.
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. Dynacare has 2,400 employees and 200 collection centres and labs in four provinces – Alberta, Manitoba, Ontario and Quebec. Burlington, N.C.-based Labcorp acquired Dynacare for US$480-million in 2002.
OMERS began building its diagnostics business in 2007 when its infrastructure arm acquired MDS Diagnostic Services and rebranded the business as LifeLabs. Five years later, LifeLabs expanded its British Columbia platform by purchasing physician-owned B.C. Biomedical Laboratories Inc. In 2013, LifeLabs became the country’s largest medical-testing business – based on the number of tests it performs – when it purchased CML Healthcare.
OMERS pitched LifeLabs to potential buyers as an infrastructure-sector investment, with dependable revenues from providing medical services to an aging population. Investment banks Evercore Inc. and CIBC Capital Markets are advising OMERS on the sale.
If OMERS does sell LifeLabs, it would be the asset manager’s second sale of a medical-testing business in the past year. Last August, OMERS and Labcorp sold a jointly owned business in Alberta, Dynalife Medical Labs, to Alberta Precision Laboratories, which is owned by the provincial government.
Quest is expanding globally and boosting sales to existing clients by introducing new tests. Last month, the company reported 6-per-cent “base revenue growth,” which is Quest’s term for all sales other than COVID-19 tests. In a press release, chief executive officer Jim Davis said Quest is seeing strong growth in demand for “advanced diagnostics” in sectors such as “brain health, women’s health and advanced cardiometabolic health.”
OMERS oversees $129-billion in assets for firefighters, police officers and other public employees. LifeLabs is part of the pension fund’s $36-billion infrastructure portfolio.
The fund manger routinely recycles capital by selling long-term holdings and putting the proceeds back to work in new investments. Last September, OMERS’s infrastructure group sold its 50-per-cent stake in Czech natural-gas pipeline network Net4Gas to CEPS, the government-owned utility running the country’s electrical transmission system. OMERS had owned the stake for 11 years.