March 6, 2013
Interviewed by: David Snow
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Deal Story: Atlantic Diagnostics

Kirk Griswold, Founding Partner of Wayne, Pennsylvania-based Argosy Capital, describes his firm’s investment in Atlantic Diagnostics,  a regional full service clinical testing laboratory specializing in high-end toxicology tests, including drug testing for methadone clinics, behavioral centers and pain management treatment, and clinical testing for hospitals and physician offices.

Kirk Griswold, Founding Partner of Wayne, Pennsylvania-based Argosy Capital, describes his firm’s investment in Atlantic Diagnostics,  a regional full service clinical testing laboratory specializing in high-end toxicology tests, including drug testing for methadone clinics, behavioral centers and pain management treatment, and clinical testing for hospitals and physician offices.

Kirk Griswold: Atlantic Diagnostic is a regional testing company. So they do toxicology testing. And what that means is that hospitals, clinics, doctor’s offices well send either tissue samples or send liquid samples and Atlantic Diagnostic will do complex analysis to determine what toxics are in or what other substances are in the materials. It’s in health care services of course. And it’s a company that we found very attractive for a lot of reasons. One is that the management team here are really experts in their field. Interestingly this company came together as a combination of four smaller labs and the four lab owners were very smart when they combined, in that they all actually closed their existing facilities, sold off their old lab equipment, and together purchased all state of the art new equipment and put it in a brand new facility. The advantage of that is their now the state of the art facility, very efficient, and they have an expert, one of the laboratorians actually running that business. So we like the fact that management, not only are experts, but are absolutely committed to the business. And that’s shown by the fact that the main manager there actually rolled over nearly 100 percent of the proceeds from the sale of the business. So he re-upped and we always like to see that.

So committed management, that’s very important to us, and then finally, recurring revenue. We love to see recurring revenue. Once you land a customer in the space they tend to continue to send samples as long as you’re providing good service. And this company provides exceptionally good service. So it was a combination of factors but certainly meets our criteria of great management, that are committed, they’ve got a tremendous facility. And in terms of growth, we’ve actually hired—and it was how the deal came to us in the first place—a really good sales executive to join and drive sales. So we feel that the company can actually double revenues in the next five years.

Privcap: What are the biggest challenge you face in growing the business?

Kirk Griswold: You know, the primary challenge for most medical companies and health care companies today have to do with regulations and changing regulations. And it’s something that we’re concerned about. It’s something that I think most other companies in our space are concerned about. In fact our CEO was down in Washington, DC last week meeting with members of the House to talk about some of the issues. There’s an interesting trend that is going on in health care that’s really going to affect lab businesses, and that’s accountable care organization. So it’s a new way of looking at how health care is going to be provided. So I think it’s important to invest with experts. And we think we have in this case. And I think it’s very important to continue to monitor and figure out how to be nimble and adjust depending on what the regulations are and how they turn out.

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