ALI’s acquisition of Oliconushers in more PACS consolidation

Canadian firm looks to build service and installed base

The PACS market continues to be fertile ground for consolidation as small, independent companies look for larger partners to ensure their survival. In the latest round of consolidation, ultrasound miniPACS firm ALI Technologies has acquired Olicon Imaging Systems for $2.8 million in cash.

ALI of Richmond, BC, plans to run Olicon as part of its U.S. subsidiary, ALI Imaging Systems of Hartland, WI. Olicon’s Aliso Viejo, CA, office will remain in operation and will be the headquarters for ALI’s expanded service operations, working with both ALI and Olicon customers. The Olicon name will be retired, and ALI has terminated several top Olicon executives.

ALI was interested in the deal for several reasons. Buying Olicon enables ALI to build its installed base of PACS users as it seeks to evolve beyond its core market of ultrasound miniPACS. ALI now claims to have 440 image management and teleradiology systems under direct service with end-user customers. The Canadian firm announced last month that it has installed its 250th UltraPACS image management system at the Johns Hopkins Hospital in Baltimore.

The Olicon acquisition also upgrades ALI’s service capabilities, allowing the company access to Olicon’s 11-person field service organization, according to ALI CEO Greg Peet.

“We have previously done all of our service through a call center and by contracting field work back to our hardware vendors,” he said. “Olicon has a nice, established field service organization, and this really makes sense for us as an addition.”

As to how Olicon’s product line will be integrated into ALI’s offerings, no decisions have been made yet, Peet said. He expects final decisions to be made within four to six weeks. ALI hopes to complete the transition by Sept. 30. While ALI is retiring the Olicon brand name, all of Olicon’s customer commitments will be honored, according to the company.

Integration between ALI and Olicon product lines will be eased by the common technology both use. Both ALI and Olicon employ the Windows NT platform, with SQL databases and Intel microprocessor-based hardware.

Closing the bookThe deal closes the book on Olicon, one of the oldest participants in the PACS market. The company began its corporate life in 1981 as a provider of microfilming services for radiological images. In 1985 the company was purchased by PACS pioneer Raytel, which allowed Olicon to offer its microfilm customers the option of archiving their film on optical disk systems with Raytel equipment.

Olicon in 1986 launched its teleradiology archiving program (TAP), a program that allowed users to store films, either microfilmed or in film jackets, off-site in an archive that Olicon managed. When physicians needed them, the films were digitized with a film scanner and sent to the provider via teleradiology links. In 1990, Olicon separated from Raytel in a management-led buyout.

As a stand-alone firm, Olicon was often mentioned as one of the most promising independent PACS firms, along with companies like Cemax-Icon, EMED, and ISG Technologies. But as the PACS market matured, customers began looking for software providers with more financial stability, and Olicon was never able to maintain a long-term relationship with a major imaging vendor. At various times in the 1990s the company was partnered with Du Pont, Fuji, Picker, and telecommunications firm Bell Atlantic. None of these deals translated into major PACS sales over the long run, however.

Olicon did experience a measure of success at landing some large-scale PACS orders in the mid-1990s, including hospital chain Vencor. Prospects began to slow in subsequent years, however, and in 1998 the company moved away from direct sales in favor of OEM agreements with HIS firms such as Shared Medical Systems of Malvern, PA (SCAN 11/11/98).

As part of the change to an OEM focus, 30% of Olicon’s sales staff was eliminated, and rumors abounded questioning the firm’s long-term presence in the market. Soon after the shift, the company’s TAP and microfilm division was divested to F.Y.I., a document and information outsourcing company (SCAN 1/13/99).

The ALI acquisition will preserve Olicon’s technology, but some Olicon executives will not be so lucky. Olicon CEO Dick Paulsen and vice president of sales Leo Ferrini have left the company, effective immediately. Remaining with the firm will be Olicon service manager John Braband, who will serve as general manager of ALI Services (Olicon’s service unit). Olicon sales executive Donald Lawson will continue with ALI Imaging Systems.

Although it addresses a smaller market than Olicon, ALI has been more successful in carving out a niche for itself in the PACS market. The company’s technology is well regarded, and it has experienced steadily rising revenues. ALI had second-quarter revenue (end-March) of $4.9 million (U.S.), up 38% compared with $3.5 million in the same period of 1998. The company’s net income of $690,000 for the most recent period compares with net income of $740,000 last year.

But expanding into the larger PACS market could bring ALI into conflict with much larger players. ALI will need to tread carefully as it begins to broaden its focus, said Michael Cannavo, president of Image Management Consultants of Winter Springs, FL.

“It may have been a wiser move for ALI to expand its OEM relationships than try and compete against the majors in the PACS market,” he said.