DVI, Inc.

2500 York Road
Jamison, Pennsylvania 18929
U.S.A.
Telephone: (215) 488-5000
Toll Free: (800) 665-4384
Fax: (215) 488-5010
Web site: http://www.dvi-inc.com

Public Company
Incorporated: 1985 as Delta Health, Inc.
Employees: 375
Sales: $139.62 million (2001)
Stock Exchanges: New York
Ticker Symbol: DVI
NAIC: 522298 All Other Non-Depository Credit Intermediation

DVI, Inc. is a finance company serving the healthcare industry. The company provides medical equipment financing and medical receivables financing, enabling mid-sized healthcare providers such as outpatient healthcare centers, physician group practices, and medical imaging centers to acquire costly medical equipment. DVI provides financing for equipment ranging between $5,000 and $3 million, including high-cost items such as magnetic resonance imaging equipment and less expensive purchases such as X-ray systems. The company’s medical receivables business helps its customers meet cash flow problems or fund expansion, enabling healthcare providers to use money they are owed by insurance companies or government agencies as collateral to obtain working capital. DVI maintains operations in 15 U.S. cities and is expanding internationally, where its services are offered in Latin America, South Africa, Asia, Australia, Europe, and the United Kingdom.

Origins

DVIs predecessor, Delta Health, Inc., was founded by David L. Higgins in 1985. Before starting Delta Health, Higgins had spearheaded North American sales and service operations for Elscint, Inc., an Israel-based manufacturer of diagnostic imaging equipment. Higgins created Delta Health to serve as a healthcare services provider, originally forming the company to manage healthcare facilities. The company’s name and its nature of business would change, however, transforming into a type of company that financed the purchase of equipment produced by Higgins’ former employer and other manufacturers. The transformation was engendered by Higgins’ response to dramatic changes in the healthcare industry, changes that began to occur during the mid-1980s.

During the mid-1980s, the need for the services provided by DVI was born. When the federal government replaced “cost-plus” reimbursement for Medicare with a fixed fee reimbursement system, hospitals were forced to justify the acquisition of costly medical equipment by meeting a standard of utilization for the equipment. If a sufficient level of utilization was not met for a particular piece of equipment, the hospital could not obtain the particular item. Insurance companies followed the federal government’s lead and limited the amount they would pay for medical services, which forced groups of physicians and non-hospital medical providers to acquire equipment for medical services such as magnetic resonance imaging (MRI), radiation therapy, and lithotripsy (the pulverization of kidney stones or gallstones). Because many hospitals cut back on purchasing high-cost medical equipment, non-hospital healthcare providers, for the first time, became major users of such equipment. There was a problem, however. Generally, the non-hospital healthcare providers did not possess the clout to obtain financing from traditional lending sources. A new market niche was created to meet this need, providing a new source of revenue for commercial finance companies and for companies like DVI, which specialized in providing financing for medical equipment.

Although medical equipment financing came to serve as DVI’s core business in the twenty-first century, its original business of managing healthcare facilities occupied much of the company’s attention during the early 1990s. Renamed Diagnostic Ventures Inc. (the source of the initials “DVI” that later became the company’s corporate title) in 1988, the company fleshed out its diagnostic imaging services business through a series of acquisitions. In October 1991, the company purchased a stake in Healthcare Imaging Services, Inc., a provider of diagnostic imaging and lithotripsy services to outpatient healthcare providers in the northeastern United States. In February 1992, DVI purchased an equity interest in SMT Health Services, Inc., a provider of diagnostic imaging services and radiation therapy services in the state of Washington and in the mid-Atlantic area. Later in the year, in September, the company acquired another stake in a diagnostic imaging services company, purchasing an equity interest in IPS Health Care, Inc., which operated in southern California.

New Corporate Strategy: 1993

Less than a year after investing in diagnostic imaging services companies, DVT’s management team altered the company’s strategic course. In June 1993, the company announced its decision to dispose of the seven outpatient facilities it operated. Within a year, the company had either divested or entered into definitive agreements to sell five of the facilities; the investment and assets of the remaining two facilities were written off. Along with the disposition of its original business, the company divested its interests in Healthcare Imaging Service, SMT, and IPS. Once these transactions were completed, DVI was left to operate exclusively as a financial services company.

When the dynamics of the healthcare industry changed during the mid-1980s, the new market niche created to cater to non-hospital healthcare providers became quickly populated. Commercial finance companies and general equipment lessors flocked to the new market niche during the mid- and late 1980s, but by the early 1990s most of these competitors had exited the market. DVI, unique in its position as an experienced healthcare provider newly cast as a financial services company, bolstered its market presence as the number of competitors diminished. At roughly the same time the company was shedding its role as a medical services provider, it expanded its financial services capabilities.

In 1993, the company acquired Concord Leasing, Inc., a provider of medical, aircraft, shipping, and industrial equipment financing. Concord’s subsidiary, U.S. Concord, Inc., provided equipment financing for the medical imaging industry. The acquisition was significant not only because it was involved in DVI’s new, exclusive line of business but also because it marked the arrival of Michael A. O’Hanlon, Concord Leasing’s president and chief executive officer. O’Hanlon, a former senior executive at Pitney Bowes Credit Corporation, joined DVI in March 1993 as the company’s executive vice-president. Promotions soon followed, making O’Hanlon the company’s president and chief operating officer in September 1994 and its chief executive officer in November 1995.

The addition of Concord Leasing and O’Hanlon occurred at approximately the same time DVI completed another important acquisition. In January 1993, the company purchased Medical Equipment Finance Corporation (MEF). MEF was well established in the medical equipment finance arena, possessing numerous long-term relationships with equipment purchasers and many of the largest manufacturers of diagnostic imaging equipment. Equally as important, MEF had cultivated strong ties with funding sources, credit rating agencies, and others in the financial market. The acquisition of MEF marked the beginning of DVI’s explosive rise in the medical equipment financing market. In 1992, the company completed $46.4 million worth of financing transactions, a figure that increased to $58.6 million in 1993 before leaping to $163 million in 1994.

By the mid-1990s, DVI was touting itself as one of the leading independent sources of financing for diagnostic imaging and radiation therapy equipment. Nearly all of the company’s fixed-interest financing transactions were structured so that the full cost of the equipment and all financing costs were recouped during the financing term, which generally lasted five years. The equipment financed ranged in cost from $100,000 to $2 million, including high-cost MRI equipment, radiation therapy systems, and less expensive equipment such as ultrasound and X-ray systems. Aside from financing medical equipment, DVI, beginning in 1993, also operated a medical receivables business through which the company provided loans to healthcare providers who used their receivables from payors such as insurance companies and Medicare as collateral. During the years immediately following O’Hanlon’s arrival and the acquisition of MEF, DVI enjoyed robust growth in both its business segments. After the substantial gain recorded in 1994, DVI’s volume of equipment financing loans grew stridently, swelling to $238 million in 1995 and $316 million in 1996. The volume of medical receivables funded by the company increased from roughly $22 million in 1995 to $38 million in 1996.

Company Perspectives:

Our singular understanding of the industry allows us to enjoy a special relationship with healthcare providers to whom we extend credit. More than merely lenders, we become partners to our borrowers, because experience teaches us this is the surest guarantee for their success and, ultimately, our own. In evaluating the creditworthiness of a potential customer, we don’t stop with a cursory examination of financial statements. We take an entrepreneurial “we want to do business with you “approach and explore ways to structure deals that work. Then, we roll up our sleeves and do exactly that. We talk to the physicians who will refer patients to utilize the medical equipment we finance. We study local demographics, utilization patterns, patient volumes, and the competitive environment. We don ’tjust review a borrower’s business plan for the equipment; we help them refine one. If the plan calls for a new facility, we discuss site selection, facility design, and layout. A ribbon cutting is just an intermediate step in what we view as a long-term relationship. We stay involved for the long haul. If the business encounters problems, we can help clients adjust the business plan. Our competitors foreclose on problems. We work to solve them. This attitude, combined with our knowledge and experience, helps explain why DVI enjoys a below average loss rate. In fact, since our first full year of operations in 1987, the Company has incurred losses of only 0.5%, while underwriting $5.2 billion of loans and credit commitments.

Further Expansion in the Late 1990s

As DVI entered the latter half of the 1990s, the company stepped up its efforts to tailor itself into an international firm with a global reach. In November 1995, DVI formed a joint venture with a subsidiary of CoreStates Financial Corp. and Philips Medical Systems, a major manufacturer of medical equipment. The company created through the joint venture, Medical Equipment Credit Pte. Ltd. (MEC), was established in Singapore, its mission to garner a share of the expanding diagnostic imaging market in the Asia-Pacific region. DVI invested $2 million for a 40 percent stake in MEC. DVI also joined forces with Philips Medical to enter markets in Latin America, part of the company’s overseas expansion efforts that would see it establish a presence in Australia, Thailand, and Europe.

DVI’s progress during the late 1990s delivered continued financial growth as the company assumed a posture of considerable influence in the medical equipment finance industry. By the end of the company’s fiscal year in June 1998, its volume of equipment financing loans had eclipsed the half-billion-dollar mark, reaching $524 million, exponentially higher than the $46 million recorded six years earlier. DVI’s medical receivables business grew substantially as well, maturing into a meaningful contributor to the company’s financial vitality. After increasing to $75 million in 1997, the medical receivables funded by the company grew to $137 million in 1998.

Following the disclosure of its financial results in June 1998, DVI pursued expansion in earnest, completing a series of acquisitions that injected growth both domestically and abroad. In September 1998, the company paid $77.5 million for Affiliated Capital, a Chicago-based medical equipment financing business. Also in September, DVI acquired Healthcare Technology Solutions, a 20 year-old firm that designed accounts receivable analysis software for financial services companies and accounts receivable collections software for healthcare providers. In June 1999, DVI bolstered its foreign interests by opening DVI Italia, S.r.l. in Milan. Through its Italian subsidiary, DVI, in October 1999, purchased certain assets of Leasing Medica Europa S.p.A., a company that specialized in providing financing to healthcare providers.

DVIs expansion in Italy paved the way for further overseas growth as the company entered the twenty-first century. In March 2000, the company opened DVI Finance SA (Pty) Ltd., a South African subsidiary based in suburban Johannesburg. Through DVI Finance, the company provided medical equipment financing and other financial services to healthcare providers, including clinics, medical centers, and physicians groups. In June 2000, DVI acquired a joint venture interest in Medi Lease B.V., a Dutch company based in Helvoirt. Medi Lease offered financing services to hospitals and other healthcare organizations.

DVI’s efforts to become the dominant healthcare financing firm earned the company national recognition in late 2000. Forbes magazine selected DVI as one of the “200 Best Small Companies in America,” praising the company for 30 percent sales growth for the previous five years and for nearly tripling its earnings from the $8 million posted in 1996 to the $23.5 million recorded in 2000. On the heels of the plaudits handed out by Forbes magazine, DVI lined up $150 million in funding for its foreign expansion, with roughly half of the total earmarked for the Far East and Latin America. DVI derived approximately 15 percent of its business from overseas operations at this point, a total the company’s management hoped to increase to 20 percent within the first several years of the new century. In December 2001, the company made good on its pledge for further international growth when it announced a joint venture with Diamond Lease Co. Ltd., a major leasing company based in Japan. The joint venture company created through agreement was named Diamond Medical Finance Company Ltd., of which DVI owned 50 percent. Based in Tokyo, Diamond Medical provided financing services for diagnostic and other medical equipment in Japan.

As DVI progressed toward its 20th anniversary, its position as one of the dominant healthcare financing concerns appeared secure. In the years ahead, the company anticipated continued expansion, particularly in international markets. In April 2002, DVI announced an agreement with Captiva Finance Ltd., a finance company based in Toronto, Canada, to establish DVI Canada. Through DVI Canada, the company intended to penetrate the market for financing diagnostic and other therapeutic medical equipment in Canada. Another signal of the company’s future strength became apparent in May 2002, when DVI announced the completion of a $441 million equipment lease asset-backed securitization. It was the 30th such transaction the company had completed, representing the largest dollar amount in its history.

Principal Subsidiaries

DVI Financial Services, Inc.; DVI Strategic Partner Group, Inc.; DVI Business Credit, Inc.; Third Coast Capital, Inc.; DVI Equipment Finance; DVI International, Inc.

Principal Competitors

GE Commercial Finance; The FINOVA Group, Inc.; CIT Group Inc.

Key Dates:

1985:

David L. Higgins founds DVI’s predecessor, Delta Health, Inc.

1993:

DVI announces its decision to focus exclusively on healthcare financing.

1995:

Michael A. O’Hanlon is named DVI’s chief executive officer.

1999:

The pace of international expansion accelerates.

2001:

After underwriting $5.2 billion of loans and credit commitments, DVI reports it has incurred losses of only 0.5 percent.

Further Reading

Geiger, Mia, “CEO Portrait,” Philadelphia Business Journal, February 9, 2001, p. 14.

Gotlieb, Andy, “Firm Makes Mark in Health-Care Financing,” Philadelphia Business Journal, June 15, 2001, p. 6.

—Jeffrey L. Covell