Point 2 - 2/11. FINAL - Bridgepoint Capital

INTERVIEW“Any money was reinvested. Therewere no salaries. I was lucky tostart off with money, then marrysomeone with more”American healthcare company, to managethe equipment on 10th November 1983 –Waley-Cohen’s 35th birthday.The three friends invested $300 each,Zehner put in $100 and Alliance Imagingwas established in southern California.The first CAT scanner cost $1,016,000.“You could borrow 90 per cent of the costfrom the vendor, so we did, and finding$100,000 is not such a staggering amountamong three people,” he recalls.The scanner was ordered in Novemberand arrived in March. By April, Zehnerhad bookings for three machines. “Wehad had to put up a letter of credit for$300,000 as security for the first one; sowe spread it over three units.” A fourthscan was bought out of cash flow by thatDecember, and a fifth one within 12months of trading.By then Zehner had seen the potentialfor MR scanning, which was in its infancy– the first machine cost $2m including atrailer – and expansion into NorthernCalifornia. “We thought ‘this is getting abit much for the three of us to finance, sowe've got to arrange some external money’.“Any money we made was reinvested.There were no salaries. I was lucky to startoff with money, and then marry somebodywith more money than I had.”His wife’s great grandfather foundedShell. “He was seriously entrepreneurial,”says Waley-Cohen. “In 1890 there were 90boats in Yokahama’s harbour; 78 eitherbelonged or were leased to Shell.”Alliance Imaging was a difficult conceptfor venture capitalists. Waley-Cohen, thepresident and chief executive, worked (asnow) from a spartan office in his Chelseahome – “thank God for the fax andtelephone” – but Alliance Imaging was aSouthern Californian company. “I had nointerest in moving there.”The company found funds and laterfloated in August 1987 at $9 a share – justtwo months before the stock marketcrash. Alliance Imaging’s sponsors wentbust: “That left us as an unloved orphanwith all the rigours of being a publiccompany,” says Waley-Cohen. “I have nointention of doing that again.”Waley-Cohen stepped down afterinvestment firm DLJ took AllianceImaging private again at $9 a share andwas replaced by Rick Zehner. The businesshas since floated, been taken private andbeen bought by KKR. “It is public againwith a market cap of $1.5 bn. I rather wishmy $300 had become 30 per cent of $1.5 bn.”How much money did he make? “Pass. Ihave no idea. A lot of money,” he pauses,before adding quietly, but with emphasis:“A lot of money.”He took six months off, enjoying hishorses at the family home in the groundsof Upton Manor near Banbury. His wife’sgrandfather donated Upton House “with agenerous endowment” to the NationalTrust. It was the act of a disillusioned man,who had lost a brother and two brothersin-lawin the Great War, almost lost hiseldest son in the Second, and then suffereda government which introduced 80 percent income and inheritance tax.“We moved in very briefly but it was justunplayable. Fifty thousand visitors a yeararound your house is not much privacy,” herecalls. “It certainly changed the way thechildren behaved, so we decided to buildour own home.”In 1989 Waley-Cohen started AllianceMedical in the UK with Lord Bearsted,Rick Zehner and venture capital fundingfrom Transatlantic Capital (Biosciences).They employed David Haworth toresearch the market, who was told theconcept wouldn't work in the UK. Thetrailers would be too long, the streets onwhich hospitals were located were toonarrow and sceptics doubted that mobilescans would work as well as static ones.Waley-Cohen set about proving themwrong. He asked a specialist trailerproducer in America to build to Europeanspecifications – six foot shorter – andordered a scanner, but warned bothmanufacturers they would not be paidfor a year.“They were seeding a whole newbusiness in a market that was bigger thanAmerica,” he explains. Its first customerwas Bupa, which booked a scanner forseven hospitals in Cardiff, Norwich,Manchester and Southampton. Within 12months it had ordered a second, andAlliance Medical was in business.“The private hospitals didn’t want totake any risk on whether it was used ornot. They would give us permission tocome to the hospitals with the scanner,but did not guarantee that anything wouldhappen to it.”Alliance Medical had to go out and“beat the drum”with an educationand marketing “The hospitals didn’tcampaign.want to take any“[The NHS]has more patientsrisks on whether thethan it knows scanner was used.what to do with,They gave usand a tight cashbudget. We had to permission to comespend time explaininghow toto the hospitals butschedule a patient.did not guaranteeDifferent parts of anything wouldthe anatomy takehappen”different amountsof time.”Half Alliance Medical’s clients are nowwithin the NHS and, as a result of takingover a bankrupt company in a similar field,half its scanners (which cost around $1m)are now static. Transatlantic Capital(Biosciences) was replaced by 3i andForeign & Colonial in 1986 – a relationshipWaley-Cohen never enjoyed – butBridgepoint became involved in a tertiarybuyout in 2001.It has funded Alliance Medical’s moveinto Italy, and more recently Spain.“If you understand medically whatscanning can do for you, you woulddefinitely send your patients,” concludesWaley-Cohen.“Take back pain. You learn nothingfrom an X-ray about back pain so whysend a patient? Well, it costs €48 and anMR scan costs more, but you’ve wasted€48 and got nothing. An MR cuts outcheap but not very useful procedures.Patients should be sent straight to MR,which will give definitiveanswers every single time.”Helen Dunne is associateCity editor of The Daily Telegraph.FACET OFACETHE POINT 13