Howard Berger: Good question. Well, first of all, I think in general, and not just in health care, but multiples certainly have come down. I think the day of basically almost zero interest rates created a feeding frenzy, if you will, that allowed certain groups that go out there and be less concerned about how much they were paying for these assets given that money was almost free. I think the benefit, if you will, of rising interest rates is bringing a little bit more common sense approach to this because health care, unlike a lot of other industries is really unpredictable. Things that we’re looking at today, for example, like labor shortages, continuing deterioration or lowering of reimbursement or things that we may not have thought about three years ago.
So I think that the multiples are coming down. We’ve been disciplined and never really got into that kind of an arms race, if you will. And so — that’s why I think we’re in a very good position with our leverage, not only being about two times of our debt. And I think more common sense, not just from distressed, but all of the assets inside of health care and particularly imaging, will now be a little bit more rational. For us, the decision-making is really two parts. Number one, in markets that we’re currently in, two acquisitions add to our network access, which allows us operational and conversational improvement for our reimbursements. And that’s always our first priority. So much like we did last year — okay, it was last year with Montclair Radiology, which was a big provider in New Jersey.
We stretched and made, what I think was a very good acquisition for us long-term in terms of our network access and delivery and buying a very high-quality radiology group. As opposed to new markets, we are looking at new markets, but there has to be the right dynamic where we’re not interested in going into a market where we buy a single center or two even if the pricing looks good. We have to have a good platform acquisition to enter a new market and one where there are growth opportunities to add to that, it gives us a very substantial presence in that market for the same reasons that we’ve developed that in all the other seven markets that we’re in or seven states, I should say there we’re in. We’re in multiple markets beyond just the seven states.
But I believe those opportunities will now be more likely because of assets that may be distressed either because people tried their own consolidation and paid more for those assets and they’re worth or they just couldn’t create the kind of consolidation synergies that they thought were there, which were far more equipped to deal with. So as we mentioned in our remarks, I think our liquidity position and leverages, leverage allows us to look at opportunities to go into other markets or to potentially take on acquisitions that might significantly bend the curve in terms of RadNet’s presence inside the radiology community.
Operator: Are you done with your question, Rishi?
Rishi Parekh: Yes, sorry. Thank you.
Operator: We will move on to our next question, which is from Ed Kressler with TPG Angelo Gordon. Please go ahead.
Ed Kressler: Good morning. Thank very much taking the questions. And Rishi partially covered this, but just in terms of the recent equity raise and subsequent deleveraging, at least on a net debt basis, just a little more color on the thought process behind that, please, if you would. Is it related to the de novo opportunity and kind of associated CapEx that’s required there? Or is it more of this M&A-driven opportunity that you just spoke to and the opportunity for even a transformational deal? And then related to the possibility of a transformational deal, do you have a leverage target that you feel comfortable going to for the right deal, kind of obviously, we’ve gone through COVID and had some disruption. But kind of pre-COVID you were kind of 4 times levered versus kind of the two times levered you are now? Do you — how do you think about leverage in the context of a deal like that? Thank you.
Howard Berger: Sure. Hi, Ed. I think I’ll take this question. I think to your question about how we’re looking at our capital structure and deleveraging and how that could potentially change with acquisitions. We’ve been prudent and disciplined, and it’s not been lost on us that interest rates have gone up about 500 basis points in the last 12 to 18 months. And so as we’ve seen rates go up, we’ve been more and more we’ve had more and more conviction to try to deleverage the balance sheet. We were very fortunate that we entered into interest rate swaps in 2019 that have shielded us from some of the pain that others are feeling as the base rates have increased so rapidly over the last 18 months. We did do the equity raise in part to deleverage the business and derisk the capital structure, but we also did that to accelerate growth.
As we’ve talked about a lot in our prepared remarks today and in past calls, we’ve got more than a dozen de novo centers in various stages of development. We’re executing on hospital joint ventures. We continue to do the smaller tuck-in M&A transactions in our markets. We’re spending aggressively to increase capacity and improve our technology and our throughput at our centers to meet heavy demand and we see this as an opportunity to set ourselves apart from other operators in our industry and competitors that we have in our market where we can advantage ourselves by having the capital and having the liquidity to execute on these types of opportunities when others cannot. Now, in terms of the other part of your question about our thoughts of levering up again for a substantial acquisition.
I guess our answer is it all depends upon what the acquisition is and what the opportunity is to drive value for our shareholders and for our — all our stakeholders, including our lenders. I think there would be an opportunity to do something on a larger scale for the right deal. I think our management team and the level of infrastructure that we have can support a much larger platform, and we can grow this business substantially in the future without essentially building up our corporate infrastructure much larger than it is today. I think we’ve also, over several decades of operating this business, have come to a model that we think is the model that works and can scale in this industry effectively. So, we would be interested in growing this business and that capital that we raised in June of this year, I think, is positions ourselves to do something on a larger scale.
Would we take on a little bit more leverage and a little bit more capital structure risk do something like that? I think the answer is yes, we’re willing to do it to a point. I don’t — I think that the days of being five, six times levered, particularly in a capital-intensive business like the one we’re in, are behind us because interest rates today don’t lend themselves to having that type of leverage. But we would potentially take on additional leverage if we could convince ourselves that in a reasonable time period, meaning 12 to 24 months, we could deleverage the capital structure through synergies and efficiencies with whatever transaction we were contemplating.
Ed Kressler: Great. Thank you. thanks so much for that color. I’m sorry.
Howard Berger: Yes. That’s okay. I just want to add a comment. I think Mark was spot on here. There’s three things that really allow us to potentially look at something transformational. One is where are the synergies coming from. If we can’t find synergies, then I don’t believe it’s possible to think of a large transformational acquisition because the need to leverage down is critical to RadNet’s philosophy. So synergies become probably the single most important driver. And as opposed to what I’ve seen other people do, when we do due diligence and find synergies, we’re going to have to have an extraordinary degree of confidence that those can be achieved. That’s number one. Number two. We have tender now, which we didn’t have before in the value of our stock that would have to be a component of any transaction to avoid leveraging up their company beyond levels that we’re comfortable with.
