Greenwich Time
By Richard Lee

January 23, 2008

Management at Generation Partners, a Greenwich-based private equity firm, liked what it saw in 2005 when the company invested in Virtual Radiologic Corp. Now it appears its due diligence has paid dividends.

Virtual Radiologic Corp., a teleradiology business, went public in November on the Nasdaq, issuing 4.6 million shares after building on the $10.5 million investment made by the Greenwich company.

Teleradiology allows radiologists to examine diagnostic images remotely.

Trading under the ticker symbol "VRAD," the Minnetonka, Minn.-based company was an ideal investment target in a growing industry, said Mark Jennings, founder and a managing partner of Generation Partners.

The private investment firm manages $345 million of capital.

"We targeted the teleradiology industry in 2003. It's a $15 billion a year business, and there has been double-digit growth in diagnostic imagery in the U.S.," said Jennings, whose firm specializes in companies with under $100 million in revenue. "It's a very creative stage of a company. We fell in love with this stage company - one with real products and real customers. It's exciting."

Generation Partners, which has investments in 10 companies through its Fund 2 portfolio, was one of more than 10 investment firms vying for selection by Virtual Radiologic, he said.

But like a courtship, Generation Partners had that something extra that impressed management at Virtual Radiologic, said Dr. Sean Casey, founder and chief executive officer of the firm.

"We felt there was more of a long-term outlook from Generation Partners," Casey said. A comfortable relationship quickly developed, he said.

That relationship has not changed with the IPO, Casey said.

The Greenwich company retains two seats on the Virtual Radiologic board of directors and owns 25.2 percent of the business.

"They are active investors. They've been very helpful in advising us on becoming a new public company, dealing with underwriters and interacting with analysts," Casey said.

With the prospects of a declining economy, some other fledgling businesses withdrew the IPO plans. But working with Generation Partners, Virtual Radiologic persevered.

The stock's share price opened at $17 and had climbed to $25. It closed at $17.93 yesterday. Despite the decline, Casey remains optimistic about his company's prospects.

"We've been very pleased with our performance," he said.

The need for teleradiology is skyrocketing as baby boomers age, Jennings said. There is a dearth of radiologists as the profession is expected to grow at only 2 percent annually for the foreseeable future.

"The patient and the radiologist no longer need to be located near each other. It's a digital process," Jennings said. "We have over 100 radiologists who are up and operating. You're improving the quality of health care and making it faster."

Nearly all of the radiologists under contract with Virtual Radiologic, which has 232 employees, are in the United States, Jennings said.

The company's revenue more than doubled year-over-year to $54.1 million in 2006. Through September 2007, its revenue was up 67 percent to $63.3 million. During the same period, its net income grew to $2.1 million, compared with a $529,000 loss in 2006.

Casey appears to have turned things around in the face of competition from Allied Imaging and Nighthawk Radiology Holdings Inc., which also are experiencing revenue growth.