Insider Buyout at FONAR Corp. Faces Scrutiny
Medical imaging firm FONAR Corporation is under investigation over the fairness of a recently announced buyout. The deal is being led by its CEO and an insider consortium, raising classic concerns about whether public minority shareholders are receiving a fair price in the take-private transaction.
The buyout, valued at approximately $98.62 million, will pay holders of common and Class B common stock $19.00 per share. However, the multi-class share structure results in different payouts for other investors, with Class C common stock receiving $6.34 per share and Class A non-voting preferred stock getting $10.50 per share. The deal is not subject to any financing contingencies and is expected to close in the third quarter of 2026, pending shareholder approval. The path to the current offer began in July 2025, when CEO Timothy Damadian and an insider group first presented a non-binding proposal to take the company private. That initial offer was for $17.25 per share, a price that was a 27% premium over the 90-day average closing price at the time. The final offer of $19.00 represents a 31.5% premium over the closing price on the last trading day before the definitive agreement was announced. The transaction is being financed through a combination of debt and equity. The buyer group has secured a $35 million senior debt facility from OceanFirst Bank, with an additional $10 million in subordinated debt and approximately $45 million in equity from the insider consortium and third-party lenders. This structure will take FONAR, a company that has been public since 1981, off the Nasdaq stock market. Scrutiny of the deal centers on the inherent conflict of interest in a management-led buyout. The law firm Ademi LLP is investigating whether the board of directors breached their fiduciary duties to public shareholders. Concerns have been raised that the deal includes "substantial benefits" for insiders as part of the change of control and that the merger agreement contains a significant penalty for accepting a competing offer, potentially deterring higher bids. From a valuation perspective, opinions are mixed. One Discounted Cash Flow (DCF) analysis suggests a fair value of approximately $26.95 per share, considerably higher than the $19.00 offer price. Some analyst 12-month price targets are as high as $43.00, with a low estimate of $19.00 and an average of $32.49. However, at least one analyst has a "Hold" rating on the stock. FONAR's business model is unique, as the majority of its revenue comes not from selling its patented Upright MRI scanners, but from its subsidiary, Health Management Company of America (HMCA). HMCA manages a network of diagnostic imaging centers, providing a steady stream of income from patient scans and management fees. This recurring revenue model is a key aspect of the company's financial profile. For fiscal year 2025, FONAR reported revenues of $104.35 million, a slight increase of 1.43% from the previous year. However, earnings saw a significant decrease of over 21% to $7.94 million. The company's stock has seen a 52-week range of $12.00 to $18.86.
