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ATLANTA – , a provider of medical transcription services built around web-based technology, is acquiring Medical Dictation Services for $16.2 million.

Medical Dictation, which is based in Maryland, also focuses on medical transcription.

Transcend (Nasdaq: TRCR) uses Internet-based speech recognition, voice-to-text technology.

The press release:

ATLANTA – TRANSCEND SERVICES, INC. (Nasdaq: TRCR), the third largest provider of medical transcription services to the U.S. healthcare market, announced today that it has entered into a definitive agreement to acquire Medical Dictation Services, Inc. (MDI) for $16.2 million.

The $16.2 million purchase price consists of $10.2 million in cash payable at closing (less any existing indebtedness assumed and plus or minus certain working capital and tax-related adjustments), $2.0 million in cash payable after receipt of interim financial statements and audited financial statements for the last two fiscal years, a $2.0 million note payable to the selling shareholder due one year after closing, and $2.0 million of Transcend common stock (119,940 shares). The initial cash portion of the purchase price is expected to be funded using a combination of cash on hand and up to $7.0 million in bank term debt.

Larry Gerdes, Chief Executive Officer of Transcend, said, "MDI’s strong presence in the mid-Atlantic region significantly expands Transcend’s national footprint. We are confident that MDI’s culture of excellence and total commitment to customers and employees will help ensure the success of this transaction. We look forward to working together to integrate our operations over the next several months."

"I recognized that we needed a larger partner to achieve our long-term growth objectives," said MDI Chief Executive Officer Dorothy Fitzgerald. "A critical concern for me was to find a partner that recognized MDI’s potential and was committed to providing excellent customer service. I am convinced that Transcend is the best partner for MDI, its employees and customers."

Sue McGrogan, Transcend’s President and Chief Operating Officer added, "I have known Dorothy Fitzgerald for years. Like me, Dorothy is committed to outstanding customer service, which is reflected in her high customer retention rates. In her new role, Dorothy will be President of our MDI subsidiary. She will report to Leo Cooper, Executive Vice President of Sales and Marketing, in order to focus on driving future growth, particularly in the mid-Atlantic region."

"Upon closing, Transcend’s consolidated annualized revenue run rate will reach approximately $82 million," said Transcend Chief Financial Officer Lance Cornell. "This transaction shows how we can use a combination of cash on hand and conservative financial leverage to acquire mid-sized medical transcription companies that quickly become accretive to earnings. We expect the integration with Transcend, including the conversion of some of MDI’s business to Transcend’s speech recognition-enabled BeyondTXT platform, to increase MDI’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin as a percentage of revenue from the mid-teens today to 20% or more a year from now."