Philips North America LLC is set to purchase the service contracts of Digirad Corporation’s Medical Device Sales and Service (MDSS) business unit for a total considered sum of $8 million.

The definitive purchase agreement was reached by Philips and DMS Health Technologies Inc., a wholly owned subsidiary of Digirad, last month, with customary closing conditions expected to be completed on January 31.

“Over the last few months, we have been evaluating our opportunity to run this service business outside our prior Philips relationship, and we determined that the best value for the business would be in the hands of Philips,” Matt Molchan, president and CEO of Digirad, said in a statement. “We are very pleased with the economics and outcome of this agreement, and this transaction will better position Digirad to focus on its core business – providing convenient mobile diagnostic health care solutions.”

The MDSS business unit provided post warranty contract maintenance services for large diagnostic imaging equipment, particularly in the upper midwest region of the U.S., for products manufactured by Philips.

Digirad expects to apply net proceeds from the sale to its existing line of credit with Comerica, although $500,000 of the transaction will be held in escrow to satisfy the indemnification obligations of DMS. DMS and its affiliates will also be subject to non-competition obligations under the agreement.

The acquisition of the service contracts follows Philips’ decision to terminate its remote service contract with DMS, which enabled the latter to provide contract services for larger Philips imaging systems, patient monitoring systems and other Philips-made products, according to the official SEC filing for the termination.

"Since 2014, Philips had a multi-year agreement with DMS Health Technologies (DMS), a wholly-owned subsidiary of Digirad Corporation, for service and distribution of our imaging systems, patient monitoring systems, and other select Philips products in the Midwest and Great Plains regions in the US," a Philips spokesperson told HCB News. "In the course of 2017, Philips took the strategic decision to do these activities in-house from 2018 onward. Therefore, we terminated the agreement per December 31, 2017, and in late December 2017, we signed an agreement to purchase the relevant service contracts from DMS."

Both companies have the right to terminate the deal should it not be complete by February 7 or a later date, as agreed upon in writing.

Installation and warranty services sold in the same upper midwest region will continue through January 31 under an extension of the previous consolidated service agreement between Philips and Digirad.

Digirad did not respond to requests for comment.

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