In a turnabout of events, Medaphis Corp., an Atlanta-based accounts-receivable management firm, has signed a letter of intent to acquire Dallas-based AdvaCare in a deal valued at $95 million.
The new agreement restores Medaphis as AdvaCare's suitor and severs a tentative engagement between AdvaCare, which provides billing services to physicians, and New York-based Qualis Care.
The first round of negotiations between AdvaCare and Medaphis broke off last fall (Nov. 22, 1993, p. 76). At the time, Medaphis had been discussing the acquisition of certain AdvaCare units in the Northeast and Florida.
Subsequently, AdvaCare signed a letter of intent with Qualis Care, a company that's seeking to build a healthcare receivables management business (May 30, p. 35). Under the agreement, Qualis Care would have provided a $14 million secured loan and purchased $20 million of AdvaCare's newly issued preferred stock. AdvaCare also would have issued warrants to Qualis Care for the purchase of 6.5 million shares of AdvaCare common stock.
AdvaCare didn't return calls requesting comment on its decision to drop Qualis Care's offer in favor of Medaphis.
Through due diligence, Qualis Care executives became concerned that AdvaCare was "not going to generate as much cash as they were originally led to believe," a Qualis Care spokeswoman said. Still, Qualis Care would have made good on the deal. It was AdvaCare, not Qualis Care, that severed the agreement, she said. AdvaCare paid Qualis Care a $1.5 million kill fee, she said.
The new deal with Medaphis involves the purchase of 40 AdvaCare offices, primarily in Northern California, Colorado and Texas, said Michael R. Cote, Medaphis' chief financial officer. Medaphis will assume certain AdvaCare liabilities and obligations, which are estimated at about $55 million.
In addition, in a taxable exchange, Medaphis will issue some $40 million in stock to holders of AdvaCare's capital stock and convertible securities.
The parties must sign a definitive agreement, secure necessary regulatory approvals and obtain approval from AdvaCare's stockholders. The transaction is expected to be closed by Sept. 30.
Medaphis serves some 8,500 physicians and 450 hospitals in 45 states. AdvaCare serves about 7,700 physicians.
Separately, Medaphis said it has acquired Physician Billing, a Grand Rapids, Mich.-based company, for $13 million.
Physician Billing provides billing and accounts-receivable management services to emergency room physicians in 11 states. The company generated $10.5 million in revenues last year.
Medaphis will finance the purchase through cash borrowed under its senior credit facility.
Medaphis reported a 92% increase in net income to $4 million, or 27 cents per share, for the second quarter ended June 30, compared with net income of $2.1 million, or 19 cents per share, in the year-ago period. Revenues rose 47% to $57.9 million.
Net income also rose 92% in the first half of 1994, to $7.6 million, or 51 cents per share, compared with $3.9 million, or 36 cents per share, in the year-ago period. Revenues rose 45% to $111.1 million.
Randolph G. Brown, the company's chief executive officer, credits the strong operating results to internal growth and acquisitions.