Capital-starved Pace Health Management Systems expects to complete the sale of its assets to 3M Health Information Systems, a Salt Lake City-based unit of 3M Health Care. The transaction is estimated at $6.1 million.
The 3M computer subsidiary will pay $4.75 million cash to Pace and assume selected liabilities of the publicly held company. Announced in late June, the deal is close to clearing shareholder approval and meeting other conditions for the sale, a 3M spokeswoman said.
Pace had been foundering financially in a hospital market willing to pay millions for innovative clinical software systems but unwilling to chance it with vendors that don't exude long-term stability.
The West Des Moines, Iowa-based company exploded onto the scene more than three years ago with systems for clinical documentation, case management and automated critical pathways (March 11, 1996, p. 10). But it fizzled just as fast, suffering setbacks that cut off its ability to attract capital while stifling revenue growth.
Pace continued to attract business, winning four contracts in the past year and beating much larger competitors, said Mark Emkjer, Pace's president and chief executive officer. Foremost among the new business was a $3.6 million contract with Moses Cone Health System, based in Greensboro, N.C.
The customers balked, however, when they looked at the company's balance sheet and saw no cash, Emkjer said. Pace realized about $3 million in revenues in 1997 and posted an operating loss of about $3.5 million, he said.
On May 19 its stock was delisted by the NASDAQ exchange after the company fell below the minimum required market capitalization of $2 million and bid price of $1 per share.
Pace would have had $4.7 million in revenues for 1997, but its large clients put implementation of Pace systems on hold pending resolution of Pace's financial situation, Emkjer said. When that happened, it was time to find the right fit with a well-heeled buyer.
3M Health Information Systems markets a management system for healthcare delivery networks, including the foundation for a computer-based patient record. But the software system lacked several features of a comprehensive product, which made 3M unable to respond to some sales leads. Pace now will supply those features, said Nancy Larson, national marketing manager for the unit.
As part of the 3M computer subsidiary, Pace's assets become the property of St. Paul, Minn.-based 3M Health Care, a diversified $2.4 billion healthcare business. 3M Health Care is a subsidiary of Minnesota Mining and Manufacturing, which had 1997 revenues of $15 billion.
The deal ends Pace's search for capital, dating to early 1996 when Emkjer joined the company to help direct a $22 million secondary offering of common stock. Pace "went public at a very early stage" in its development, Emkjer said, before it had a mature business plan to match its products.
And it was undercapitalized from the start, raising only
$5 million in its initial public offering in April 1995, for a total capitalization of $10 million, including proceeds from other investors, Emkjer said.
The proposed secondary offering was called off in June 1996 when a severe downturn in stock prices for small-cap and technology stocks dried up the market for new issues.
The company attracted acquisition interest from two publicly held information systems companies last year, but the prospects faded because the acquisition would not boost earnings in the first year, Emkjer said.