HCIA, a Baltimore-based healthcare information company that bottomed out on Wall Street, agreed last week to be taken private for $135 million by a New York-based investment fund.
The definitive agreement calls for VS&A Communications Partners III, a limited partnership affiliated with Veronis, Suhler & Associates, to pay $11 per share for all of HCIA's stock. That's a premium on the $9 stock price Aug. 11, the day before the announcement, when the price had bounced back from a low of $3 earlier this year.
But it's a long way from the $60 range HCIA had reached three years ago, before a series of acquisition and marketing miscalculations saddled the company with products and services it couldn't sell to providers.
HCIA, which collects, manages and distributes comparative healthcare information, attempted to get into the consulting business by purchasing LBA Healthcare Management in 1996 for $130 million. But a few months after the deal became final, key people from the Englewood, Colo.-based firm abruptly quit, said George Pillari, HCIA's chief executive officer.
"We made a mistake," Pillari said of the venture. Besides failing to recoup the original purchase price, HCIA recorded impairment losses, or declines in values of assets, of $41 million in 1996, $37 million in 1997 and $28 million in 1998.
"That chewed us up for '97 and most of '98, and we decided, 'Let's get out of that business,' " he said. The unit was shut down at the end of 1998 and sold in March for $7.5 million. The unit's losses accounted for all or most of net losses totaling $42 million in 1996, $37 million in 1997 and $49 million in 1998.
HCIA also overestimated the demand for large-scale customized information databases comparing hospital and health system performance to industry benchmarks. In 1998 it posted an impairment loss of $50 million primarily because of a failure to land customers.
Pillari said the company has scaled back to its core business and will be a platform for VS&G's expansion into the healthcare information market.