One week before Jackson Healthcare Staffing was set to close on a deal to buy rival World Health Alternatives out of bankruptcy, a group of shareholders sued World Health's co-founder and former head for allegedly defrauding the company out of millions of dollars.
But Richard Jackson, founder and chief executive officer of Jackson's Alpharetta, Ga.-based parent, Jackson Healthcare Solutions, said he has no buyer's remorse.
At deadline, Jackson was expected to close on its purchase of World Health for $43 million and the assumption of some debts on April 28, just one week after World Health's president, chairman and CEO, Richard McDonald, was sued in Pittsburgh federal court.
The acquisition of the for-profit World Health, which at its height served 3,000 hospitals and healthcare facilities nationwide, is expected to help more than double the privately held Jackson's revenues to $300 million in staffing-related revenue in 2006 from $130 million in 2005. With the purchase of the larger World Health, Jackson said his company becomes one of the top five firms in the healthcare staffing industry.
The industry more than doubled in size from 1994's $4.3 billion to $10.5 billion in 2006, according to Staffing Industry Analysts, a publisher and market analysis firm.
Pittsburgh-based World Health, which filed for Chapter 11 bankruptcy protection in February, is the subject of other class-action lawsuits and of investigations by the U.S. Securities and Exchange Commission and the FBI.
But Jackson said he knows a deal when he sees one. "There are pluses and minuses and risks and rewards in a deal like this," he said. "This was not a transaction for the faint of heart. But we understood the risks because we know the business and the WHA business units were levels separated from the alleged accounting problems at the corporate level. We spent nearly $500,000 on due diligence and know what we're getting into."
Jackson said the bankruptcy process "is the only way we could have bought WHA and insulated ourselves from its liabilities. Because of it we're totally protected."
Jackson Healthcare Solutions plans to integrate World Health into its existing staffing organization, and once completed, the company will employ 275.
Jackson became aware of World Health's troubles when they began to surface last year.
He wasn't surprised by the April 21 class-action lawsuit filed against McDonald, who shareholders allege conspired with co-defendants Manhattan Transfer Registrar Co., a stock transfer firm; World Health's former auditor, Daszkal Bolton; and the company's former officers, to divert, assist or overlook the transfer of company money into his hands.
The 52-page amended complaint alleges that McDonald, who also served as the company's chief financial officer from its 2002 inception until 2005, caused the company to overstate the number of outstanding shares, inflated earnings to manipulate stock prices and falsely certified financial statements in violation of the Sarbanes-Oxley Act.
According to the complaint, a former company officer and informant discovered that McDonald had a personal brokerage account with $40 million in securities, $22 million of which was in World Health stock. The suit alleged that the transfer of that stock was never reported to shareholders in violation of securities laws.
McDonald resigned his positions Aug. 15, 2005, claiming ownership of 6.1 million shares of World Health stock, 22.5% of all common shares. In addition he allegedly caused the company to pay and forgive millions of dollars in loans to himself.
Attempts to reach McDonald for comment at his suburban Pittsburgh home were unsuccessful.