HCIA Inc., the fast-growing Baltimore health-data concern, disclosed solid second-quarter profits yesterday and said it agreed to make its biggest acquisition ever, a deal Wall Street analysts expect will significantly boost its sales as well as profits.
HCIA signed a definitive agreement to buy Denver-based LBA Health Care Management Inc. for $130 million in cash and stock, the company said. The acquisition has already been approved by federal antitrust regulators and is expected to be completed next month.
The deal will leave LBA's 160 employees in Denver.
LBA does work similar to HCIA's: analyzing medical procedures to measure costs and results for hospitals, insurers and drug companies.
LBA specializes in complicated, high-cost treatments, such as open-heart surgery and orthopedics, and HCIA managers said they're also looking forward to adopting LBA's methods of gauging labor productivity.
Just as important are LBA's accounts with more than 200 hospitals and an expected $25 million in revenue this year, analysts said. Added to HCIA's expected 1996 sales of about $60 million, the combined company will book roughly $85 million in annual revenues.
The LBA purchase also is supposed to boost HCIA's per-share profits quickly -- even after the completion of a secondary stock offering that also was announced yesterday.
HCIA managers expect the acquisition to add up to 10 cents per share to next year's earnings, said Kamal Hamid, who follows HCIA for Bear Stearns & Co. in New York.
Wall Street had been expecting a profit of about $1.33 per share for 1997.
As a result of the LBA deal, "I'm going to bump up my estimates," said Steven P. Halper, an analyst with Donaldson Lufkin & Jenrette in New York.
HCIA is already quite profitable. Not counting one-time charges for an earlier acquisition, the company earned $2.34 million in the second quarter on $16.49 million in sales -- a 14 percent profit margin, yesterday's results showed.
For LBA, "it sounds like the margin is as high or higher" than HCIA's, said Mr. Hamid. "From a strategic point of view, it's exactly on track with what they've been doing."
HCIA showed a net loss for the quarter of $327,000, or 4 cents a share, because of $4.4 million in charges related to its previously announced purchase of Response Healthcare Information Management Inc.
HCIA stock, which is usually volatile, fell $4.625 a share yesterday to close at $61.75. But analysts blamed the drop on market downdrafts that affected many small stocks and said it didn't reflect the market's opinion on the LBA merger or the second quarter.
LBA is owned by HealthVision Inc., a Santa Rosa, Calif., medical systems company. HCIA will pay $100 million in cash for it, plus 492,960 HCIA common shares, valued at $30 million. HCIA said it will book a third-quarter charge of $41.2 million in connection with the deal.
It will raise the cash for the purchase through temporary bank loans and repay it with the proceeds of another stock offering -- 2 million shares added to the roughly 10 million that exist now.
Borrowing from the banks was a faster way to buy LBA than waiting for regulators to approve the stock offering, said Jean Chenoweth, HCIA senior vice president.
"This is the quickest way we can close this deal and get moving on integrating the companies," she said.
Pub Date: 7/23/96