Ailing HCIA to be sold

New York partnership to pay $11 a share for local health data firm

It had quick rise, quicker fall

Shares that once traded for $65 sold for $3 in Oct.

August 13, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

HCIA Inc., the Baltimore health data company, said yesterday that it had agreed to sell itself to a New York investment partnership for $135 million, or $11 a share in cash -- a 22 percent premium over Wednesday's closing price of $9.

News of the deal drove HCIA shares up $1.0938 yesterday to $10.0938.

The sale will end HCIA's brief history as a public company that was marked by a quick and dramatic rise and an even quicker fall. The company, founded in 1985, went public in 1995 at $14 a share and saw its stock price zoom to more than $65 in a year and a half. Then, after a disastrous acquisition and a string of money-losing quarters, the stock plummeted as low as $3.1875 in October.

"This is a happy ending," said George D. Pillari, HCIA's chairman and chief executive officer. "We got the stock from $3 to $11." Pillari and the buyer, VS&A Communications Partners III LP, said current management and all employees will remain in place, and the company will look to grow under its new ownership.

"We remain fully intact, with a buyer who wants us to grow aggressively," Pillari said.

HCIA has about 500 employees, including about 175 at its Lombard Street headquarters.

Anthony V. Vendetti, an analyst with Gruntal & Co. in New York, said the $135 million price tag for HCIA represents 1.9 times its sales over the past 12 months. Health data companies typically trade at about 2.2 times annual sales, he said.

"Obviously, they've had a very checked past, with numerous quarters in the red," he said. "When you have had the well-documented problems HCIA has had, you're going to be hard-pressed to get a multiple that's at the industry average."

HCIA had $63 million in sales in 1998.

HCIA's turn in fortunes occurred in July 1996, when it bought LBA Healthcare of Denver for $130 million. HCIA's primary business had been collecting, organizing and selling data to hospitals, HMOs and other health businesses. With LBA, it added a consulting unit in the hope that it could sell data and consulting services.

But the consulting business didn't develop, and HCIA sold LBA in April for $7.5 million. HCIA announced in April that it had hired Deutsche Banc Alex. Brown to explore the sale of the company and other "strategic alternatives."

Anticipation of a sale in the $10 to $13 range pushed the stock price -- less than $4 before the April announcement -- up, Vendetti said. Also helping the company rebound, he said, were two profitable quarters.

The sale requires regulatory and stockholder approval. Vendetti said no problems are expected on either score. The deal could close in 60 to 90 days.

VS&A Communications Partners III is a billion-dollar fund affiliated with Veronis, Suhler and Associates, a New York investment banking firm. Roger Krakoff, managing director of the firm, said the fund seeks to buy "promising companies" and to "work with management in a collaborative fashion to grow the company."

Typically, he said, the fund holds a company for five to seven years, and then finds a buyer or takes the company public. The fund gets its capital from institutional investors.

Krakoff said VS&A was interested in HCIA because it is "a wonderful company, a terrific brand, a wonderful database, terrific growth prospects." Pillari said VS&A, which had made acquisitions in business information, publishing and cable television, was seeking a "platform" to move into health data.

Over the next several years, Pillari said, management and VS&A hope to make HCIA "two or three times as big as it is now."

After the LBA experience, he said, any acquisitions would "be more aligned with our core business," which he described as "collecting information, adding value to the data and repackaging it for sale." This niche, he said, has "high margin and a high percentage of recurring business."

Pub Date: 8/13/99

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