HCIA sale to VS&A; OK'd by stockholders; $11-a-share buyout by New York firm; Data marketing


Shareholders of HCIA Inc. approved yesterday a proposal to have the Baltimore-based marketer of health data sell itself to a New York investment firm for $135 million, the local company said.

The buyout agreement calls for HCIA stockholders to receive $11 for each share they hold. HCIA expects to complete the sale by Tuesday.

The new owner will be VS&A; Communications Partners III LP, a $1 billion private investment fund that's a subsidiary of Veronis, Suhler & Associates Inc., a New York investment banking firm. The subsidiary makes investments in information, communications and media businesses.

However, the ownership change should have little effect on most of HCIA's 500 employees, particularly the 175 who work at the company's East Lombard Street headquarters, a local company spokesman said.

"I don't expect to see significant changes for the employee base here," said Barry Offutt, the HCIA spokesman. "There should be opportunities for the employee base here. It's a financial buyer, and wants to grow in the health care information business."

HCIA built a business around collecting health information, adding value by reorganizing or adding more data, and then selling information to hospitals, HMOs and related health-care businesses. Indeed, just a few short years ago, HCIA was one of Baltimore's hottest young public companies. But that image was squelched by an ill-advised merger and a diversification plan that fell flat.

Founded in 1985, HCIA went public in 1995 at $14 a share -- then saw the shares eclipse $65 in a year and a half. The company stumbled after its $130 million acquisition of LBA Healthcare of Denver in July 1996. The LBA deal moved HCIA into the consulting business, with the local firm hoping that consulting services would bring in extra revenue and help it sell more of its data. The strategy failed and, in April, LBA was sold for $7.5 million. At the same time, HCIA announced that it had retained Deutsche Banc Alex. Brown to explore "strategic alternatives," which included selling the company.

VS&A; Communications Partners III, HCIA's buyer, looks for companies that its managers think are promising, then works with management to build those companies, typically for five to seven years. Then it can find a buyer or take the company public by selling shares to investors.

Offutt, the HCIA spokesman, said VS&A; Communications Partners III already has struck a deal to buy a second health care information firm -- this one based in Chicago -- and intends to merge the two. He said the business of the Chicago company, the Sachs Group, is "highly complementary" to that of HCIA, meaning their marriage should be a good one.

Shares of HCIA gained 6.25 cents yesterday to close at $10.875.

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