PacifiCare Expands Base by Purchasing Bay Area Company : Acquisition: Cypress-based HMO adds clients and can offer more services by buying Execu-Fit Health Programs.
PacifiCare Inc., trying to broaden its client base, announced Tuesday that it has acquired a San Francisco-based provider of health education and wellness programs.
Both companies declined to disclose a purchase price, but securities analysts estimated the price at less than $5 million.
The acquisition of Execu-Fit Health Programs will allow the Cypress-based health maintenance organization to offer its current clients more programs in health care and prevention, said Rich Lipeles, president of PacifiCare Inc., a subsidiary of PacifiCare Health Systems Inc.
Execu-Fit, which has an office in Pasadena, has about 100 corporate clients and offers on-site fitness screenings, health education seminars and courses designed to end smoking and bad eating habits, said Karen Behnke, president and founder. The company has about 20 employees and works with about 200 independent contractors.
Its corporate clients include Irvine-based Allergan Inc., Southern California Edison, Pacific Bell and Atlantic Richfield Co.
“Execu-Fit has two primary goals,” Lipeles said in a statement. “Its services are designed to improve the health of employees, as well as to reduce the employer’s health-care costs.”
Execu-Fit, with its roster of corporate clients, will allow PacifiCare to expand into some large California companies, Lipeles said. He added that the acquisition fits into PacifiCare’s plans to expand over the next five years.
Some health-care analysts said the acquisition is a good move for PacifiCare because of the need for HMOs to continually expand membership to remain profitable.
Ken Abramowitz, a health-care analyst with Sanford C. Bernstein of New York, said providing more services is a way to attract new clients. “The bigger they get, the easier it is to provide these extra services,” he said. “And, similarly, the more services they provide, the bigger they get.”
But one consultant suggested that PacifiCare might not be following the best growth strategy. Larry Selwitz, an analyst with Fin-Com, a Newport Beach investment company, said some HMOs have tried to open markets by acquiring smaller companies, but “history suggests that it doesn’t work out as well as they wanted.” He said the best way for a HMO to expand is to acquire another HMO.
PacifiCare has followed a cautious acquisition strategy and has been turned away often. Since 1988, PacifiCare has made at least eight unsuccessful bids to buy other HMOs, including a bid for Los Angeles-based Maxicare. Even so, PacifiCare has emerged as one of the fastest-growing and profitable HMOs in its industry.
PacifiCare reported sales of $975.8 million in 1990, while Execu-Fit’s totaled “less than $5 million,” Behnke said. PacifiCare has more than 500,000 members and is California’s fourth-largest HMO.
Following the announcement, PacifiCare’s stock rose $1.625 to close at $35.625 a share in over-the-counter trading Tuesday.
