Health Personnel Options

Investment:  In April, 1997, River Cities made its initial investment of $1,400,000 and acquired 60% of the fully-diluted equity.  The balance of the equity was purchased by management or was claimed by a stock option plan.  The proceeds were used to make an initial small acquisition in California of a physical therapist staffing company.  Unfortunately, in mid-year 1998, the government revised its reimbursement system relative to therapist staffing at skilled nursing facilities and this change had a dramatic negative impact on HPO.  Immediately, the company located a platform nurse staffing company in Minneapolis to acquire which would create a company of substance and reduce the dependence on physical therapy staffing.  Management sought to raise the $5 million of necessary acquisition capital with the assistance of an intermediary.  After an effort that lasted nearly six months, management was unable to raise the capital.  At this point, River Cities took charge of the capital raise and brought in a co-investor for $2 million, matching a similar amount from River Cities while the seller agreed to take back a combination of notes and equity for the balance.  This transaction was completed in April of 1999.

Growth:  With a more stable operating platform, the company was able to add several smaller acquisitions and also begin to scale organically.  River Cities, with two board seats, were very active Directors and advisors.  In addition to active involvement on the Audit and Compensation committees, River Cities guided the strategic planning initiatives as well as advising management as to the proper inflection point in the growth curve to realize a profitable exit.  The fiscal years of 2000 and 2001 experienced exponential revenue growth.  River Cities advised that an investment banker with industry knowledge be brought in to become familiar with the company and management selected the firm of Robinson-Humphrey.  Representatives from Robinson-Humphrey conducted due diligence and attended the January 2001 Board of Directors meeting. By the fourth quarter of 2001, information provided by the investment banker substantiated that the healthcare staffing market was beginning to peak and advised that it would be timely to sell the company.  An auction process was undertaken, but along the way four of the five Directors had substantial disagreements with the CEO and fifth Director over the proper timing of an exit.  As a consequence, River Cities, with the concurrence of the majority of the Board, took over the sale process including final negotiations with the buyers, serving as shareholder representative, managing public stock sales and the escrow account.

Outcome:  In April, 2002, HPO was sold to On Assignment, Inc. for $150 million, which was believed to be one of the highest multiples that had yet been achieved in the industry.  For a total investment of $3,600,780, River Cities received proceeds of $41,202,945, or a multiple of approximately 12 times its investment.