A homegrown Tucson technology startup that provides Web-based medical referral systems has been acquired for $11.5 million by a major health-care technology and consulting firm.
The deal brings another major health-care company to Tucson and buoys the local entrepreneur and investment community.
Medical Referral Source was acquired by Washington, D.C.-based The Advisory Board Co. and will maintain its offices and about a dozen employees here, said Cindy Jordan, a co-founder and CEO of Medical Referral Source and the managing director of the acquired operation.
The company’s system allows hospitals and physicians to electronically process patient referrals, with a product sold to hospital and physician groups and a system provided free to independent doctors.
It is used widely in Tucson, where some 30,000 referrals a day are processed using the platform, Jordan said. The company also has clients in Phoenix, Scottsdale, Prescott and Nashville, Tenn.
“In one way or another, 70 percent of physicians in Tucson are using it,” she said.
The company is looking to replicate that success.
“With their resources, it’s going to be on a much, much grander scale, and the good news is they offered every single employee a job here in Tucson — awesome and well-paying jobs — and we get to keep our office open,” Jordan said.
Medical Referral Source was launched about three years ago but kept fairly quiet in order to gain a first foothold in the Internet referral market, Jordan said.
“We wanted to sort of fly under the radar. We had a first-mover advantage and it ended up paying off for us,” she said.
News of the deal was kept low-key as well. The Advisory Board, which is publicly traded on the Nasdaq Stock Market with a market capitalization of more than $2 billion, announced the acquisition as an aside to its recent earnings release.
Company executives were unavailable for comment Wednesday.
During a July 31 conference call with Wall Street analysts, Advisory Board Chairman and CEO Robert Musslewhite said he expects the Tucson operation to be a strong contributor to the company’s earnings growth over the next several years as the technology is built into products and new members are signed up.
“We will spend the next several months working to scale their organization and its technology and prepare sales teams for a new product launch, which we expect to announce in an upcoming quarter,” Musslewhite said.
Jordan said she and partner Anne Sarabia hatched the idea while Jordan was working at LP&G, a local marketing firm where she represented University Medical Center and University Physicians, and worked with LP&G principals Leslie Perls and Colleen Tierney-Cutshaw to work out a business plan.
They later enlisted technical staff and directors to raise money and push the concept forward, including former longtime UA Health Care Network chief financial officer Jean Tkachyk; Web developer and a UA Eller College MBA Troy Hollar, who did the design work; and Kirk Saunders, a retired attorney active in investment circles.
Jordan said the company raised about $2 million in private-equity investments from more than 20 individual “angel” investors, including members of the Desert Angels.
One of the biggest investors was Jim Peebles, co-founder of Sunquest Information Systems, a Tucson-based health-care data systems firm acquired last year for $1.4 billion.
“It’s another sign of the kind of technology that’s in Tucson and has been in Tucson,” said Peebles, who was information technology chief for the UA Health Sciences Center in the late 1960s before starting Sunquest.
He said that Sunquest and Ventana Medical Systems — acquired by Swiss drug giant Roche for $3.4 billion in 2008 — are prime examples of the power of UA’s medical school and hospital system to spawn cutting-edge, bankable technologies.
Curtis Gunn, chairman of the Desert Angels, said that while not in the billion-dollar range the Medical Referral acquisition provided a quick turnaround for the angels, who typically count on only a fraction of their deals paying off.
The investment by several individual Desert Angels triggered an additional investment from the group’s “sidecar” fund, which was launched in 2010.
“We’re very excited,” said Gunn, who recently was named to the national board of the Angel Capital Association. “We try to help get these companies to what we call an exit, or liquidity event. So it’s great for Tucson, it’s great for the Desert Angels.”
Gunn and Peebles said the deal will only encourage local investors and entrepreneurs.
“Every success story feeds the next success story,” Peebles said.
For her part, Jordan said she plans to stay with the company for the foreseeable future.
“The product hasn’t hit its heyday yet, and I want to be a part of it,” she said.