Analysis: Practice Fusion execs to pocket millions from Allscripts deal, workers get nothing

Top executives at Practice Fusion, a San Francisco-based startup and EHR provider, are slated to make millions following completion of Allscripts' acquisition of the company, while mid-level employees and shareholders "get nothing," according to an analysis by CNBC reporter Christina Farr.

Here are six things to know about Ms. Farr's analysis.

1. Allscripts confirmed Jan. 8 it had entered into a definitive agreement to acquire Practice Fusion for $100 million in cash. Allscripts officials said they expect to close the transaction, funded through existing secured credit facilities and cash balances, during the first quarter of 2018.

2. The sale was a major disappointment to employees and investors, according to Ms. Farr. In January 2016, the New York Times reported Practice Fusion might go public at an up to $1.5 billion valuation. Practice Fusion told the New York Times an IPO "could potentially be an outcome" for the company.

3. However, confidential documents obtained by CNBC showed Practice Fusion's board had been seeking a potential buyer since late 2015, potentially to remedy the company's declining business. Bids from potential buyers ranged from $50 million to $225 million, with the highest proposal from Allscripts, which offered to purchase Practice Fusion for $225 million to $250 million. Allscripts later decreased its offer to $100 million.

4. Practice Fusion stakeholders told CNBC they were misled about the company's growth potential by its leadership team during the acquisition process. Documents reviewed by CNBC showed mid-level employees and company shareholders "get nothing, while managers are banking millions from the pre-arranged carve-out," Ms. Farr wrote.

5. If the acquisition and management payout are approved by company shareholders, Practice Fusion CEO Tom Langan will pocket $7 million, according to a proposal viewed by CNBC. Other company executives earning millions as a result of the deal include:

  • Riyad Omar, chief strategy and corporate development officer: $2.3 million
  • Jonathan Malek, co-founder and chief technology officer: $2.25 million
  • Stephen Byrnes, senior vice president and general counsel: $2.2 million

Sources familiar with the matter, who would not speak on record, told CNBC some workers may attempt to vote down the acquisition and payout together.

6. In an emailed statement to CNBC, Practice Fusion wrote the deal was typical for technology startups.

"In the Bay Area, startup companies pursue financings with terms that vary in their complexity, such as preferred stock liquidation preferences," reads the statement. "Planning for potential acquisition exits also includes having bonus pools for key employees (which include founders and current executives) that align their incentives with company stakeholders to achieve value upon an exit."

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