Quovadx Sick of Public Markets

With a name like Quovadx (NASDAQ:QVDX), I can understand why investors haven't bought much of the stock. It's difficult to pronounce and hard to remember -- I hope the company didn't pay a branding firm. Either way, that won't be a concern anymore; the company is going private for $3.15 per share.

Quovadx is three businesses in one. Its integration solutions division provides software to help different health-care information technology systems talk to each other. The CareScience division collects data to improve patient safety. Lastly, Rogue Wave Software offers a collection of programming tools to build business applications.

To close the buyout deal, Quovadx sold CareScience to competitor Premier for $34.9 million. Battery Ventures bought the remaining businesses for $136.7 million. On a conference call, Quovadx CEO Harvey Wagner said that the buyout process began in August, involving many potential buyers.

But at 1.1 times revenues, the ultimate buyout valuation seems low, compared to recent health-care software buyouts. Netsmart Technologies (NASDAQ:NTST) recently fetched 1.82 times revenue for its buyout -- also on the low side. Its financial advisor, William Blair, analyzed a group of recent buyout transactions and computed an average valuation of 2.32 times revenue.

While the purchase looks like a raw deal for Quovadx shareholders, the low price isn't entirely unjustified. The company grew revenue by only 1% to $84.1 million over the past year, and it posted negative EBITDA of $3.6 million in the same period. Management was badly distracted by the settlement of shareholder lawsuits.

Quovadx is also struggling to gain traction in the health-care industry amid grueling sales cycles and fierce competition. It's an increasingly tough environment for small-cap players like Mediware Information Systems (NASDAQ:MEDW), Streamline Health Solutions (NASDAQ:STRM), and Quadramed (AMEX:QD). With lots of private equity sloshing around, Fools shouldn't be surprised to see more of these health-care software operators opt out of the public markets.

Further Foolishness, heal thyself:

• Big Reasons to Think Small
• Netsmart: Being Public Not So Smart
• Embarcadero Logs Out

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,719 out of 25,386 in CAPS. The Fool has a disclosure policy.