A Closer Look at Merge Healthcare Raises Flags

Michael Ferro, the white knight who saved imaging software developer Merge Healthcare with a $20 million infusion of cash about four years ago, may be reclaiming that investment in direct payments, even as the company he propped up with that cash founders under the weight of a new payment structure.In an in-depth story published by Crain’s Chicago Business over the weekend, reporters investigated SEC filings that demonstrated Ferro’s receipt of some “$9.3 million in a series of side deals” from Merge Healthcare that either benefited him personally or his venture capital company, Merrick Ventures. According to Crain’s, only four of the eleven such deals have been independently reviewed, and members of the four-person audit team that reviewed some of the deals had ties to Ferro’s tech start-up, Click Commerce. Thanks to the infusion of capital and personally brokered deals, Crain’s reports, Ferro rallied Merge Healthcare stock from $0.38 per share to more than $7 per share as recently as September 2011. Among a group of unidentified investors that cashed in on those gains was Merrick Ventures, which Crain’s says made $11.8 million in stock and dividend redemption last year, after having bought $10 million of stock in a private deal in 2010. Merge has also paid Merrick $4.1 million for consulting services and $1.6 million for a computerized receptionist program called Olivia Greets, according to Crain’s. The issue in each case has been whether the appearance of impropriety shadows those deals, especially after Merge Healthcare stock shares plummeted earlier this month when the company announced it would be splitting into two separate entities, one of which would be focused on subscription-based revenues. Mere days afterwards, those prices rebounded somewhat—but not before three key executives purchased nearly $190,000 in shares at the deflated price. According to the Crain's story, not every analyst views these dealings as cause for concern, but as former KPMG partner Richard Reck puts it in the piece: “You have to consider what is best for the business, and therefore what's best for all of the stakeholders, including the shareholders."Imagingbiz made requests for comment on the story to Merge Healthcare spokespeople, but these were not returned at press time.