A couple weeks ago I used this space to make a few pointed recommendations to entrepreneurs thinking of selling their companies. This week’s news that FairIsaac is selling off its bill review unit reminds us that mistakes can be made on both sides of the deal.
FI merged with/bought out HNC (which included the bill review business and other assets) almost six years ago in a deal that valued HNC at about $240 million.
Reports indicate Mitchell is paying between $10 – $15 million for FI’s bill review unit. While it is impossible (from here) to know how FI valued the bill review part of the deal, there is no doubt a substantial portion of that quarter-billion dollars will have to be written off.
What happened? Why wasn’t FI able to make a go of it in bill review? A couple factors likely contributed to the failure.
First, did FI know what it was buying? Workers comp is a unique and different business with a language and culture all its own. More of a craft industry than a modern business, bill review (as practiced by the vast majority of firms) is as dependent on the expertise and knowledge of processors as it is on the rules and algorithms embedded in applications. (Note it doesn’t have to be, and to my mind should not be, this way – but it is) FI’s business is based on the use of computing power to sort through terabytes of data to find the bits of importance; they may well have discounted the role of the human, which in turn may have led to insufficient emphasis on end-user training.
Second, by several accounts the IT development process at FI was somewhat less than rigorous. Documentation was scarce, schedules were vague, and responsibilities undefined. This led to missed delivery dates and angry customers, a situation that has dramatically improved in the last year or two.
Third, the installation at Texas Mutual was, for a time, a disaster. TM accused FI of overselling and not delivering, and FI countered that TM did not adequately support the installation. TM sued FI for allegedly misrepresenting the application; the suit was settled a few months ago with FI paying Texas Mutual somewhere in the neighborhood of $10 million.
Finally, the BR business was part of the HNC deal, along with decision support technology and other assets; it wasn’t exactly central to the deal, yet FI kept it around. They neither invested in it nor sold it/closed it, with the result that the business was slowly starved. Without attention and investment, it is not surprising that FI’s bill review business had the problems it did.
Lessons? Nothing new here – FI didn’t understand the business it bought, and rather than make a decision to invest in it or blow it up, did nothing. As this became painfully obvious to the unit’s staff, morale plummeted, commitments were missed, and customers angered. Despite all this one of their larger customers, SCIF, is relatively pleased with FI’s work.
Apr
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