So you’re interested in buying PMSI/Tmesys?
Here’s what you’ll get, and my guess as to what you’ll have to pay.
Assets
Customers – PMSI/Tmesys provides WC PBM services to large and mid-tier carriers, TPAs, and self-insured employers. Customers include AIG, the Hartford (currently in the RFP process), Gallagher Bassett, Ohio Casualty, and Southwest Airlines.
Mail order facility – the company’s WC mail order capabilities are extensive and experienced, and are likely the largest in the WC business – but are miniscule in comparison to Medco and Express Scripts
DME/HHC – PMSI is a large supplier of durable medical equipment and home health care services and related ancillary services, a business with solid margins and less price competition than pharmacy.
Distribution – the company’s reach extends into most payers in WC; but the sales and account management staff has been turning over at a rapid rate, with some estimating that 50% of the staff have been there a year or less.
Pharmacy network – PMSI is one of the few PBMs that owns its own pharmacy network (Cypress Care, an HSA client, is another) and therefore does not have to share margins with a network owner (e.g. Restat or Caremark). However, PMSI’s network rates aren’t materially better than the company’s competitors.
Technology – PMSI was one of the first WC PBMs to begin profiling physician prescribing behavior. The tool developed by PMSI, Arkos, has been used by PMSI and their customers to identify physicians with prescribing patterns outside norms.
Liabilities
PMSI has been going through a “right-sizing” (corporate speak for layoffs) for the last four months. The negative impact on survivors is tough to estimate, but certainly won’t be positive. Sources also indicate there has been a lot of turnover at the mid- and senior-management levels, turnover that has impacted customer relationships and dragged down morale.
PMSI’s last quarter margins were down considerably, with income declining $8 million (see latest 10-K filing) to $1.6 million. Management at ABC has repeatedly voiced their confidence in the turnaround; in the latest earnings call ABC execs said they expect margins to return to 7-9% in FY 2009 (which starts end of September 2008). Which leads to the obvious question:
How much?
There are so many moving pieces here – the debt markets, decline in the equity market, recent WC PBM deals, PMSI’s declining revenues, customer losses and the financial impact of significant investment in IT infrastructure that it is anyone’s guess. Starting with the margins, at a revenue run rate of $450 million and an 8% margin, that translates to $36 million. The big issue is the multiple – the world of the 14x multiple is likely gone, at least for now.
If PMSI is sold, the price will likely be in the $200 – $300 million dollar range. That looks low, but market factors and the uncertain success of the afore-mentioned turnaround make anything higher doubtful. Remember, the financial impact of the turnaround initiatives won’t show up until FY 2009 – which starts October 2008…
That said, management has clearly stated that if they do not get the price they want, they won’t sell. My guess – and I could be way off – is they are looking for a price in the $400 – $600 million range.
I write a monthly column for Workers Comp Bottom Line, and wondered — if you have expertise in the WC arena — if you’d be willing to be interviewed about how WC costs might (or might not) be affected by a recession. If so, please contact me at email above. My deadline is end of day today. Best — Dana Wilkie
I was severly injured three years ago when a crate fell on me in a warehouse accident. I lost the use of both of my legs, and still suffer from severe pain. I require 24/7 care and will continue to rely on others for my well-being for the rest of my life. PMSI has taken excellent care of me over the years – their people really care about me and call sometimes just to make sure I am doing OK. I know accountants will use advanced techniques to put a price tag on this business, and ultimately, it will come down to the higest bidder. Whatever number they come up with, it will be too low in my estimation, as you can’t put a price on human beings that care as much as the people at PMSI do for me. Whatever happens to the business, I really do hope I can continue to rely on their outstanding service for many, many more years to come.
So here I am looking out across the span of cubicles and seeing nothing but a sea of faces soon to be without employment. Harm that will befall a great deal of families because of the stupidity of so few.
I wish I could put a positive spin on the events, I could see light at the end of the rainbow but fact is there isn’t one. What I see, what others see and I believe to be true is an organization struggling to find its final breaths. A sickly body, wheezing noisily refusing to acknowledge what is plain on the surface. Just as a surely as a frail old gentlemen suffering through his last night on earth death is coming, it began its inexorable march over six years ago and has steadily stripped this organization of its dignity. It took a hard swipe around 5 years ago, ignorance and selfishness took it’s first toll on the company like a cancer destroying a lung when the organization dealt dishonestly with a key client. The organization continued to function but lost a key part of itself, and over 50 souls to that first clash with the inevitable. Every year since has seen a steady march toward irrelevancy as this organization lost key accounts, one after another. Never once willing to make the hard decisions. The investments in itself to prevent further damage. Yes, the cancer of ineptitude and avarice had done significant damage to its organs but the body and mind could have survived had the foolish leadership not been so focused on short term wins and bizarre self indulgent initiatives.
PMSI lost the fight for its life around 4 years ago when ABC chose to put a man who lacked vision and frankly any semblance of sanity in charge, David Weidner when Chuck Carpenter departed. Where Chuck Carpenter was a man solely focused on stripping PMSI of every ounce of revenue while refusing to invest in improving its technology and automation to increase his bonus potential David was a psychopathic mad man bent on wielding his debasing form of management on everyone within the organization. In the time of his erratic, confrontational and duplicitous leadership he not only denied PMSI’s pleas for help he fashioned a medical gown of concrete and encased PMSI within those confines. Innovative concepts were stillborn or killed soon after birth. He drove thoughtful and caring personnel away with a viciousness only an incompetent and insecure man could muster. Despite that some good things happened, we managed to save some accounts and while others withered some concepts took hold under the cover of dark. Hidden from the relentless efforts of Weidner to find fault; Automation improvements and programs designed to improved the lives of our claimants while lowering the costs of pharmacy for PMSI’ clients took hold. When ABC finally decided to make a smart move, the first one since their taking ownership by placing Mark Hollifield in charge of PMSI they left him with a fundamentally wounded organization and provided him barely a year to turn it around. PMSI is on the cusp of turning themselves around. Where-ever PMSI lands, I hope a cure for its illness is quickly administered and Mark Hollifield in my opinion is the best doctor for the job of diagnosing and resolving the issues that confound PMSI.