Sedgwick to acquire SRS from the Hartford

In an announcement a few minutes ago, Third Party Administrator (TPA) Sedgwick announced it will be buying SRS from the Hartford for $278 million in cash, with the deal scheduled to close early next year.
That’s a nice multiple over 2009 revenues of $230 million, and sources indicate this will be a clean deal, with the Hartford cutting ties completely post-closing.
SRS, like many TPAs, was hit hard by the soft market then slammed again by the recession, events that reduced market demand for TPA services while reducing claims volumes for those self-insured employers that remained. TPAs typically get paid based on claim volume, so this double hit has been tough for the entire industry.
Including private-equity-owned Sedgwick, which has some pretty lofty top line growth goals. The company has been working hard to increase revenues both organically (quoting very competitive prices for administrative services) and via acquisition (most recently of Factual Photo).
The release had this statement from Sedgwick CEO Dave North – “Sedgwick CMS and SRS share remarkably similar philosophies on issues of quality and accountability for client results. We look forward to bringing these two exceptional organizations together for the benefit of our customers, industry partners and company colleagues.”
I’m reasonably familiar with both organizations and don’t see the similarities Mr North does. Or perhaps more accurately I don’t see them as very similar organizations.
Sedgwick has been quite aggressive in pursuing new business and has done so at least in part through aggressive pricing. Their scale may well contribute to that strategy, but there’s a big variable cost component to the TPA business – you have to have so many adjusters to handle so many claims. SRS has been somewhat less successful in acquiring new business over the last few years, choosing to hold the line on company policies and, as much as possible, on pricing
In the Work Comp Analysis Group roundtable at the Vegas Comp Conference, SRS CEO Joe Boures stated that SRS does not take commissions or share in revenue from their managed care vendors in any way, shape, or form. I applauded Joe at the time, and do so again. That’s not to say that vendors sharing revenue or paying commissions or fees to TPAs is inherently unethical or immoral – in fact it’s a way of doing business for many TPAs. This stance may well have contributed to the Hartford’s decision to sell SRS, as the numbers may have been a bit bleak of late.
I don’t know Sedgwick’s policy re vendor commissions or revenue sharing; that’s something current SRS customers may want to discuss with their account execs.

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