The next deal in workers comp managed care

While it’s not a done deal, it’s all but done.
Two workers comp physical therapy network companies – Align Networks and Universal SmartComp – are close to merging.
Industry followers may recall Align was purchased last fall by General Atlantic, a Connecticut-based private equity firm; SmartComp has been owned by Riverside, a Cleveland-based PE firm, for about five years. Industry founder MedRisk (an HSA consulting client) is the largest and oldest company in the space.
The merger, when completed, will make the combined company the largest in the space in terms of revenue dollars. There may well be some of those “synergies” investors like so much as well; SmartComp and Align have a lot of overlap in their provider networks. This, along with the usual SG&A savings, will likely make for a richer bottom line for the merged entity compared to the two individual companies.
It is safe to assume that the customer face of the merged entity will have a distinctly Align flavor. SmartComp hired a sales chief last fall, a relationship that lasted a matter of weeks. Soon after the departure of the sales chief several other sales personnel also were gone. In contrast, Align’s remarkable growth was largely driven by the company’s strength in sales, especially on a local, adjuster-by-adjuster level.
The merger isn’t surprising. The five-year horizon on Riverside’s investment in SmartComp is here. General Atlantic (Align’s owner) paid a steep multiple for Align, and wants to dominate the space as quickly as possible. Align did have a recent win, landing the US Postal Service “contract” (the Postal Service can’t direct claimants to specific providers, and the union’s voiced its displeasure), but organic growth takes time, investment, and an ability to land national accounts. MedRisk enjoys a dominant position in the large payer sector, with long-term relationships at most of the larger payers.
What does this mean for you?
More evidence of private equity’s strong and continued interest in workers comp services.
Consolidation in this sector demonstrates this – and other services sectors – is a maturing industry.