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Jul
24

PMSI sold, MSC/Express Deal closes

PMSI, the workers comp PBM and ancillary services provider, will announce today that it has been sold to investment firm HIG. Sources within PMSI indicate the stock deal is worth $50 million, of which $10 million is contingent on achieving certain performance measures. Current management will likely remain in place after the deal closes in about 60 days.
The timing of this transaction is coincident with Express Script’s announcement of the closing (sub req) of their acquisition of MSC’s Pharmacy Benefit Management business. Express Scripts is now poised to become one of, if not the largest workers comp PBMs.
These deals are the latest in a series of financial transactions and potential transactions involving work comp PBMs. Cypress Care was recapitalized by investor Brazos Private Equity in November, 2006; Fiserv sought to sell its third party biller/PBM business early last year; Coventry purchased First Script as part of the Concentra transaction, and MSC itself was purchased by Monitor Clipper early in 2005.
PMSI has been struggling of late, losing the Hartford’s business (while retaining SRS (Hartford’s TPA)) to ESI and CNA late last year to Coventry. While PMSI’s parent company, Amerisource Bergen, was somewhat of a distant parent and may not have provided the attention and resources necessary for PMSI to maintain its historical leadership position, there’s no question HIG’s focus and attention will be intense and constant. Private equity management can be quite helpful; it can also be overbearing and short-sighted. And sometimes all three – which may be exactly what PMSI needs to recover its leadership position.
At risk of being accused of burying the lead, here’s what has me puzzled. Sources indicate Express looked closely at PMSI – recently . Yet they plunked down $248 million for MSC’s pharmacy business, when they could have paid a fifth of that for all of PMSI (which includes a robust ancillary services division).
PMSI has been somewhat damaged goods lately due to customer losses, yet MSC was in a similar position less than two years ago after it lost its largest PBM customer, Liberty Mutual, to rival Progressive Medical (PM had half of Liberty and was awarded MSC’s portion).
From here, it looks like a pretty good deal – although PMSI’s financials have been pretty bad lately, $50 million is a very good deal for one of the top two companies in a growing market.


Joe Paduda is the principal of Health Strategy Associates

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