So, what does the MSC deal mean?

While there have been a plethora of deals in the work comp services industry of late, the pending acquisition of MSC by OneCall Medical has surprised many. The rumored size of the transaction, the buyer, and the level of interest in MSC among investors and strategic buyers are causing folks to re-examine long-held views of the business as slow-moving, stodgy, and insular.
The success of MSC, who chose to sell its pharmacy management business several years ago to concentrate on durable medical equipment and home health care, has been remarkable. This was a bit of a contrarian play, as most services firms were looking to diversify, adding additional service lines in an effort to capture more revenue from their existing customer base. PBMs and other vendors added DME and HHC, diversified into PT, imaging, and other lines as they sought to be all things to their customers.
For most suppliers, this wasn’t terrible successful. The additional lines added some revenue, but the time, energy, and resources invested in the diversification effort took away from the focus on their core business. Moreover, it was hard for most suppliers to build much credibility or differentiate their offerings in these new service lines; their level of expertise and experience just weren’t that impressive.
In contrast, after spinning off their PBM to Express Scripts, MSC invested heavily in systems and sales staff, seeking to deeply penetrate its existing customer base and add as many new customers as possible. By all accounts it was quite successful, taking share from competitors through a coordinated effort targeting both home office buyers and individual adjusters and case managers.
MSC will be added to OneCall’s product portfolio, not as another product line but as the leading supplier in the DME and HHC sectors. Combining MSC’s transportation and translation business with that of OneCall consolidates their position as the leading T&T provider. Adding their leadership position in the small but rumored-to-be-highly profitable work comp dental space gives OneCall a rather interesting combination of products and services.
Equally, if not more important, is the combined companies’ sales and service footprint. While there will almost certainly be some reduction in the total number of staff, there’s no question OneCall will have more “feet on the street” than any other vendor in the business. The ability of OneCall to stay in front of adjusters and case managers, service national accounts, stay in touch with market trends and competitive dynamics, and measure and track what’s selling where and to whom for how much will be unparalleled.
Make no mistake, the MSC-OneCall deal is a watershed moment in the workers comp services industry. For decades this has been a cottage, mom-and-pop business, with most suppliers either small, local vendors or entities that grew up from those mom-and-pops. The industry will mature:
– Expect the pace of consolidation to continue, if not accelerate, as local suppliers – of all service types – fear their ability to compete with the big national suppliers decreases with each deal.
– New entrants will emerge, focusing on ever-more-tightly-defined niches, seeking to carve out and “own” a space where their expertise and capabilities are enough of an advantage to convince payers that adding one more vendor is worth the hassles.
– More investors – private equity funds in particular – are focusing on this space. They will likely drive up the price of deals (somewhat), although the tough credit markets will help keep multiples down.
What does this mean for you?
Opportunities to be sure, at the top end, and in newly-defined niches – for smart, creative, and, most importantly, disciplined entrepreneurs and managers.