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Private equity’s interest in workers’ comp – more to come

The pace of activity in the private equity world has picked up – dramatically.  Driven by lots of dollars sitting in investment funds ready to be deployed, the wind-down of multiple current investment funds, likely changes to the tax code, more private equity firms digging into the workers comp services sector, and the desire of current owners to cash in, there is more activity today than I’ve seen in 20+ years.

I’m not just talking about recent deals – Healthcare Solutions’ acquisition of ScripNet; Odyssey’s purchase of MSC (they already own OneCall Medical), the Align Networks/Universal Smartcomp ‘merger’.  There are more on the way, deals large and small currently “in the process’ with at least one likely to rival the MSC acquisition – any that’s only the ones I’m aware of.

There is a larger, ‘macro’ factor driving the activity.

There will be some wrenching changes in the broader health care sector coming in the next two to three years.  It is very, very difficult to predict what’s going to fall out, much less who’s got the right business model to flourish in the brave new world of post-reform health care.

In contrast, workers comp is a pretty stable, solid, non-dynamic business.  Sure there are state-specific changes – rates up and down, coverage changes, revised fee schedules and the like.  But even a big change in the largest state (California) only affects 15% of the market.  Contrast that with the fallout from Medicare’s refusal to continue paying for hospital readmissions  – a change estimated to result in billions in savings for taxpayers and lower revenues for hospitals – and the inherent stability of workers comp becomes apparent.

Investors like stable environments, and if they’ve got to invest somewhere, they’d prefer a sector that’s stable to one that is most definitely not.

And work comp is stable.

I’d expect the level of interest in the comp services industry to stay pretty high for the next couple of quarters – if not longer.  Not only will these external and macro-factors drive activity, the very level of activity will beget more interest from more investors, all looking to find out if they’re missing something.

After all, if lots of smart folks are buying into comp, there must be something to it.

One thought on “Private equity’s interest in workers’ comp – more to come”

  1. Attention all you private equity managers out there with money to burn……

    I’m more than willing to sell the Work Comp Analysis Group for the bargain price of a few million dollars. Although the group has produced zero revenue to date, it has tremendous potential. If Bob Wilson gives me $1, my revenue will be up 100%. Where else in the work comp space can you get the potential for 100% growth.

    If you were willing to invest all that money in the MSP Compliance space, you should be willing to invest in me too. And if the revenue projections come up short, well, you can just fire me in two years. I will take my millions and go live in shame at the beach until my non-compete runs out.

    Just think, this could be the “YOUR NAME HERE” Work Comp Analysis Group. Get your bid in today before it’s too late!!!

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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