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.