Maximus-GD deal scores on multiple fronts

A few more details are emerging about Maximus’ planned $400 million acquisition of the citizen engagement and call center business from General Dynamics.

According to Securities & Exchange Commission filings by Maximus, the company is picking up work with the Centers for Medicare and Medicaid Services as well as the Census Bureau.

At CMS, Maximus will manage customer inquiries from Medicare beneficiaries and inquiries involving the Federal Exchange that is part of Healthcare.gov. GD's IT services segment has been running the Healthcare.gov engagement center since 2013.

The engagement centers handle inquiries across multiple communications channels – phone calls, emails, and other forms of contact.

Similarly, the work for the Census Bureau is for the Census Questionnaire Assistance 2020 and is a multi-channel, multi-lingual engagement center focused on the 2020 census. General Dynamics won that work under a $430 million contract that was awarded in September 2016.

GD has said little about the deal and has not made any related SEC filings. So far, they are happy to let the attention fall to Maximus.

Maximus is not known as an aggressive acquirer but has made several very strategic deals. In the last eight years it has made eight acquisitions, counting the General Dynamics deal, which is slated to close in mid-November.

The deal with GD will be Maximus’ largest to date.

In 2016, it acquired Ascend to add health assessment and data management tools. Terms were not disclosed.

It closed a $300 million deal in 2015 for Acentia to expand its federal business and add IT services capabilities. The company says the deal helped it land a spot on the Alliant 2 IDIQ contract.

In 2013, it acquired Health Management Ltd., a British company that provides health assessments. Terms were not disclosed.

The deal for GD’s call center business is significant for its size and how it builds on Maximus’ core competencies. As federal leader Thomas Romeo told me, it gives Maximus’s federal business scale, which will help lower costs and increase the company’s competitiveness.

Earlier this year, Maximus officials told investors that mergers and acquisitions activity was picking up but the company was cautious about making a move.

They said the company was very focused. “We look for transactions that are no more than two adjacencies from our core and have a reputation for quality, sustainable revenue growth, and sustainable net margins of at least high-single-digits,” company chief financial officer Rick Nadeau said.

CEO Bruce Caswell also emphasized that the company wasn’t looking for deals just to grow revenue.

It seems that Maximus has scored on multiple fronts with the General Dynamics deal. It is getting significant revenue ($670 million). The business also fits right into Maximus’ core capabilities of providing business process outsourcing services.

The only parameter it doesn’t fit is the margins, which Maximus said are in the mid-single digits, instead of the high single digits it put out as a criterion in the May investor call.

But given the size and the capabilities of the GD call center business, that is a “flaw” that can be easily overcome.