Maximus says pipeline of acquisition options high, but so are prices

Maximus continues to view acquisitions as its number one priority for capital deployment even as it sorts through a market replete with high expectations of sellers.

Maximus is one of a few publicly-traded government contractors that clearly states acquisitions as the number one priority for capital deployment as a way to expand into new markets and add new capabilities.

The company has not been shy either on moving when it sees the right opportunity, given its $400 million purchase of the former General Dynamics IT citizen engagement center business last year and $300 million buy of Acentia four years ago.

But during Maximus’ fourth quarter earnings call Tuesday, executives hinted that those prices might be closer to the median than what they are seeing in the acquisition pipeline.

“There’s a lot of things that we look at… and we don’t think are worth the price that some people are asking for them,” Chief Financial Officer Rick Nadeau said.

Nadeau was not specific on which markets he sees that in, but high valuations have been a constant theme at least as far as the federal market is concerned over the past two years.

Leidos noted in October that it is seeing the same trend in terms of sellers expecting to fetch a significant price tag from a prospective buyer. Maximus called out high prices last year as a sticking point in moving on potential deals, though that commentary was six months before the GDIT call center transaction.

In that instance, Maximus paid $400 million in cash for a roughly $670 million-revenue business seen as closer to its core. The deal also added technology platforms to manage call centers, including those that are FedRAMP-certified. The deal also pushed Maximus' federal services arm past the $1 billion-scale threshold, a mark the company sees as one that indicates credibility in the market.

Nearly all of the publicly-held government services companies’ stocks are trading at the upper end of their 52-week ranges: a barometer for the air of positivity surrounding the market even with the headwinds of budget uncertainty.

That said: the concept of the public company buyer though has become more of a unicorn in recent years as the so-called “strategics” have become pickier regarding deals to close on.

Reston, Virginia-based Maximus can afford to be picky to an extent. The company expects $3.15 billion-$3.3 billion in fiscal year 2020 revenue, which at the midpoint indicates 11.7-percent total growth and 8.4 percent on an organic basis.

A large 2020 Census questionnaire support contract will be a main contributor to that growth for its fiscal 2020, before a sharp ramp down in 2021 after the Census concludes.

Maximus also reported $105.6 million in cash and cash equivalents and $9.6 million in debt as of Sept. 30.

“I think that having a good clean balance sheet like ours allows us to be opportunistic with that and when the right deal comes along, I think we will pull that trigger,” Nadeau said.

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