M&A

Maximus sounds ready to buy, if the price is right

Maximus continues to see the acquisition environment as replete with properties selling at “lofty valuations” it considers to be too high but that has not stopped the company from looking at deals.

During its fiscal second quarter earnings call with investors Thursday, Maximus executives laid out their broad rationale for potential deals as the health and human services contractor is “taking a fresh look at our longer term growth strategy,” as described by Chief Financial Officer Rick Nadeau.

“This will inform and shape our thinking as we continue to look for acquisition candidates and pursue ways to incorporate new growth platforms and new adjacencies,” Nadeau told analysts. “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.”

That re-examination of where Reston, Virginia-based Maximus is seeking to take itself coincides with the elevation of Bruce Caswell to CEO, which took effect April 1. The call with analysts took place on Caswell’s 40th day as chief executive after he succeeded former CEO Richard Montoni.

During the call, Caswell cited Maximus’ acquisition of health IT firm Acentia in 2015 as an example of bringing in capabilities that create a platform as potential growth. He said that deal helped Maximus qualify for a pair of major General Services Administration contract vehicles in IT Schedule 70 and the $60 billion Alliant 2 Large Business, the latter of which the company is a newcomer for.

Acentia represented Maximus’ last significant acquisition in a quickly consolidating federal services market that has seen large- and mid-tier companies alike increasingly join forces to create scale.

“We believe acquisitions play a key role in bringing us enhanced capabilities, as well as providing access to new adjacent markets and geographies and ultimately creating new platforms for growth,” Caswell said. “But I want to emphasize that we don't want to acquire merely to grow revenues.”

And based on Nadeau’s comment during the call that Maximus has seen “lofty valuations” in the acquisition market, the company has seemingly decided that it is best to pick their spot and wait for the right deal to come.

“We followed couple of things that we passed on in the marketplace afterwards, and we remain committed to our view that we did the right thing,” Nadeau said. “Our preference would be to use our capital for M&A as we go into new adjacencies and new growth platforms.”

This is not the first time Maximus has noted high prices as a reason to shy away from an acquisition. In November, Montoni said the company has resisted “paying what we view to be inflated prices.”

Science Applications International Corp. and CACI International also called out high valuations in their respective Oct. 30 and Dec. 8 earnings calls. But that did not stop either company from making cash-and-stock bids for CSRA, which General Dynamics acquired in April.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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