Maximus makes $300M federal play
Maximus is buying Acentia in a $300 million deal that adds significantly to the company’s federal business by bringing on new customers and new contract vehicles.
Over the last four years, Maximus has been building its federal work, much of that driven by requirements of the Affordable Care Act.
With Acentia, Maximus will pick up health-related contracts with agencies such as Health and Human Services, Centers for Disease Control and Prevention, the Defense Health Agency and FDA. It’ll also pick up work with the IRS, Securities and Exchange Commission, Agriculture and Labor.
Acentia also will add $210 million in annual revenue and 1,000 employees.
The deal is expected to close during the company’s fiscal 2015 third quarter – April 1 to June 30.
Maximus CEO Richard Montoni said that Acentia complements his company’s business process management offerings. The bulk of Maximus’ business is built on taking over and running a business process for an agency. For example, it does Medicaid eligibility appeals work, and it runs a welfare-to-work program in the United Kingdom.
The acquisition also “increases our ability to leverage technology, innovation, subject matter expertise and business development resources,” he said in a statement.
Acentia will be a new growth platform for the company, he said.
Once the deal closes, Acentia will fall under the leadership of Tom Romeo, who leads Maximus’ federal services business. He’s led strong growth in the business since taking over in 2010, when federal work accounted for about $75.9 million in annual revenue. At the end of the company’s fiscal 2014, federal work stood at about $289 million. Overall, Maximus had revenue of $1.7 billion in 2014. [Read my January interview with Romeo.]
The company is best known for its state and local work, which accounted for 55 percent of revenue last year. The company also has a significant international business led by work it is doing in the U.K. and Australia.
Romeo said he sees three major things that Acentia adds to Maximus:
- IT capabilities that will make Maximus’ business process services business more efficient and more profitable.
- Bringing Maximus’ business outcome approach to Acentia’s IT projects and making them more effective.
- The synergies between the companies two customer bases.
“We have very little overlap and where there is, it is very complementary,” he said.
All of Acentia will be integrated under Romeo as part of Maximus Federal Services. Acentia CEO Todd Stottlemyer has agreed to stay on through the integration process. The rest of the Acentia management team will stay on board, he said.
“This is really transformational for Maximus Federal Services,” Romeo said.
There was no single contract or customer that made Acentia an attractive target. “That’s what I really liked the most about them,” he said. “They have a balanced book of large contracts.”
Those contracts include NIH CIO-SP3, Alliant, the CDC Information Management Services contract known as CIMS, the Army’s R2-3, and the IRS TIPSS-4 contract.
These will all be new contracts for Maximus, and while it is a subcontractor on a couple of them, it has limited visibility into the opportunities coming out under these contracts, he said. When they are the prime, that will all change.
“We’ll see everything,” he said.
CIO-SP in particular is being heavily used by the Census Bureau as it gears up for the 2020 census, which Romeo said is an important opportunity for Maximus.
As the deal moves toward its closing, the two companies will be diving deeper into their business pipelines looking for new opportunities.
Acentia, which is owned by the private equity group Snow Phipps, worked with the investment bank Houlihan Lokey to set up the sales process. Romeo said he’s sure there were other interested buyers.
“We went through our process and did our due diligence and we were the winning bidder,” he said.
Maximus worked with Avascent, BDO and Hogal Lovells LLP as its advisors. In addition to Houlihan Lokey, Acentia worked with the law firm Holland & Knight.
Posted by Nick Wakeman on Mar 09, 2015 at 9:32 AM