M&A in Workers' Comp...

What's up and why

Outside of a couple relatively small transactions and TPA acquisitions, over the last 18 months there hasn’t been much M&A activity in the workers’ comp services industry. That’s because:

• Massive consolidation has shrank the number of service providers from hundreds to tens.

  

• Interest rates for debt funding of deals remain high.

• Investor uncertainty driven by Trump tariffs and the inflationary effect thereof and economic struggles for pretty much every country except the US.

• A nagging structural problem - namely work comp continues to shrink - although at a slower rate than in recent years.

• Challenges in specific sectors including PBM (pharmacy benefit management), case management, utilization review (UR), and networks

• Asset owners’ expectations seem to be unrealistic - not unusual, but more prevalent these days

Consolidation has slowed appreciably…there have been some transactions, typically adding related service offerings or acquiring competitors, but nothing like the we saw five to ten years ago.

• Enlyte is the giant…predecessor Mitchell has grown through acquisition of Coventry Networks, Genex, TherapyDirect, QualCare and other smaller entities.

• Paradigm has expanded well beyond its original cat case risk transfer business; its latest venture is a value-based care program focused on musculoskeletal injuries

• Carisk continues to grow organically and via acquisition - most recently HeadsUp Healthcare.

• MedRisk is the dominant provider of medical bill review software and service after acquiring StrataCare and Medata as well as the leading physical medicine management provider. In my view the move into bill review will be the industry’s single most impactful strategic event in recent memory (excluding COVID).

• Relatively new entrant to bill review services accuro picked up Splashlight.

• Sedgwick has been the most acquisitive TPA, adding several tangential businesses over the last few years. Expect another pickup in the very near future, likely in behavioral health or a closely-related sector.

IF buyers and sellers can reach agreement on valuation AND interest rates don’t spike some of these companies (not Sedgwick) will likely trade in the next 12-18 months.

What does this mean for you?

Workers’ comp is showing all the signs of a very mature industry.

Note - I work with Carisk, Paradigm, and MedRisk.