PMSI’s for sale, part 2

SInce I learned of PMSI’s pending sale, I’ve been digging thru financial reports and talking with customers and industry folk to find out more.
Turns out FY 2007 (ended 9/30/07) was a down year for both revenue and profit at PMSI-Tmesys (PMSI). Although top-line increased 1%, that was primarily due to the acquisition of Health Advocates (HA) for $83 million (about 4.2x revenues). When you consider the overall WC Rx inflation rate was 6.5% and add in HA’s revenue, PMSI’s core business actually declined by about $50 million, or around 11% from 2006 to 2007.
The news was worse for profits, which dropped by 45%, while reserves for bad debt increased by $3.7 million. Notably, the MSA business contributed a whopping $12.4 million in gross profit – although that number looks awfully high. Given what they paid for it, I would not be surprised if dollars were shifted around to make the acquisition look good – 4.2 times revenues is awfully expensive.
It should also be pointed out that 2006 was not a stellar year; although revenues increased 4% from the previous year (while WC Rx inflation was close to 10%), profits had declined by 11% from 2005.
Clearly the company’s owners have not acted precipitously.
Competitive pressure certainly played a part in ABC’s decision to sell off the firm; as noted here Coventry has been aggressively pursuing new business, and PMSI has already lost one large customer that by itself will cut 2008 revenues by another 10%.
Despite what some commenters think (and write), I don’t think it is fair to hammer the (relatively) new management at PMSI. The company had started declining years ago, and had started to turn itself around under the prior president, David Weidner. The company also lost its best spokesperson, Phil Walls PharmD, who has since moved onto another PBM. Weidner was replaced by Mark Hollifield, who brought in a new sales and marketing team (can’t speak to the sales side, but the marketing has been rather uninspired).
What does not appear to have changed is the complacent culture at PMSI – although the company had done innovative work in several areas, it was very slow to market, could not move quickly, and seemed more interested in having meetings than delivering on commitments to customers.
Cultures are notoriously hard to change, and this may well be a case in point.
We’ll get into what a buyer would get when next we meet.