Align – OneCall, it’s even bigger than I thought

I reported last night that OCCM and Align will be purchased by private equity firm Apax for around $2.3 billion.

I was wrong.

OCCM alone will go for $2.3 billion, and Apax will also pay somewhere north of $750 million for Align Networks.

The $3.2 billion company will service a space that in its entirety, totals about $7.5 billion.

I’m sure the bathtubs in Jacksonville are filling with Dom Perignon even as you read this, as well they should.  That’s nothing short of amazing.  Kudos to Align, the founders, and the folks at Riverside and General Atlantic.

Now, how in the heck will Apax get a good return on a company on which they spent more than the entire annual GDP of some decent-sized African countries?

They have to grow, and they have to generate higher profits. Growing requires landing new deals with new and old customers, and making sure those corporate deals actually turn in to transactions.  In work comp, we call that the “wholesale sale” (to the exec) and the “retail sale” (to the desk-level folks, who actually do a lot of the service ordering.)

If you reduce staff, you run the risk of losing desk-level retail sales.  But if you don’t, you have all those expensive folks increasing your SG&A costs.  Now, there’s certainly less of that going on these days than in times past, but the desk-level sale is by no means a thing of the past.

There’s another issue here as well; payers like to have alternatives.  I’ve spoken with several work comp execs today who said they were not terribly happy about the deal, as it put more of their eggs into a very large basket.

For OCCM to deliver the returns Apax most certainly wants, they’ll have to overcome this long-standing and deeply-entrenched policy/practice/ethos.  Sure, they might diversify into other insurance lines, but that’s a very, very tough row to hoe.

What does this mean for you?

They didn’t buy these companies to reduce revenues.