Want to Get Acquired? Why You're Better off Staying Small and Going Solo

By Hana Rubin, COO, The Maxon Company, Irvington, N.Y.
When my brother, David, and I took over my father's company, it was a turbulent time in our industry. The big question we had to deal with right away: Do we merge with another small firm and try to attract a larger company to buy us? That's what everyone else was doing.

My father started The Maxon Company in the '50s, long before third-party administration of self-funded medical programs even existed as an industry. But right about the time we took the management reins, small, third-party administrators like us were becoming a hot commodity for hedge funds. We started receiving a number of invitations to merge with health insurance firms and holding companies.

In the end, we decided that we could best serve our clients by going it alone -- and we haven't regretted the decision once.

Dealing with the big players
A lot of large companies forgo the traditional insurance route and maintain their own plans. They don't want to deal with the hassle of paying their own claims, however, so they hire a third-party administrator (TPA) like us to help design the plan and process the claims. In 2009, we processed over $75 million worth of claims.

The challenges really started when the larger insurance companies realized that they were missing out on a big part of the self-funded market. To gain that expertise, a lot of the larger companies started buying up smaller TPAs. Given that this was in the '90s, the mergers and acquisitions activity caught the eye of a few hedge funds. Investors created holding companies that started buying up TPAs as well, with an eye toward selling them to even larger entities. There was an awful lot of money changing hands.

David and I received a slew of merger offers -- actually, we continue to get letters all the time. We weighed the merits of gaining access to the bigger resources of a large company and the opportunity for sizeable personal compensation. But in the end, we decided that the only master we wanted to have was our clients. We did not want a corporate boss.

Staying nimble
The decision has had its drawbacks -- most of the merger agreements involved our continuing to work, but by now we'd probably be sipping margaritas on a beach somewhere. One of the biggest advantages, however, is that we've been able to stay nimble. That has allowed us to adapt to the ever-changing health care field.

When competition was getting tough in the health care area, we decided to diversify. We entered the workers' compensation industry in the state of New York. That's been a tough field to crack, but we've worked hard to gain the kind of recognition we already enjoy in the health care industry. One of the challenges of this particular market is that it works on the basis of multi-year contracts, so it is more difficult to break new ground in the middle of a cycle.

To show potential clients what we have to offer, we decided to offer our services on an à la carte basis, which isn't the industry norm. We've managed to get recognized and workers' compensation now accounts for probably 5% of our business -- a figure we plan to grow in the years to come.

We've also managed to take advantage of the disconnect between consumers and large insurers by developing a consumer-oriented service. This year, we started an online and over-the-phone resource for consumers with questions about health care. We talk to consumers, we intercede with insurers, we basically help solve problems. In one instance, we helped a client get back on COBRA when that's where she should have been all along.

We started out offering the service for free, but have recently started charging for it. It's a perfect example of taking what we do best and applying it to a new area. We expect it to be a substantial piece of the pie of diversified services we offer. I believe our ability to innovate in this way is largely a result of our size.

No complacency
A lot of the big companies were really sweating the recent health care reform bill. I personally had conversations with individuals in our industry who were worried that a push for a public option would ultimately decimate our industry. We weren't overly concerned because we knew we could adapt to whatever came our way.

We've been around for more than 50 years and we plan on being around for a long time to come. We can't afford the level of complacency that the larger companies experience on a regular basis, which I think is a good thing -- we're always looking forward to see what's going to happen next.

We have a solid understanding of our core competencies and we have the ability to change direction to take advantage of new opportunities -- at a moment's notice if need be. If we want to do something we can do it, and that's the best reason for staying independent that I can think of.

-- As told to Peter McDougall

Hana Rubin started at Maxon in 1980 as its director of administration. She graduated from Ithaca College in 1978 with a degree in sociology, and from the University of Connecticut in 1980 with an MBA in finance.
Resources:

• Check out Five Frogs on a Log by Mark Feldman and Michael Spratt for a field guide approach to the perils and benefits of mergers and acquisitions.
• Check out these reasons why merging might be a good idea.
• Read one story of a merger that went very wrong.