| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| SPECIAL REPORT
Maximus Inc.: Welfare Privatizer The nation was deep into the debate over welfare reform a few years ago when one of David V. Mastran's employees made an observation. ''You're both a Democrat and a Republican,'' she told him. ''You're a Democrat because you like to help people, but you're a Republican because you make money at it.'' Mastran laughs when he recounts the story, but the remark clearly hits home. ''People on welfare want to get off welfare,'' he says. ''My goal is to give them the training, the motivation to do it.'' As head of fast-growing Maximus Inc. MMS, Mastran also has plenty of incentive of his own to succeed. Created in 1975 by Mastran, a former official in the Nixon Administration, Maximus runs welfare-to-work programs for nearly a dozen states, and manages child-care and Medicare programs for dozens of local governments. If Maximus were a state, it would have the 29th-largest social-services caseload of all the states in the U.S. But the privatizer is also wildly profitable: The No. 22 Hot Growth company, Maximus churned out a sterling 24.9% average annual return on capital over the past three years, while sales grew an average 60.4% each of those years, to $233.5 million. Earnings grew at an average rate of 21.3% per year, to $14.5 million. In the two years since Maximus went public, its stock price has soared 60%, to 28 3/4. Impressive credentials for any entrepreneur. But Mastran, 56, started out as a bureaucrat. A graduate of West Point, he did a stint at the Pentagon before joining the old U.S. Health, Education & Welfare Dept. There he was charged with imposing discipline on social-welfare programs. ''I introduced them to graph paper,'' Mastran says. When he went looking for a company that understood welfare programs and could help the agency instill efficiency, however, Mastran found none that fit the bill. So he left government and founded his own company. Maximus soon turned a profit, but didn't really take off until Congress passed the Welfare Reform Act of 1996. The law gave states plenty of flexibility in how they spend federal welfare money, but also demanded they keep precise data on job placements and new hires. States turned to Maximus and other companies that had the technology in hand. Says analyst Brian W. Ruttenbur of SunTrust Equitable Securities: ''They were in this segment before there was a segment.'' FRAUD-BUSTER. Today, Maximus holds a leading 30% share of the booming privatization market in health and human services, ahead of huge conglomerates such as Lockheed Martin Corp. and Electronic Systems Data Corp. Governments are attracted by the promise of lower-cost welfare programs. However, Maximus also says it can use database software to spot fraud: With child-support collection, for instance, it can track hiring across states and chip away at the problem of deadbeat dads who move from job to job to duck payments. And Maximus has more flexibility than governments to weed out unproductive employees and give incentives to those who get results. Caseworkers who exceed their quota for placing welfare recipients in jobs might find an extra $200 in their paychecks. To be sure, privatization has its critics. Unionized government workers complain that companies work their employees harder and pay them less--a charge that Maximus denies. And there has been controversy as states put programs out for bid: In 1997, Maximus won a $12.4 million contract to manage Connecticut's child-care services. Less than a year later, it was back asking the state for another $6 million. A state audit found fault with the bidding process, saying the request for proposals lacked sufficient detail. There's plenty of room for expansion. Medicaid recipients are growing in number and federal spending on other entitlement programs is rising inexorably. And Maximus now is looking into managing government car fleets--it recently purchased a provider of fleet-management software. Having helped stimulate the move to privatization, Mastran is finding that government programs are a gold mine of opportunity. By Lorraine Woellert in McLean, Va. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
Hot Growth Companies TABLE: Hottest of the Hot Friede Goldman Intl.: A Gusher in a Drought bebe stores inc.: This Is No Fashion Victim Mastech Corp.: The Nabobs of Networking Action Performance Cos.: Hot-Rodding His Way to the Top Salton Inc.: Putting a Gizmo in Every Kitchen Maximus Inc.: Welfare Privatizer Where Are They Now? TABLE: The 1997 Winners...And the Losers TABLE: 1999's 100 Top Hot Growth Companies (.pdf) INTERACT E-Mail to Business Week Online | |||
