Behavioral Health Care Stocks Down – 2.2% in April.
The Behavioral Health Composite, which tracks investor interest in the three public behavioral health companies – American Addiction Centers (AAC), Universal Health Services (UHS), and Acadia Healthcare (ACHC) – was down for the first time in five months, losing 2.2% of its value. The S&P 500, by comparison, gained 2.6% for the month.
April was mixed, with Acadia falling sharply on the heels of a class-action lawsuit.
ACHC (↓7.2%) fell on news of a class-action lawsuit filed on behalf of ACHC investors that purchased stock between Feb’17 and Oct’17. The lawsuit alleges that ACHC failed to disclose material information during this period. On Oct 24, 2017, the company disclosed negative financial results for 3Q’17 including a reduction to its guidance for the fiscal year 2017 and a significant cut to EBITDA relating to its U.K. facilities. On this news, the price of Acadia’s shares plummeted 26%.
AAC (↑2.4%) continues to increase from its positive boost from the announcement of the $85MM AdCare acquisition, which was completed on March 1st.
UHS (↓1.9%) fell slightly as the company’s earnings fell short of its Q1’18 estimates. The company reported adjusted EPS of $2.45 per share versus Wall Street estimates of $2.59 per share. During Q1’18, behavioral health services adjusted admissions increased 1.6% and adjusted patient days increased 0.4% as compared to Q1’17. On a same facility basis, behavioral health care services net revenues increased 3.0% YoY during Q1’18.
For the last twelve months (LTM), the BHC surpassed the S&P 500 at an 11.6% gain relative to the S&P’s gain of 10.9%.
Valuation – Public Comps
Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies.
Company 4/30/16 4/30/17 4/30/18
AAC 19.23x 12.23x 12.30x
ACHC 20.90x 12.10x 10.91x
UHS 9.78x 9.15x 8.59x
Company 4/30/16 4/30/17 4/30/18
AAC 3.06x 1.35x 1.69x
ACHC 4.43x 2.47x 2.23x
UHS 1.79x 1.57x 1.40x
March 19, 2018 – Learn It Systems acquired The S.P.A.R.K.S. Group. Learn It Systems, an LLR Partners-backed company, provides high-quality, research-based ABA treatment services to children in the child’s natural environment, whether that be the family home, daycare, or local community. The S.P.A.R.K.S. Group provides high-quality, research-based ABA treatment services to children ages birth through 21.
March 28, 2018 – ncgCARE acquires Grace Harbor Behavioral. Founded in 2006, Grace Harbor Behavioral provides behavioral health services to children, adolescents, and adults throughout Georgia. ncgCARE is a national network of provider partners in behavioral healthcare.
April 13, 2018 – Blackstone announced that it has agreed to acquire the Center for Autism and Related Disorders, a leading provider of autism behavioral health services for children and adults affected by autism spectrum disorder. The transaction is expected to close later this year.
April 16, 2018 – Center For Discovery and Cliffside Malibu are merging to form the newly created parent company Discovery Behavioral Health (DBH). Private equity firm Webster Capital has owned the Center for Discovery since 2011 as a portfolio company and will now fold in Cliffside Malibu’s Southern California facilities. Center for Discovery delivers services in 11 states and Cliffside Malibu operates inpatient, outpatient, detox services, and sober living around the greater Los Angeles area.
April 26, 2018 – Delphi Behavioral Health Group, a substance abuse treatment provider, announced it has merged with Summit Behavioral Health to expand its service offering to more individuals struggling with substance use disorder and addiction. Delphi is majority-owned by The Halifax Group, which recapitalized the Company in October 2017. The combined corporate company will be called Delphi. Summit’s centers will retain their current Serenity at Summit branding. The combined company will operate 14 facilities across six states.
April 20, 2018 – Turning Point Centers, represented exclusively by Mertz Taggart, was recapitalized by InTandem Capital Partners, a New York-based Private Equity Fund. As InTandem’s addiction treatment platform, Turning Point Center plans to expand on its existing in-network payor relationships, enhance its aftercare capabilities and build out infrastructure to support its growth strategy.