Behavioral Healthcare Stocks Down 4.0% in October
The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 4.0% for the month of October. The S&P 500, by comparison, was down 7.3% during the same period.
In related news…
American Addiction Centers – AAC (↓25.7%) continues its slide. As mentioned in last month’s edition, analysts have become nervous for two reasons: 1) very disappointing Q2 earnings, missing consensus estimates by 50%; 2) spurring uncertainty about what AACs future business will look like after a substantial makeover in both operations and marketing. On October 16, Raymond James lowered its price target for AAC. Zacks Research then downgraded the stock from HOLD to SELL on October 17, which triggered the beginning of its most recent sell-off.
Acadia Healthcare – ACHC (↑19.2%) increased on a rollercoaster October after a down month in September:
The stock rose nicely – 10% during the first few days of the month until, on October 9th, the law firm of Levi and Korsinsky announced a class action lawsuit against the company. The suit alleges ACHC knowingly issued misleading statements about the quality of its then-recently-acquired UK operations and, while the stock was artificially inflated, the CEO and President collectively unloaded $35 million in company shares. The stock plunged over the next few trading days after the announcement.
On October 18, Reuters reported that Acadia had been approached by private equity powerhouses KKR and TPG Global about selling itself. The buyout talks continue to underscore the interest by private equity firms in the sector.
Universal Health Services – UHS (↓5.5%) declined slightly through the month on lowered outlook for the balance of the year. On October 26, UHS delivered Q3’18 results, which were generally positive. Revenue lagged estimates by 1.2% but beat prior year by 4.2%. However, EPS beat prior year by 36% and estimates by 11.5%, but it was not enough to overcome the somewhat more pessimistic outlook.
For the last twelve months (LTM), the BHC is ahead of the S&P 500 at a 6.8% gain relative to the S&P’s gain of 5.3%.
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.
Stock Prices
Company 10/31/18
AAC $5.51
ACHC $41.50
UHS $121.56
Enterprise Value/EBITDA
Company 10/31/16 10/31/17 10/31/18
AAC 18.86x 12.66x 10.33x
ACHC 13.60x 10.40x 11.51x
UHS 9.06x 8.17x 9.03x
Enterprise Value/Revenue
Company 10/31/16 10/31/17 10/31/18
AAC 2.34x 1.43x 1.39x
ACHC 2.89x 2.12x 2.32x
UHS 1.60x 1.35x 1.44x
M&A News
October 1, 2018 – A consortium of investors, including Invo Healthcare Partners, announced the acquisition of Xcite Steps. Based in California, Xcite Steps provides Applied Behavioral Analysis (ABA) to children, adolescents, and adults with autism spectrum disorder (ASD) and intellectual and developmental disabilities. Invo Healthcare, a national provider of school and community behavioral health and other therapeutic services to individuals with special needs, including Autism Spectrum Disorder, acquired the company. This acquisition will build out Invo’s west coast platform by adding Xcite Step’s ABA services to their existing school and related therapy programs.
October 2, 2018 – Varsity Healthcare Partners (“VHP”), a lower middle-market private equity firm focused on healthcare services, announced the completion of a growth capital investment in Ideal Option, a provider of medication assisted treatment (“MAT”) and behavioral counseling services for individuals suffering from Opioid Use Disorder. Headquartered in Kennewick, Washington, Ideal Option has delivered personalized medicine to over 20,000 patients through a network of 56 office-based opioid treatment (“OBOT”) clinics across 10 states.
October 2, 2018 – BrightSpring Health Services recently acquired Gateway Pediatric Therapy, located in the Great Lakes Region. Gateway is a provider of center-based, in-home and community-based applied behavior analytic (ABA) services to children with Autism Spectrum Disorder. BrightSpring, owned by Onex Corporation, is a leading human services company that provides residential, therapeutic, job training and educational supports to people with developmental or other disabilities, to elderly people who need in-home care assistance, to youth with special needs, and to adults who are experiencing barriers to employment.
October 3, 2018 – BayMark Health Services announced the acquisition of Tri-City Institute, a medication assisted treatment provider in Los Angeles, CA. Tri City, established more than 25 years ago, built a strong reputation by providing discreet, patient-focused medication assisted treatment services. Baymark provides medication assisted treatment to more than 46,000 patients in recovery from opioid use disorder.
October 11, 2018 – Lighthouse Autism Center, a leading provider of center-based, Applied Behavioral Analysis (ABA) therapy, today announced a strategic investment from Abry Partners, a Boston-based private equity firm. The investment will allow Lighthouse to accelerate geographic expansion and to bring additional services to children with autism. It will also support Lighthouse’s continued focus on driving strong clinical quality and leveraging technology to better track and utilize data to enhance outcomes. The investment in Lighthouse represents the latest platform in the continuation of Abry’s healthcare investment strategy.
October 19, 2018 – Seaside Healthcare, a Louisiana-based behavioral healthcare services company, announced that it has acquired Faith in Families Mental Health Agency, which is headquartered in Reidville, N.C. Founded in 2008, Faith in Families provides mental health services for children, families and adults at its four North Carolina locations. Faith in Families joins the Seaside network of treatment centers, which operate in North Carolina, Louisiana and Georgia.
October 24, 2018 – NexPhase Capital (“NexPhase”), a lower middle market private equity firm, announced the successful recapitalization of Action Behavior Centers, an Austin-based provider of Applied Behavior Analysis (“ABA”) therapy for children diagnosed with autism spectrum disorder (“ASD”). Action Behavior Centers has five locations in Texas and focuses on early intensive behavioral intervention for children between the ages of 2 and 6 years old in order to maximize clinical outcomes.
October 24, 2018 – LEARN Behavioral, a provider network that serves children with autism and other special needs, has acquired Total Spectrum, a provider of applied behavioral analysis services for families and children with autism spectrum disorder. LEARN Behavioral, based in Baltimore, MD, serves more than 3,000 families annually. Based in Elmhurst, Ill., Total Spectrum operates in Illinois, Indiana, Michigan and Wisconsin, providing in-home and clinical-based applied behavioral analysis services for more than 400 clients per year.
October 29, 2018 – Pennsylvania Adult & Teen Challenge, an addiction treatment and recovery facility in Rehrersburg, PA, acquired Naaman Center, a provider of outpatient treatment and care in Elizabethtown, PA. This partnership provides opportunities for both organizations to move into geographic areas in need of services for individuals suffering from substance use disorder. Both companies are faith-centered, non-profit organizations.