Behavioral Healthcare Stocks Down 9.6% in August & September
Analysts have become a little nervous about American Addiction Centers 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. “Over the past two years, the company has transformed itself from a handful of highly profitable out of network centers with significant toxicology revenue to a more diversified (and sustainable) service provider,” said Cory Mertz, Managing Partner with Mertz Taggart. “It may take a while for this to shake out and for analysts to get comfortable with this evolving model.
In other news…
Acadia Healthcare – ACHC (↓12.8%) fell in the month of September, after an up and down August. As mentioned in the previous newsletter, ACHC reported Q2’18 earnings on July 31st which provided for lower revenue and earnings per diluted share 2018 guidance. In September, analysts said the US psychiatric hospital building boom is leading to increased competition for the most profitable managed care and Medicaid patients, resulting in declining revenue for these business lines. This has been compounded by the economic instability in the UK related to the uncertainty around Brexit. ACHC’s UK operations account for 37% of the company’s total revenue.
Universal Health Services – UHS (↑5.3%) continues its steady performance, which is to be expected for a more mature, diverse organization, rising consistently throughout the month of August and September, likely due to positive Q2’18 earnings reported at the end of July.
For the last twelve months (LTM), the BHC was behind the S&P 500 at an 11.9% loss relative to the S&P’s gain of 15.2%.
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 9/30/16 9/30/17 9/30/18
AAC 19.69x 14.26x 11.58x
ACHC 15.98x 12.90x 10.57x
UHS 9.22x 8.61x 9.36x
Company 9/30/16 9/30/17 9/30/18
AAC 2.44x 1.61x 1.56x
ACHC 3.39x 2.62x 2.13x
UHS 1.66x 1.46x 1.51x
September 14, 2018 – Advanced Recovery Systems (ARS) has purchased the real estate of The Treatment Center (of the Palm Beaches) out of bankruptcy and plans to open the facility near its South Florida corporate home base in 2019. Over the past five years, ARS has expanded from one location in Orlando, Fla., to eight locations, with facilities in Maryland, Ohio, Washington, and Colorado, as well as additional properties in Florida.
September 13, 2018 – Fulcrum Equity Partners announces the creation of City Line Behavioral Healthcare LLC, and the acquisition of Life of Purpose Treatment Centers. City Line Behavioral Healthcare LLC will act as the holding company to own its current and future behavioral healthcare assets. City Line Behavioral Healthcare’s core focus will be in identifying, acquiring, and integrating treatment centers throughout the greater mid-Atlantic and southeastern U.S. Life of Purpose Treatment Centers were created in 2013 by Founder Andrew Burki. The program provides services specifically designed to assist emerging adults who have a desire to focus on their education, vocational training, and/or professional development.
September 6, 2018 – Summit BHC (Summit), a leading provider of addiction treatment and behavioral health services, today announced the acquisition of St. Gregory Retreat Center. Located in Bayard, Iowa, the 56-bed facility is Summit’s first property in Iowa and brings the Company’s total number of operating facilities to fifteen. Now known as St. Gregory Recovery Center, the facility is a CARF-accredited addiction treatment center. The acquisition also includes a second property located in Adair that the Company will utilize to expand services and beds. Mertz Taggart provided exclusive M&A advisory services to this transaction, representing the seller.
September 5, 2018 – PSA Behavioral Health Agency, a nonprofit behavioral health services provider in Arizona, has reached an agreement to purchase the Epicenter clinic from the Institute for Mental Health Research (IMHR). The Epicenter, located in downtown Phoenix, was created to provide early intervention programs for individuals who have symptoms of psychosis.
August 31, 2018 – BayMark Health Services announced the acquisition of Counseling Solutions, a medication-assisted treatment provider with locations in Chatsworth, GA, and Brasstown, NC. MedMark Treatment Centers provides outpatient medication-assisted treatment (MAT) for opiate addiction and dependency. Medication-assisted treatment is the use of medications, such as methadone and buprenorphine, in combination with addiction counseling and behavioral therapies, to provide an evidence-based, comprehensive approach to recovery.
August 29, 2018 – Frazier Healthcare Partners announced the acquisition of Caravel Autism Health, a leading provider of Applied Behavioral Analysis (“ABA”) therapy to children on the autism spectrum. Caravel operates nine clinics across Illinois and Wisconsin, providing in-home, individualized treatment programs. The investment will allow Caravel to pursue geographic expansion and additional treatment models as well as invest in technology.
August 20, 2018 – SOC Telemed (SOC), the leader in acute care telemedicine, announced the acquisition of behavioral health telemedicine company JSA Health. The JSA team will join SOC Telemed in providing 24/7 access to high-quality telePsychiatry care for a wide variety of settings, including emergency departments, community health clinics, educational institutions, and more.
August 6, 2018 – Hackensack Meridian Health and Carrier Clinic in New Jersey announced merger plans that will combine their services in the treatment of behavioral health and substance use disorders. Hackensack Meridian health operates 16 hospitals, more than 450 patient care locations, and physician offices in eight counties. Carrier Clinic, 100-acre rural campus in Belle Mead, N.J., provides short-term, acute care hospitalization for psychiatric illness and substance abuse for adolescents and adults. The campus includes a licensed 281-bed inpatient psychiatric hospital, a licensed 40-bed inpatient and outpatient detox, and a recovery facility.
July 31, 2018 – Universal Health Services, Inc. announced that, through its UK subsidiary Cygnet Health Care, it has acquired The Danshell Group (“Danshell”). Danshell owns and operates 25 facilities with a total of 288 beds in the United Kingdom. Cygnet Health Care will operate and manage these new facilities. The Danshell facilities support and care for adults living with learning disabilities, who may also have a diagnosis of autism, in specialist supported living, residential services, and hospitals. Through this acquisition, the company expands into new service lines and new geographical areas, complementary to the existing UK portfolio.