Behavioral Health Composite

July, 2018

Behavioral Healthcare Stocks Down 3.3% in June

Behavioral health stocks were mixed in June, with American Addiction Centers dragging the composite down, losing 10.2% of its value during the month.  Overall, 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 3.3% for the month of June.  The S&P 500, by comparison, was down 0.6%.

June was a quiet month with no significant news.  However, all three stocks dropped from June 21 – 27, in the same pattern, while the S&P was down marginally on trade tensions.

  • Acadia Healthcare – ACHC (­2.7%) continued to lift from strong Q1 2018 earnings reported in May through June 21, rising 10.4% from the beginning of the month.  However, the stock ended more modestly at a 2.7% gain.
  • American Addiction Centers – AAC (­10.2%) was down between 1 – 5% through June 25 before closing down 10.2% for the month.
  • Universal Health Services – UHS (2.4%) was up slightly at 0.4% through June 25 before closing down at 2.4% for the month.

What caused the drop?  Hard to say.  There was unusually high trading volume on AAC on the 26th, with nearly six times the average daily trading activity.  Someone sold their position, possibly dragging the others down with it.  “The public companies are now trading at an average multiple of 11x AEBITDA, which is near the levels we see for well-run privately-held companies.  It’s also significantly lower than the rest of the healthcare services sector, which is trading at an average multiple of 15x.  I’m hopeful investors will see the opportunity that lies in the sector,” said Kevin Taggart, Managing Partner with Mertz Taggart.

It’s worth pointing out that AAC is both the smallest company in the index and the newest, both of which contribute to more volatility in the stock price.

For the last twelve months (LTM), the BHC was behind the S&P 500 at a 3.1% gain relative to the S&P’s gain of 12.2%.

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.

Stock Prices

Company 6/30/18
AAC $9.37
ACHC $40.91
UHS $111.44

Enterprise Value/EBITDA

Company 6/30/16 6/30/17 6/30/18
AAC 21.77x 12.68x 12.04x
ACHC 19.33x 12.98x 11.54x
UHS 9.79x 9.23x 8.44x

Enterprise Value/Revenue

Company 6/30/16 6/30/17 6/30/18
AAC 3.10x 1.31x 1.80x
ACHC 4.10x 2.64x 2.35x
UHS 1.79x 1.58x 1.38x

M&A News

June 5, 2018 – JourneyPure, a provider of addiction treatment services for patients from across the nation, has announced the combination with Florida Counseling Centers, which operates outpatient centers in Central Florida.  JourneyPure is backed by private equity firm, Clayton Associates.

June 6, 2018 – Banyan Treatment Center announced the acquisition of Behavioral Health of the Palm Beaches (BHOPB) in West Palm Beach, Fl.  BHOPB, which was founded in 1997, offers a 200-bed residential addiction treatment program with a full continuum of care and holistic therapies.  Banyan’s acquisition of BHOPB follows its recently completed acquisition of Clearbrook Manor in Laurel Run, Pa.

June 11, 2018 – Castlewood Treatment Centers, an eating disorder treatment provider which operates in three states, acquired five new locations in California from La Ventana Treatment Programs . The deal includes two residential programs in Thousand Oaks, one outpatient facility in Westlake Village, and residential and outpatient programs in Santa Barbara.  La Ventana will continue to operate its other mental health and substance abuse treatment programs in California.  Castlewood is backed by private equity firm, The Riverside Company.

June 13, 2018 – Pharos Capital Group, through its Family Treatment Network platform (“FTN”), announced that it has acquired the CCMC School, based in New Britain, CT. The CCMC School, an affiliate of Connecticut Children’s Medical Center, provides comprehensive special education for students, from age five to 21, who require intensive intervention due to a range of behavioral, emotional and learning challenges.  Pharos established its Family Treatment Network platform to manage its investments in special schools, psychiatric residential treatment centers and community-based programs for children, adolescents and their families.

June 15, 2018 – Navos, a wholly-owned affiliate of MultiCare, and Community Psychiatric Clinic (CPC) today announced that the two Seattle-based, not-for-profit organizations planned to merge, allowing them to increase access to urgently needed behavioral health services across King County. The two organizations will merge under the Navos name on Nov. 1, 2018.

June 28, 2018 – BelHealth Investment Partners, a New York-based private equity firm, has acquired Juno Beach, Florida-based Beach House Center for Recovery (“Beach House”), a substance use disorder treatment provider with facilities in Florida.  Founded in 2014, Beach House, on its five-acre campus, offers clients the full continuum of care (inpatient detox through outpatient) and utilizes an abstinence-focused treatment model, while also promoting medication-assisted treatment (“MAT”).

2018-07-23T18:26:57+00:00 July 23rd, 2018|