Behavioral Health Composite

May, 2019

Behavioral Healthcare Stocks down 16.5% in May

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 7.2% for the month of April. The S&P 500, by comparison, was up 2.7% during the same period.

“With public behavioral companies, investors are rewarding stability and predictability of earnings.  And we’re seeing the same thing in private sector M&A transactions.  Just a few years ago, investors were drawn to high-end, high-margin, digital marketing-driven businesses in an industry seemingly full of tailwinds.  They have shifted their focus to more sustainable margins driven by community-based referrals and quality of care,” said Kevin Taggart, Managing Partner at Mertz Taggart.

The loss in the BHC index was mainly driven by AAC.

  • American Addiction Centers – AAC (↓44.8%) fell again sharply. On May 13, AAC hosted a conference call in which company leadership discussed near term plans to improve its operational results and balance sheet, including shedding some of its real estate assets.  fCompany leadership also discussed treatment industry trends and long-term strategic observations.  The company is also preparing a plan to submit to the NYSE to address the company’s plan to improve its total market capitalization, following notice on May 17, 2019 from the NYSE that the Company’s average market capitalization was less than the required $50MM over a consecutive 30 trading-day period and that the most recently reported stockholders’ equity of the Company was also less than $50MM.  By submitting the plan within the next 45 days, the Company’s common stock will continue to be listed and traded on the NYSE and the Company expects to be eligible for the NYSE’s 18-month cure period.
  • Acadia Healthcare – ACHC (↓0.5%) fell slightly.  On May 30, the company announced that it plans to put its UK-based Priory Group up for sale.  Acadia’s U.K. facilities generated $272.6MM of revenue in Q1’19 versus $487.9MM of revenue generated by the company’s U.S. locations.  At the beginning of May, British financial website This is Money reported that Acadia was considering selling Priory group for ~$1.3Bn.
  • Universal Health Services – UHS (↓4.2%) was also down.  While there was no significant news in May, April’s announced Q1 earnings missed continued its drag on share value.
graph displaying data for january health composite

For the last twelve months (LTM), the BHC well behind the S&P 500 at a -35.8% loss relative to the S&P’s gain of 1.7%.

graph displaying data for january health composite

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 5/31/19
AAC $0.90
ACHC $32.22
UHS $119.55

Enterprise Value/EBITDA

Company 5/31/17 5/31/18 5/31/19
AAC 12.11x 12.82x N/A
ACHC 11.77x 11.43x 11.89x
UHS 8.75x 8.64x 8.86x

Enterprise Value/Revenue

Company 5/31/17 5/31/18 5/31/19
AAC 1.26x 1.92x 1.42x
ACHC 2.40x 2.33x 2.21x
UHS 1.50x 1.41x 1.38x

M&A News

May 24, 2019 – Kadiant, a mission-driven organization that provides high-quality Applied Behavior Analysis (ABA) therapy and related services to individuals diagnosed with autism spectrum disorder, announced it has signed a definitive agreement to partner with STE Consultants, a pioneer provider of ABA services in both center and home-based settings. The partnership will mark the fourth addition to Kadiant this year, following its investments in Central Valley Autism Project, Kids Overcoming, and Integrated Behavioral Solutions.

May 20, 2019 – Burrell Behavioral Health, a nonprofit corporation based in Springfield, Mo, announced that it has completed a merger with Youth Bridge.  Burrell was founded in 1977 and operates in 17 Missouri counties. Youth Bridge was established in 1963 in Winslow and operates in 7 counties.  Youth Bridge and Burrell together serve about 45,000 clients.

May 15, 2019 – Kadiant, a mission-driven organization that provides high-quality Applied Behavior Analysis (ABA) therapy and related services to individuals diagnosed with autism spectrum disorder, announced it has partnered with Central Valley Autism Project (CVAP), a pioneer provider of ABA services in both center and home-based settings. Kadiant’s partnership with CVAP marks the company’s third, following its investment in Kids Overcoming and pending investment in Integrated Behavioral Solutions.

May 7, 2019 – Perimeter Healthcare, a behavioral healthcare company backed by Ridgemont Equity Partners, announced the acquisition of two 116-bed inpatient psychiatric hospitals located in the Dallas Fort-Worth metroplex.  After having formerly operated in the market under a different name, the facilities will re-open in 2019 as Perimeter Behavioral Hospital of Arlington and Perimeter Behavioral Hospital of Dallas and continue to provide quality, personal inpatient care for children, adolescents, adults and seniors facing acute mental and behavioral health challenges.

May 6, 2019 – Arsenal Capital Partners (“Arsenal”), a private equity firm that invests in middle-market healthcare and specialty industrials companies, announced the acquisition of Hopebridge, LLC (“Hopebridge”), a center-based provider of behavioral health services for children affected by autism spectrum disorder.  Founded in 2005, Hopebridge provides personalized, comprehensive outpatient Applied Behavior Analysis (“ABA”), occupational, speech, and feeding therapies for children with autism spectrum disorder or affected by other behavioral, physical, social, communication, and sensory challenges.

May 2, 2019 – Pinnacle Treatment Centers, a provider of accessible treatment for substance use disorders, announced it has acquired Addiction Medicine Care (“AMC”) of Columbus, an office-based opioid treatment program (“OBOT”) located in Ohio.  AMC of Columbus is Pinnacle’s 18th OBOT in Ohio.