Behavioral Health Composite – March 2019

Behavioral Healthcare Stocks down 14.8% in March

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 14.8% for the month of March. The S&P 500, by comparison, was up 1.1% during the same period.

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

1. American Addiction Centers – AAC (↓35.9%) fell sharply as the company postponed its conference call, which was scheduled for March 13, as it needs additional time to complete the consolidated financial statements for 2018. The company continues to have liquidity and leverage issues. The press release indicated the following highlights: (i) the census downturn experienced in the last several months of 2018 was more significant than originally anticipated, with an initial 30% drop in call volume resulting in sharply decreased admissions in Q3 and Q4; (ii) implemented over $30.0MM in annualized expenses reductions to benefit 2019 margins and (iii) closed an additional $30.0MM incremental term loan to provide liquidity into 2019. The company is also exploring alternatives to generate additional liquidity from its real estate portfolio.

2. Acadia Healthcare – ACHC (↓3.6%) decreased slightly on mixed Q4 and year‑end 2018 earnings. Q4 revenue was $743.5 million, an increase of 2.6% compared with $724.5 million for Q4 2017. Net loss per diluted share was $3.80 for Q4 2018 compared with $0.80 per diluted share for Q4 2017.  Adjusted for non-recurring items, Q4 2018 net loss per diluted share was $0.47.  Same facility revenue in the U.S. grew 3.5% in Q4 year-over-year, with a 3.5% increase in patient days and flat revenue per patient day.  Same facility revenue in the U.K. increased 4.4% in Q4 year-over-year, with a 1.5% increase in patient days and a 2.8% increase in revenue per patient day.  For the full year 2019, the company is guiding to revenue of $3.15 – $3.2 billion, adjusted EBITDA $610 – $630 million, and adjusted earnings per diluted share of $2.15 – $2.30.

3. Universal Health Services – UHS (↓5.0%) was down for the month of March.  On February 27th, UHS delivered its earnings.   EPS for Q4 came in at $2.37 while expectations were $2.34.  Revenue came in at $2.75 billion compared to estimates of $2.74 billion.  For the Behavioral Health segment, on the same facility basis, adjusted admissions rose 4.5% while adjusted patient days dipped 1.2%, both on a year-over-year basis. Net revenues were up 2% in Q4 due to higher admissions.

For the last twelve months (LTM), the BHC is well behind the S&P 500 at a -30.9% loss relative to the S&P’s gain of 9.8%.

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 3/1/19

AAC $2.87

ACHC $30.41

UHS $140.80

Enterprise Value/EBITDA

Company 3/1/17 3/1/18 3/1/19

AAC 13.05x 11.12x 12.00x

ACHC 12.37x 11.23x 10.26x

UHS 9.60x 8.66x 9.96x

Enterprise Value/Revenue

Company 3/1/17 3/1/18 3/1/19

AAC 1.49x 1.53x 1.18x

ACHC 2.55x 2.30x 1.95x

UHS 1.67x 1.44x 1.56x

M&A News

April 3, 2019 – Vizion Healthcare LLC announced that it has acquired Panola Medical Center, a 112-bed acute care medical hospital located in Batesville, Mississippi.  Vizion partnered with Progressive Medical Management of Batesville, LLC, Whitwell Holdings, LLC, and Java Medical Group on this acquisition.  The Panola Medical Center is Vizion’s third acquisition. Vizion currently owns two facilities in Miami, Oklahoma; Willow Crest Hospital and Moccasin Bend Ranch.

March 20, 2019 – Ashley Addiction Treatment announced that it has acquired Aquila Recovery, an outpatient addiction treatment provider with four locations across Maryland, Virginia, and Washington, DC. Aquila will become a member of Ashley’s network by July 1, with both organizations retaining their respective names in the meantime. Ashley president and CEO Rebecca Flood will serve in the same role once the merger is completed, overseeing all operations.

March 15, 2019 – Audax Private Equity (“Audax”), a Boston-based private equity firm, acquired Proud Moments, an autism behavioral health services provider.  Proud Moments operates in New York, New Jersey, Maryland, Tennessee, and Nevada.

March 13, 2019 – Gryphon Investors (“Gryphon”), a San Francisco-based private equity firm, announced that it has acquired a majority stake in LEARN Behavioral (“LEARN” or “the Company”), from LLR Partners.  LEARN is a network of providers serving over 4,000 families with autism and other special needs in 23 states. LLR and senior management will maintain minority stakes alongside Gryphon. The transaction marks Gryphon’s first investment in the behavioral health sector.

March 1, 2019 – Perimeter Healthcare, a network of mental and behavioral health treatment centers backed by Ridgemont Equity Partners, announced the acquisition of Lake Pines Hospital, a 36-bed behavioral healthcare facility, and the St. Theresa Hospital building that houses the program in Kenner, La.  Perimeter plans to add 40 to 45 beds to the inpatient facility over the next eight months as part of a renovation project. The facility will be renamed Perimeter Behavioral Hospital of New Orleans.

February 22, 2019 – Family Counseling Services of Cortland County and Family & Children’s Society announced the merger between the two services.  The renamed Family & Children’s Counseling Services will serve as a joint urban-rural agency focused on essential behavioral healthcare services throughout the Oneida, NY region

February 19, 2019 – Ryan Chapman, who grew and sold a nationwide service company, Premier Parking, before age 35, purchased Integrative Life Center (ILC), a provider of residential and outpatient treatment for substance abuse, eating disorders, and mental health disorders.  The company was founded in 2010 and has two facilities in the Nashville, TN area.  Ryan Chapman is now the majority shareholder and CEO.

February 6, 2019 – Ideal Option, a provider of Medication-Assisted Treatment (MAT) and behavioral counseling services for individuals suffering from Opioid Use Disorder (OUD), announced today a strategic minority investment by BlueCross BlueShield Venture Partners (BCBSVP). BCBSVP invests on behalf of 33 BlueCross BlueShield entities in healthcare companies of strategic relevance to BlueCross BlueShield Plans.

January 24, 2019 – Pharos Capital Group-backed Beacon Specialized Living Services acquired Owakihi, Inc., which provides home and community-based support services to individuals with intellectual and developmental disabilities.  Headquartered in Saint Paul, MN, Owakihi serves over 200 individuals across 14 sites in the seven counties surrounding Minneapolis and Saint Paul.

Also read Behavioral Health Composite – April 2019