BEHAVIORAL HEALTH NEEDS PROJECTED TO INCREASE FOLLOWING QUARANTINES, PANDEMIC UNCERTAINY - BEHAVIORAL HEALTHCARE SERVICES INDUSTRY UPDATE | ...
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BEHAVIORAL HEALTH NEEDS PROJECTED TO INCREASE
FOLLOWING QUARANTINES, PANDEMIC UNCERTAINY
BEHAVIORAL HEALTHCARE SERVICES INDUSTRY UPDATE | FEBRUARY 2021
3
BEHAVIORAL HEALTHCARE SERVICES
Needs Projected to Increase Following Pandemic
TABLE OF CONTENTS INDUSTRY OUTLOOK
Industry Outlook The Behavioral Healthcare Services industry continued to attract strong buyer
M&A Overview interest despite economic headwinds and the global impacts of COVID-19
quarantines, as projected in our Q1 2020 report. Merger and acquisition
Private Equity Activity (M&A) activity in 2020 moderately outpaced 2019, with 111 announced or
Q&A with Cognitive Capital closed transactions. This compares to a 16% decline in deal volume across the
Notable Transactions entire middle market, displaying the voracity of the Behavioral Healthcare
Services industry in economic downturns.
Capstone Deal Highlight
Select Transactions The industry is expected to see strong growth in 2021, as COVID-19 has
Public Company Data proved not only a physical health crisis, but a behavioral and mental health
crisis as well due to prolonged lockdowns, job losses, and social isolation. In
Report Contributors June, 41% of U.S. adults reported that they were struggling with substance use
Firm Track Record disorders or mental health issues and 11% reported seriously considering
suicide, according to the Centers for Disease Control and Prevention (CDC).1
Additionally, the virus itself has recently been linked to mental illness. Within
six months of testing positive, one in eight COVID-19 patients were diagnosed
with their first psychiatric or neurological illness, according to a new study by
Oxford University.2 If accurate, this finding would dramatically increase the
number of individuals in need of behavioral health services on a global scale.
In addition to adults, youth and children have faced unique health challenges.
Stay-in-place orders and remote learning environments have caused increased
anxiety and depression. While visits to emergency departments (EDs) were
down overall from April through October 2020, mental health-related visits to
pediatric emergency departments increased 24% year-over-year (YOY) for
children aged five to 11 and 31% for those aged 12-17, as report by the CDC.3
CONTACT M&A for Behavioral Healthcare Services Remains Steady
250
Number of Transactions
200
149 146
150
111
97 103
100
Mark Surowiak
Director 50
215-854-4063
msurowiak@capstoneheadwaters.com
0
2016 2017 2018 2019 2020
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
2
Behavioral Healthcare Services | February 2021
INDUSTRY OUTLOOK (CONTINUED)
The impacts of this era have yet to fully unfold, as many
cases of mental health illness, trauma, and abuse will go
uncharted during the lockdown environment while
children remain largely unobserved by individuals within
“ As President, I’ll use the bully pulpit of the
White House to eliminate the stigma around
mental health….I also will build on the progress
the school system (which is the primary source of made through the 21st Century Cures Act to
reporting). The importance of focusing on the behavioral promote the integration of behavioral health
health needs of adolescents is further discussed in our in pediatric primary care, including increased
interview with Dave Bornhoeft, Partner at Cognitive funding for mental health telehealth programs.
Capital Partners (see page six). One in five children in the U.S. experience mental
health problems. Yet, the current school
Legislation at the federal, state, and local levels has been psychologist to student ratio in this country is
scrutinized and modified to support behavioral healthcare roughly 1,400 to one, while experts say it should
treatment in this unique environment. This has included be at most 700 to one.
$425 million in appropriation to the Substance Abuse and
Mental Health Services Administration (SAMHSA) through
the Coronavirus Aid, Relief, and Economic Security
(CARES) Act.4 Of which, $250 million went to new funding
” - President Joe Biden
Mental Health For U.S. interview prior to election6
for Certified Community Behavioral Health Clinic (CCBHC) Telehealth visits have become more widely adopted
Expansion grants. Most recently in January, President during the socially distant and remote period of the
Biden outlined plans to expand access to behavioral pandemic, in part due to the many temporary regulatory
healthcare services in his $1.9 trillion-dollar American changes to telehealth services under the CARES Act.
Rescue Plan package.5 In the bill, the president calls on These included allowing telehealth visits on common
Congress to appropriate a sizeable $4 billion to support technology platforms like FaceTime and Skype and
SAMHSA and the Health Resources and Services ensuring Medicare reimbursement for audio-only
Administration in expanding the vital services needed. behavioral healthcare visits. While not an option for many
Biden has demonstrated historic support for improving treatment needs, telehealth for outpatient care is
behavioral healthcare, with emphasis on veteran mental expected to become a more mainstream delivery model in
health, the opioid epidemic, creating insurance parity, and the long term with many of the temporary changes
increasing Title I school funding to ensure that students accelerating its widespread adoption. Notably, Capstone's
can access needed mental health professionals. These Behavioral Healthcare Services clients have increasingly
and other legislative efforts show the prioritization to utilized telehealth offerings to drive access and efficiency
destigmatize the industry and augment its importance as for both patients and providers, a trend that is expected
an integrated part of coordinated healthcare. to continue going forward.
Key Value Drivers for Behavioral Healthcare Services Providers
Regulatory Compliance Verified Patient Outcomes
Ongoing compliance with the range of federal and Proven track record of a commitment to successful
state laws, such as competition of a certificate-of- patient outcomes demonstrated by an evidence-
need (CON) program to allow expansion. based approach and high quality of care.
Proximity to Attractive Markets Economies of Scale
Convenient locations for patients and a presence Expanding services to a larger customer base to
in high demand states such as California, Florida, reduce fixed costs per patient and to achieve
Massachusetts, New York, and Texas. critical mass for greater payor negotiating power.
Highly Skilled Workforce Multi-site Locations
Recruitment and retainment of valued professionals Having multiple treatment locations strengthens the
with a strong reputation and relationships with providers ability to gain critical mass, drive higher
upstream facilities that fosters new patient referrals. reimbursements, and create a more efficient model.
Source: IBISWorld and Capstone Research
3
Behavioral Healthcare Services | February 2021
MERGER & ACQUISTION OVERVIEW
M&A activity in the Behavioral Healthcare Services Transaction Volume Surges in Q4
industry moderately increased in 2020, with 111 2019 2020
transactions compared to 103 in 2019. Notably, while 60
other industries experienced a steep pandemic-driven
drop-off in deal activity during Q2, the Behavioral 50
Number of Transactions
Healthcare Services industry remained relatively stable. 41
Deal activity saw a YOY increase of 32% in Q4 2020 from 40
Q4 2019 and has remained strong into Q1 2021. 31
30 29
25 26
22 22
The industry is abundant in acquisition opportunities and 20 18
continues to heavily consolidate as small regional
companies utilize M&A to stimulate inorganic growth. 10
Key consolidation benefits for strategic buyers include
increased negotiation power, greater patient access, 0
reduced regulatory costs, expanded geographic presence, Q1 Q2 Q3 Q4
new services, and an elimination of redundancies to drive
improved efficiency and gross margins. In 2020, private
strategics accounted for 40.5% of deal activity, as many
behavioral healthcare services providers remained open as 2020 Buyer Breakdown
essential businesses during lockdowns.
Of the subsegments, Autism Services saw strong M&A
activity as evidenced by Blue Sprig Pediatrics’ acquisition STRATEGIC 9.0%
of Autism Therapy Services, Aptitude Habilitation Services, Public
and Florida Autism Center. Demand for autism services Private
providers has remained high due to the rising prevalence 40.5%
of Autism Spectrum Disorder, which is currently one in 54 FINANCIAL
children, according to the CDC.7 Many of these Platform 40.5%
acquisitions have allowed providers to expand their Add-on
services beyond mental health professionals and clinicians,
to include autism therapy and training. Two recent 9.9%
examples of this are Caravel Autism Health’s acquisition of
Behavior Therapy Solutions (December, not disclosed) and
The Family Treatment Network acquisition of Catalyst
Behavioral Solutions (see page eight).
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
Mark Surowiak, Director
“The prevalence of mental, behavioral, and addiction disorders in the United States are
staggering. It is estimated that nearly 20% of the U.S. adult population, or 44 million people,
suffer from mental illness annually. At the same time, 56% do not receive treatment.
Due to the COVID-19 pandemic, these conditions have only been exacerbated as individuals and
families have suffered from even greater amounts of stress, anxiety, isolation. As a result, mental
and behavioral health communities have continued to see heightened demand and are
anticipating a tsunami of need with long-term implications.”
4
Behavioral Healthcare Services | February 2021
PRIVATE EQUITY ACTIVITY
In line with prior years, private equity (PE) buyers
remained highly acquisitive and accounted for almost half What’s Attracting PE to the Industry?
of all deal activity in 2020. PE firms continued to utilize
buy-and-build strategies to deploy capital into the • Mission-driven sector with a high degree
recession-resilient industry to grow platform investments of employee loyalty and commitment to
and safeguard return on investment. PE firms making achieve successful patient outcomes.
add-on acquisitions accounted for 40.5% of Behavioral
Healthcare Services M&A activity in 2020 while platform • Fragmented space where value can be
acquisitions accounted for 9.9%. Several of the most realized through consolidation, development
active buyers in the space are outlined below including of executive-level management, and creating
their 2020 add-on acquisitions and rationale. Notably, more efficient/cost effective delivery models.
Capstone’s 2020 conversations with our caucus of PE
firms have demonstrated strong interest in the space. • Growing recognition of behavioral health as
Across all industries and subsectors, the Behavioral a fundamental health issue which has driven
Healthcare Services industry was the fourth most more care and improved reimbursement.
preferred investment opportunity identified by PE groups.
Source: Capstone Research
Select Private Equity Platform and Add-on Activity
Private Equity Platform
2020 Add-On Acquisitions Description / Investment Rationale
Sponsor Investment
• Webster Equity Partners acquired BayMark Health
Services in 2015 and the platform company has since
gone on to complete more than 15 acquisitions. Its
2020 acquisitions helped to expand the healthcare
company’s reach across the United States.
• Audax Management Company acquired Proud
Moments Licensed Behavior Analysts in 2019.
Proud Moments currently has 11 locations
nationwide. Its 2020 transactions will expand Proud
Moments’ presence in New York and Tennessee.
• Blue Sprig, backed by Kohlberg Kravis Roberts
(NYSE:KKR) since 2017, is the largest autism service
provider in Texas. Its 2020 transactions will enhance
Blue Sprig’s scale and strategic position.
• The Vistria Group acquired Behavioral Health Group
in 2018. Through its 2020 acquisitions, Behavioral
Health Group will be able to provide its opioid
treatment and recovery services to communities in
Alabama, Rhode Island, and Tennessee.
• Linden acquired Pinnacle Treatment Centers in 2016.
The recent acquisition of HealthQwest provides
Pinnacle with five outpatient centers in Georgia.
While the Aegis acquisition expands Pinnacle’s
presence into California.
• MBF Healthcare partners acquired Acorn Health in
2018. Through its 2020 transactions, Acorn has
expanded its presence with locations in Michigan,
Maryland, Pennsylvania, and Tennessee.
Source: Company press releases and Capstone Research
5
Behavioral Healthcare Services | February 2021
Q&A WITH COGNITIVE CAPITAL
Capstone spoke with Dave Bornhoeft, Partner at Cognitive Capital Partners,
LLC, to discuss what the firm looks for in Behavioral Healthcare Services
company investments and to learn how COVID-19 has impacted the Healthcare
industry. Cognitive Capital is a Chicago-based private equity investment firm
that seeks investment opportunities in the Technical & Business Services,
Manufacturing & Industrial Products and Services, and the Healthcare &
Wellness sectors. The firm typically seeks companies with $10-$150 million in
revenue and $3-$20 million in EBITDA.
Tell us about Cognitive Capital, what differentiates the What are your key investment criteria for Behavioral
firm? We're a Chicago-based fund that historically was Healthcare companies? This is a sector where we
focused on Business and Technical Services and believe we can make a real difference. While behavioral
Manufacturing and Industrials. I joined about a month health is a very broad and fragmented industry, Cognitive
ago to launch a new Healthcare vertical and also expand is specifically targeting mental health where we believe
our focus in business services. we can have the greatest impact. Today as many as one
in five Americans experiences mental illness each year and
We differentiate ourselves two ways. First, we have a as many as 60% of cases are left untreated.
unique fund structure with a large family as our primary
LP [limited partner]. This provides us with a large, Our investment thesis is to build a leading provider of
committed pool of patient capital and the flexibility to adolescent mental health focused on a comprehensive
invest along timeframes driven by the goals and needs of continuum of inpatient and outpatient care. We are
our companies and management teams instead of focused on adolescents because that is where mental
artificial hold periods. In healthcare, this flexibility health issues often start - over 50% of mental illness
allows us to focus on putting patients first, improving begins by age 14 and 75 percent by age 24. We hope
outcomes and quality of care, providing better access to positively impact many young lives by identifying
to healthcare, and driving costs out of the healthcare and treating these issues early.
system. We find if you do those things right, you will
build great businesses and the returns will come.
We're actively looking for a platform company and
management team with a focus on outcomes and a
The second differentiator is that our senior partners have
strong track record of providing great care in adolescent
a blend of private equity and operating experience. Prior
behavioral health. The idea is to find a company with
to joining Cognitive, I managed several businesses for
exceptional care providers, a sterling reputation, and an
Baxter Healthcare including the pharmaceutical business
outcomes-focused culture where providers enjoy working.
and previously anesthesia and critical care. My partners
We will look to maintain the strong culture and expand
have led and grown middle market businesses and also
both through organic development and acquisition. We
have Fortune 500 experience. We find that this helps us
are open to starting with either inpatient or outpatient
relate to entrepreneurs and management teams and
services, but would look to expand to a more holistic
positions us to help them solve problems post-close.
approach by adding complementary services to cover the
We've been in their shoes before. We're not critically
entire continuum of care. Given the intertwined nature of
looking over their shoulders or trying to run their
behavioral health, substance abuse will also be a part of
businesses. We're partners and sounding boards to help
the continuum, but it is not our core focus.
make our teams and ultimately the underlying businesses
more successful.
We’re also interested in some niches within behavioral
We think this combination of flexible, patient capital health on the mental side, like autism and eating
and operating experience positions Cognitive as a disorders. But adolescent mental health is where we're
trusted partner who understands how to run and grow spending most of our time proactively trying to find the
businesses and allows entrepreneurs and management right platform.
teams to focus on building great businesses.
6
Behavioral Healthcare Services | February 2021
Q&A WITH COGNITIVE CAPITAL (CONTINUED)
What areas of Health & Wellness have been most improve outcomes. It's all about sharing risk and tying
impacted by COVID-19? COVID has broadly impacted payments to outcomes and reductions in spending.
healthcare services, forcing providers to reexamine
patient interaction and revenue streams. Providers that Historically, many thought of convenience in healthcare as
were able to maintain engagement with their patients putting care in attractive locations like urgent care.
through tools like telehealth have been the most COVID has helped change this paradigm and accelerated
resilient. Those that couldn’t or didn’t adapt saw the shift to more digital and portable care. In the early
significant and most-likely, long lasting impacts as stages of the lockdown, thousands of providers and
their patients found other treatment options during millions of U.S. patients tried telehealth for the first time.
COVID. From a revenue perspective, traditional Fee-for- We expect digital health adoption to continue which will
Service businesses, which rely on volume, suffered the benefit technology, data analytics and outsourced service
most; even sectors which were previously thought to be businesses as well as forward-thinking care providers.
recession proof experienced dramatic declines during
quarantine. However, providers that were able to enter
From a physician practice management perspective, I
into non-volume-based arrangements like value-based
think the second wave of consolidation will be more
care or capitation had some insulation from COVID-
focused on sectors that have the potential to take costs
related closures.
out of acute care settings. Payers will help steer volume
to strong providers in orthopedics, cardiovascular, and
More specifically, the impact on behavioral health is other sectors that can show true cost savings by moving
obvious and real – COVID is driving both substance abuse care to independent practices and surgery centers or shift
and mental health issues. McKinsey estimates that to alternate payment models.
COVID-19 could potentially drive a 50% increase in the
prevalence of behavioral health conditions in the U.S. We are in an exciting period of transformational change
which could result in an incremental $100-$140B in in the healthcare industry. One of the rewarding things
healthcare spending post-pandemic. about investing in healthcare is that we have the ability to
help drive this change. Improving access to care or the
Assisted living is a sector we think is going to potentially quality of care can have real impacts on people’s lives.
have more lasting headwinds. While the aging For example, in behavioral health, there are so many
population is a positive dynamic, people are rethinking people with mental illnesses that aren’t being treated
sending their parents to group settings because of today. COVID is exacerbating these problems - kids are
COVID. That will slow down adoption which could have sitting in front of screens all day instead of interacting
longer-term consequences at those facilities and with each other which has the potential to create
underlying service providers to those facilities like assisted feelings of isolation and depression. If you can create
living pharmacies. On the flipside, this phenomenon awareness in the community and get in front of
should drive increased utilization of home health. families, you have the potential to get to these kids
early which can prevent serious problems and
What factors do you see affecting the Healthcare dramatically reshape lives.
industry over the next few years? Healthcare is
undergoing a transformation, albeit a slow one. Key
trends continue to be taking costs out of the system, As Partner at Cognitive Capital, Dave
improving outcomes and quality of care and making care Bornhoeft leads the firm’s healthcare
more consumer-centric and convenient. practice and is responsible for developing
investment strategies, deal sourcing,
On the pharma side, biosimilars are going to drive huge overseeing due diligence and transaction
cost savings. People have been talking about them for execution, and the management of
portfolio companies. Dave has more than
years, but adoption in the U.S. is way behind Europe and
20 years of private equity investing and
other global markets. We expect a tipping point in the operating experience in the Healthcare and Business Services
next several years, especially in sectors like oncology sectors. Prior to joining Cognitive, he managed several
where existing biologics are prohibitively expensive. businesses for Baxter Healthcare. His previous experience in
middle-market private equity includes time at Silver Oak
On the services side, we see a continued shift towards Services Partners, Burling Capital, and the Columbia Group.
value-based care and away from fee-for-service
reimbursement in an effort to both reduce costs and Contact Mr. Bornhoeft at dave@cognitivecap.com
7
Behavioral Healthcare Services | February 2021
NOTABLE TRANSACTIONS
Several notable transactions have been announced or completed in the industry in 2020. Select transactions are outlined below,
followed by a more comprehensive list on page 10 and 11.
Kelso & Company Acquires Refresh Mental Health
(December 2020, Undisclosed)
Middle-market private equity firm Kelso & Company entered the Behavioral Healthcare Services
industry with its platform acquisition of Refresh Mental Health. Refresh provides the full spectrum of
outpatient mental healthcare services and was formerly owned and founded by PE firm Lindsey
Goldberg. Though financial terms were not disclosed, PitchBook values the company’s post transaction
value at ~$700 million.
Acquires Headquartered in Florida, Refresh has more than 200 locations spanning 28 states and the District of
Columbia. The company has ~2,000 psychiatrists, psychologists, and licensed clinical social workers and
completes more than one million patient visits each year through in-person and telehealth settings.
Refresh’s business model has allowed for rapid organic and inorganic expansion since its 2017
founding, supported by clinical recruitment and new locations. The company completed two
acquisitions in 2020: Ohio-based A+ Solutions (educational and psychological education service
provider) in October and California-based Cielo House (eating disorder treatment center services).
“We built Refresh together with Lindsay Goldberg upon the core value and principle that there needed
to be greater access to the highest quality mental health services within local communities across this
country,” Refresh CEO Steve Gold noted in a press release.8 “We look forward to aggressively pursuing
our growth and acquisition strategy as we continue to serve as the partner of choice for clinical thought
leaders who value Refresh’s clinical excellence and patient outcomes."
The Family Treatment Network Acquires Catalyst Behavioral Solutions
(December 2020, Undisclosed)
The Family Treatment Network (FTN), a platform company created by physician-founded private equity
firm Pharos Capital Group in 2016, has acquired Catalyst Behavioral Solutions. Terms of the deal were
not disclosed. Catalyst is a Utah-based provider of mental health therapy and behavior consulting for
individuals and families. It also offers evidenced-based and data-driven methods including Applied
Behavior Analysis (ABA) therapy to treat children and youth with autism.
Catalyst, FTN’s seventh acquisition in 2020, expands its outpatient services into Utah, furthering the
Acquires Tennessee-based buyer’s goal of providing coast to coast behavioral healthcare services across the full
care continuum. FTN has maintained a strong focus on providing both education and therapy. Its
behavioral healthcare services for children, adolescents, and families include residential therapy centers,
therapeutic day schools, and home & community-based outpatient programs.
"We believe the need for specialized behavioral care treatment is ever-increasing, and that there is
continued opportunity for a best-in-class operator like FTN to expand its portfolio of companies and
services,” Pharos Capital Partner, Jim Phillips, said in a press release.9 “Catalyst is a logical fit with its
expertise and focus, and we welcome the Company to FTN."
The transaction is Pharos Capital’s seventh 2020 acquisition, three of which were add-ons in the
Behavioral Healthcare Services industry. In addition to Catalyst, Pharos Capital acquired Simple
Intervention and Second Chances Comprehensive Services (December, both undisclosed) via its
platform company Seaside Healthcare.
8
Behavioral Healthcare Services | February 2021
CAPSTONE DEAL HIGHLIGHT
Premier Provider of In-Patient Substance Abuse Treatment
Program Acquired by NewSpring Capital – April 2020
Capstone Headwaters advised BRC Recovery Family of Programs (“BRC” or
the “Company”) on its recapitalization transaction with investment firms
NewSpring Capital (“New Spring”) and Veronis Suhler Stevenson (“VSS”).
Terms of the deal are confidential.
has been acquired by
BRC, which stands for “Bringing Real Change,” offers care through four
outpatient residential centers in Texas: BRC Recovery, Spearhead Lodge,
Makana Path, and Segue Recovery. BRC provides individualized, gender
specific treatments to adults (aged 17+) with substance use disorders such as
alcoholism, drug dependence and other addiction disorders. With treatment
services around food & nutrition, trauma treatment, interventions, clinical
services, therapeutic workshops, spiritual coaching, fitness & yoga, relapse
prevention, and 12-Step immersion.
Founded in 2006 by Mark Houston, the Company offers the full continuum of care and is rooted in the 12 Step immersion
philosophy. This program guides clients through each of the 12 Steps over a 90-day timeframe, to create a structured, and
supportive foundation for lasting recovery.
“It’s amazing what we’ve been able to accomplish by staying rooted in our principles and aggressively addressing the needs
of the market. I’m grateful to have a top-notch team and the opportunity to build a new platform that fuels our continued
growth and ability to serve more people,” said Marsha Stone, BRC’s founder.
“We’re always looking to invest in healthcare companies that bring innovative ideas and ways of thinking to markets in need
of new solutions. This is exactly what BRC is doing in the Addiction Treatment and Therapeutics space,” said Kapila Ratnam,
Ph.D., Partner at NewSpring. “We’re thrilled to work with VSS to bring operational expertise to BRC and make additional
investments in transformative healthcare companies.”
Private equity firm NewSpring Capital has an active portfolio of more than 60 companies, including nine in the Healthcare
space. Within the Behavioral Healthcare industry, NewSpring has one other relevant holding, New Jersey-based SUN
Behavioral Health, a service provider that operates in a psychiatric hospital setting.
9
Behavioral Healthcare Services | February 2021
SELECT TRANSACTIONS
Date Target Acquirer Target Business Description Target Location
Mulberry Bush Early Horizon Early
01/07/21 Provides mental health services for children. Vermont
Learning Program Learning Program
Provides drug and alcohol addiction medications, therapy,
01/06/21 Renew Recovery BrightView Kentucky
counselling, recovery, and home treatment services.
Odyssey Behavioral
01/04/21 Shoreline Center Comprises a treatment center for eating disorders. California
Healthcare
Prosperity Counseling Discovery Behavioral Offers substance use, mental health, relationships, and
12/28/20 Washington
& Treatment Services Health historic trauma related care and treatment services.
BayMark Health
12/16/20 Choices of Louisiana Offers addiction treatment services. Louisiana
Services
Offers integrated psychedelic treatment for mental
12/16/20 Psyence Therapeutics Mindhealth Biomed Ontario
health disorders seen in context of trauma.
Liberty Bay BayMark Health Provides medication-assisted treatment to patients in
12/15/20 Maine
Recovery Center Services recovery from substance use disorder.
Mindspace Numinus Wellness Offers psychology clinic services for mental health; psychedelic
12/15/20 Montreal
Psychology Services (TSXV:NUMI) harm reduction and integration programming for clinicians.
Spectra Support Maharah for Human Provides mental health services and education and training
12/14/20 Pennsylvania
Services Resources (SASE:1831) to individuals with disabilities and their families.
Refresh Mental Offers mental health, eating disorder, abuse, and addiction
12/10/20 Kelso & Company Florida
Health treatment relationship counseling, and telecounseling services.
Behavior Therapy Caravel Autism Provides behavioral and mental health services to
12/07/20 Minnesota
Solutions of MN Health children and families.
Catalyst Behavior The Family Treatment Offers mental health therapy and behavior programs for
12/02/20 Utah
Solutions Network individuals and families.
Kelburn Recovery Provides substance use and related mental health and
11/25/20 Universal Ibogaine Winnipeg
Centre addiction treatment programs.
BayMark Health Offers methadone maintenance treatment and counseling
11/18/20 Limestone Health Indiana
Services services for those who are suffering with opioid addiction.
Provides crisis services, mental health, drug and alcohol,
11/18/20 Penn Foundation Saint Luke's Hospital Pennsylvania
intellectual disabilities, pastoral services, and yoga/mindfulness.
BHG Medical Behavioral Health Offers medication-assisted treatment through an office-based
11/02/20 Tennessee
Services Group model where patients are provided medications to take at home.
CloudMD Software &
10/28/20 HumanaCare Provides mental and physical wellness services. Ontario
Services (TSXV:DOC)
Community Psychiatry Operates practice offices of psychiatrists and psychotherapists
10/21/20 Centerbridge Partners California
Management that offer mental healthcare services.
Monte Nido
10/06/20 Rosewood Ranch Owns and operates eating disorder treatment centers. Arizona
& Affiliates
Comprehensive Offers adult psychotherapy, child and adolescent therapy,
09/16/20 EI US New York
Counseling depression, anxiety, and stress health services.
Offers managed behavioral health care services, employee
09/11/20 ChoiceHealth Alight Solutions North Carolina
assistance programs, and other behavioral health care services.
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
10Behavioral Healthcare Services | February 2021
SELECT TRANSACTIONS (CONTINUED)
Date Target Acquirer Target Business Description Target Location
Edgewood Clinical Offers psychiatric and medication, counseling, anger
08/25/20 LifeStance Health Illinois
Services management, couples counseling, and personalized treatment.
Shoreline Treatment
08/22/20 Vizion Health Operates adolescent residential addiction treatment centers. Texas
Center
Pinnacle Treatment Offers medication assisted treatment services focusing
08/17/20 HealthQwest Georgia
Centers on opioid addiction.
07/30/20 Main Line Recovery Providence Treatment Operates as alcohol and drug addiction treatment center. Pennsylvania
Clatsop Behavioral Comprises business comprises residential mental health
07/15/20 Crisis Respite Center Oregon
Healthcare treatment and crisis care center.
Rebound Recovery Operates a clinic which provides substance abuse treatment
07/08/20 BrightView Kentucky
Centers to individuals.
07/03/20 The Fellowship House Centerstone of Illinois Provides medical services to substance use disorders patients. Illinois
Highland Hospital Summit Healthcare; Provides intensive mental health inpatient services for adults,
07/03/20 West Virginia
Association FFL; Lee Equity adolescents, and children.
Odyssey Behavioral
06/23/20 Clearview Centers Operates a drug and mental illness rehabilitation facility. California
Healthcare
BayMark Health Offers suboxone and buprenorphine treatment, methadone
06/23/20 Norton Health Care Massachusetts
Services switch, opiate addiction care, therapy, and medical services.
Middlesex Recovery BayMark Health
06/19/20 Provides opioids or alcohol addiction recovery treatment. Massachusetts
Professional Services
Narcotic Addiction BayMark Health Offers outpatient methadone maintenance and detoxification
06/19/20 California
Treatment Agency Services with substance use counseling and behavioral therapies.
Addiction Treatment Ethema Health
06/12/20 Comprises an addiction treatment facility. Florida
Facility (OTCPK:GRST)
Assets of Cedar Comprises psychiatry clinics specialized in ketamine-
05/18/20 Novamind Ventures Utah
Psychiatry assisted psychotherapy.
IHP-Med-Psych- Community Medical
05/05/20 Offers patient centered addiction treatment services. Ohio
Solutions Services Holdings
Heart Centered
04/06/20 LifeStance Health A provider of therapy and psychiatric services. Colorado
Counseling
Operates addiction treatment centers to treat people suffering
03/31/20 BRC Recovery NewSpring Capital Texas
from alcoholism and drug addiction and progressive diseases.
A treatment facility that provides residential recovery programs
03/25/20 The Gables NUWAY Alliance Minnesota
for chemically dependent women.
03/23/20 Cielo House Refresh Mental Health Offers eating disorder treatment center services. California
Houston Group Provides intermediate care services for the mentally disabled
03/19/20 Caregiver Indiana
Homes through its health care facilities.
Discovery Behavioral Provides prevention, assessment, treatment, and reintegration
03/05/20 New Hope Ranch Texas
Health for people suffering from substance use disorder.
Note: Highlighted deal is a Capstone-advised transaction
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
11Behavioral Healthcare Services | February 2021
PUBLIC COMPANY TRADING & OPERATING DATA
At the end of January, comparable public companies were trading between 6.9x – 12.3x trailing twelve-month EBITDA and 1.2x –
2.5x trailing revenues, compared to 8x-10x EBITDA and 1.5x-2x revenues during the same period in 2020. Collectively, these
stocks traded at ~92% of their 52-week highs on January 29 and have exhibited consistent bottom-line performance with gross
margins around 39%, median EBITDA margins around 19.5%, and EBITDA margins around 17.8%.
Price % 52 Wk Market Enterprise LTM EV / LTM
Company Ticker 01/29/21 High Cap Value Revenue EBITDA Margin Revenue EBITDA
Acadia Healthcare Company ACHC $50.89 95.1% $4,528.8 $7,920.5 $3,146.7 $646.0 20.5% 2.5x 12.3x
HCA Healthcare HCA $163.80 93.8% $55,425.8 $83,668.8 $50,763.0 $10,517.3 20.7% 1.6x 8.0x
Universal Health Services UHS $127.84 88.9% $10,863.6 $13,779.5 $11,368.2 $1,999.8 17.6% 1.2x 6.9x
Mean 19.6% 1.8x 9.0x
Median 20.5% 1.6x 8.0x
EV = enterprise value; LTM = last twelve months
$ in millions, except per share data Harmonic Mean 19.5% 1.6x 8.5x
Behavioral Healthcare Services Companies Keep Pace with S&P 500
S&P 500 NASDAQ Capstone Index
70%
March 11: World Health
50% Organization declares
43.9%
COVID-19 a pandemic
Total Percentage Return
30%
18.1%
16.3%
10%
-10%
-30%
-50%
-70%
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
Source: Capital IQ as of January 29, 2021
12Behavioral Healthcare Services | February 2021
BEHAVIORAL HEALTHCARE SERVICES REPORT CONTRIBUTORS
Mark Surowiak
Director
msurowiak@capstoneheadwaters.com | 215-854-4063
Mark is a Director in the Philadelphia office with over 15 years of experience in mergers &
acquisitions, private placements and financial advisory services. While Mark's primary focus
includes clients in the health and medical industry, his experience spans a broad range of industries,
including government and defense contracting, manufacturing and outsourced business services
sectors. Prior to investment banking, he enjoyed a career in the social services field.
Previously, Mark served over 10 years as a senior investment banking professional in Morgan
Stanley Smith Barney’s Capital Strategies Group. Over his career, Mark has focused on developing
deep credentials and expertise in the sale and recapitalization of privately held businesses. He is a
Series 7 and 63 Registered Securities Representative.
Sarah Doherty
Vice President of Research
sdoherty@capstoneheadwaters.com | 617-619-3310
Sarah joined Capstone Headwaters in 2016 and has more than eight years of research and writing
experience. She oversees the firm’s corporate Research Team, which produces more than 150
reports annually on middle-market M&A activity. Sarah specializes in the Healthcare, Education &
Training, and Aerospace, Defense, Government, & Security industries.
Previously, Sarah was the Data Graphics Specialist at a think tank in Washington, D.C., where she
collaborated with economists and industry experts to analyze and present data for congressional
testimonies and research publications. Prior to that, she covered the economy, healthcare, and
Capitol Hill as a reporter. Sarah holds a BA in Journalism and Political Science from Biola University
and is a certified Market Research Analyst through the International Institute of Market Research
and Analytics.
2020 2020 2019 2019 2019
MIDDLE MARKET US MIDDLE MARKET
INVESTMENT BANKING FIRM INVESTMENT BANKING FIRM INVESTMENT BANKING FIRM
INVESTMENT BANK INVESTMENT BANK
OF THE YEAR OF THE YEAR OF THE YEAR
OF THE YEAR OF THE YEAR
INTERNATIONAL AWARDS TURNAROUND AWARDS
13Behavioral Healthcare Services | February 2021
FIRM TRACK RECORD
has been acquired by has partnered with has partnered with has been acquired by
has been acquired by has been acquired by has been acquired by has been acquired by
has raised $30 million of has sold its chemical has been acquired by has been acquired by
equity capital from development division to
A Leading Provider of
Rehabilitation Services
has received a senior has been acquired by has received an investment
has been acquired by
credit facility from from an
UNDISCLOSED
INVESTOR
NSF International
14Behavioral Healthcare Services | February 2021
CITATIONS
1. Centers for Disease Control and Prevention, “Mental Health, Substance Use, and Suicidal Ideation During the COVID-19 Pandemic – United States,
June 24-30, 2020,” https://www.cdc.gov/mmwr/volumes/69/wr/mm6932a1.htm, accessed January 27, 2021.
2. Centers for Disease Control and Prevention, “Mental-Health Related Emergency Department Visits Among Children AgedBUILT FOR THE MIDDLE MARKET
Capstone Headwaters is one of the largest and most active independent investment banking firms in the United States. The
firm has a rich, 20-year history of achieving extraordinary results for middle market entrepreneurs, business owners, investors,
and creditors. Capstone offers a fully integrated suite of corporate finance services, including M&A, debt and equity
placement, corporate restructuring, valuation and fairness opinions, financial advisory, and ESOP advisory services.
Headquartered in Boston, the firm has 175+ professionals across 16 offices in the U.S., and an international presence
including over 450 professionals in 40 countries. With 16 dedicated industry groups, the firm delivers sector-specific expertise
through large, cross-functional teams on a global basis.
UNITED STATES
170+ professionals
17 offices
INTERNATIONAL
Boston Burlington Chicago Dallas
Denver Detroit Houston Los Angeles 450+ professionals
New York Orange County Philadelphia 60+ offices in 40 countries
Richmond San Diego San Francisco
St Louis Tampa Washington DC Asia: China India Japan
Latin America: Argentina Brazil Chile Colombia Mexico Peru
Africa: Congo Egypt Ghana Ivory Coast Mauritius Morocco Senegal South Africa
Europe: Belgium Bosnia Croatia Czech Republic Finland France Germany Herzegovina
Hungary Ireland Italy London Netherlands Norway Poland Russia Serbia Slovenia
Spain Sweden Switzerland Turkey United Kingdom
www.capstoneheadwaters.com
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