|Addiction Treatment Industry Newswire|
|01/29/2013 – ATIN – To start the year, fast growing psychiatric hospital drug rehab and alcohol rehab addiction treatment center operator Acadia Healthcare made what, at first glance, appeared to be a relatively insignificant transaction – 50 beds acquired from a primarily med surg focused health system in Georgia. This type of transaction- where a specialist medical play acquires assets from a generalist “system” – can perhaps be seen as almost a bread and butter type deal for Acadia CEO Joey Jacobs who, in his previous incarnation as founder and CEO of behavioral health deal engine Psych Solutions, did many dozens of similar transactions. What elevates the deal into the potentially quite significant is the fact that the Georgia asset, Greenleaf Center, was part of the non-profit South Georgia Medical System, the first and only acquisition so far of a non-profit property by for-profit Acadia.
Non-Profit into For-Profit
At the very least, of course, Jacobs is hopeful that the behavioral health non-profits could perhaps become an aggressive deal making patch, thus opening up an enormous asset base in which his growth-by-acquisition modeled Acadia Healthcare might thrive. Going beyond hopeful, though, Jacobs pretty much flat out predicts a significant consolidation of the non-profits: “We believe the non-profit segment of the healthcare industry has the potential to be a meaningful source of additional acquisition opportunities,” Jacobs said in the short press release announcing the Greenleaf Center acquisition and, it seems, also signaling Acadia’s intent to focus on non-profits.
In a short conversation with Treatment Magazine earlier this month, Acadia COO Ron Fincher pointed out that of the few dozen or so facilities acquired over the couple of years since Acadia was founded, most have an addictions treatment services element or are entirely addictions specialty focused. Of course, the headline example of that is the $90M acquisition of Timberline Knolls, one the very top names in high end addictions care and an asset that, according to Fincher, has fired on all cylinders since its acquisition last summer.
Accounting for some 60 percent of the $35B addictions treatment marketplace, non-profits have traditionally dominated addiction treatment service delivery in the U.S. To what extent well-known names like Hazelden, Betty Ford and the other top tier private non-profits, a sector of the market some derisively refer to as the “for-profit non-profits,” would ever be available to a for-profit entity for purchase is open to some considerable question and is a highly unlikely event in the near future. When the Hanley Center ran into financial difficulties about five years ago, for-profits galore kicked the Palm Beach center’s tires. But, ultimately, it was with its non-profit brethren, Caron, which the Hanley board decided to a deal. There are many thousands of “public” non-profits that for many years have been crying out for a consolidation agent, a role that Gateway Chicago very seriously considered taking on at one point nearly a decade ago. But after retaining investment bankers and scouring the addictions landscape, Gateway passed on doing even a single deal. CEO Michael Darcy told Treatment Magazine at the time about a dearth opportunity due largely to a need for huge capital expense to bring willing targets up to Gateway’s high standards. As state addictions budgets – for a long time the fastest growing payor funding source post managed care – have been slashed, the need for a consolidator of the public treatment sector remains greater than ever. The problem, as before, is that there is no entity out there with cojones big enough to take on the task.
It seems likely that any acquisition of non-profits by for-profits in the near future – barring some path breaking deal driven by unforeseen politics and economic circumstance – will likely be similar to the deal Acadia did in South Georgia earlier this month – where a prominent non-profit entity has an asset that for some reason… no longer fits its strategic plan, cash drain etc…- that is put out for sale.