Billionaire Pritzker Deal for Foundations Most Significant Since Bain’s CRC Buy

by Goran Dimitrovski October 18, 2012

Addiction Treatment Industry Newswire

10/18/2012 -ATIN- In one of the most significant deals in contemporary addiction treatment drug rehab alcohol rehab history, the deep pocketed savvy billionaire Pritzkers of Chicago have acquired assets originally aggregated by treatment entrepreneur Michael Cartwright

and now famous in the addictions space as Foundations Recovery Network. The arrival of investors like the Chicago-based Pritzkers, whose fortune is based on the hospitality giant Hyatt, paints a bigger target on the addictions behavioral health space as herd-like Wall Street is now likely to sit up and take notice big-time. And, thus, for addiction treatment entrepreneurs nationwide this deal may take the form of a gift, perhaps single-handedly ratcheting up center purchase cash-flow multiples. For the many investment groups pursuing growth by acquisition strategies in the addictions market the arrival of the Pritzkers is very much the opposite of a gift.

Bubblicious

As cash floods out the Federal Reserve in unprecedented proportions amid tepid general economic growth that gives few obvious outlets for the cash, r Rob Waggener, CEO, Foundations Recovery Network ecent forecasts by none other than the WHO that behavioral health will be the largest medical sub-sector within a decade is fueling a near frenzy of addictions buyout interest. Not only have there been a lot of deals lately, but talk of them as well. For example, there have been persistent discussions recently in the South Florida market that Palm Partners may have raised investment capital for a consolidation play in the key regional addictions market, with the target most often mentioned being Holistic G&G, known mostly for its savvy guerilla addictions marketing tactics. That a bubble has the potential to emerge, or is already here in addictions behavioral health is a major risk. (Palm Partners’ Peter Harrigan and John Giordano of G&G did not return emails and phone calls.)

Premium

It is likely the Pritzkers paid a hefty premium over the $22M reportedly paid to Cartwright, who says he has now fully exited from Foundations, by Chicago-area Sterling Partners just a few years ago. But terms in the private deal were not discussed. That the Pritzkers intend to be major long term players in addictions behavioral health there can be little doubt. The family is known for making investments in sectors where the deal either makes them a dominant player or, in the case of the highly fragmented addictions space that has no 800-pound gorillas, paying a premium for expertise that can guide them to dominance. “Nick Pritzker doesn’t invest for the short term,” said Foundations CEO Rob Waggener, who confirmed the Pritzkers’ intent to be a very big presence in addictions behavioral health in coming years. He also, in a round about way, admitted that Foundations, with big money now behind it, is on the buy side big time. Facilitating the deal was Foundations board member Doug Geoga, for decades close to Nick Pritzker as CEO of the family’s Hyatt chain and now a deal facilitator/investor at a boutique firm called Saltcreek, according to Waggener.

Customer Service

As Foundations new chairman, Geoga will school Foundations in the cutting-edge customer service execution for which Hyatt is legendary and which many analysts believe is at the core of the Hyatt success story. Waggener says hospitality/customer service is a critical component in well-rounded high quality addictions care delivery, a component that lags throughout the medical space generally and with addictions behavioral health as well. Waggener believes the customer service expertise Foundations acquires through this deal will give a significant competitive leg up over other addictions providers. But he says that, even with the link to Hyatt, there are no plans to meld the resort business and the addiction treatment business at Foundations like there increasingly has been throughout the addictions industry. A recent example is out of Canada, where pioneering private center entrepreneur John Haines has spent millions building out a 50-bed property north of Toronto called Pickerel Lake Recovery Center. The intention there is to create a treatment center/resort hybrid whose aim is ultimately a flourishing community that serves a wide range of people at different stages of the recovery continuum.