CRC Health Re-Enters Addictions M&A With Big $58M Deal

Addiction Treatment Industry Newswire
11/18/2013 -ATIN – After a years long absence of doing any deals of significant size, earlier this month CRC Health Corp. entered into a deal to purchase for $58M in cash “the entire capital stock” of a major addiction treatment drug rehab alcohol rehab center. The news comes as the nation’s largest addictions services enterprise reported a modest overall net client services revenue increase of 2.5 percent year-over-year in the third quarter, racking up $116.4M in revenues Q3 vs. $113.5M Q3 2012. A relatively robust 5.8 percent y/y third quarter increase in the key “recovery” segment, which includes  CRC’s core inpatient/residential, outpatient, sober living and methadone operations, to just shy of $95M contrasted with continued declines in the former Aspen Education assets. The “youth” segment, which in July announced significant operations discontinuations, saw a nearly 12 percent dip in revenues y/y to $12.7M  vs. $14.4M Q3 2012.

Highly Significant Transaction

While CRC did not provide the name of the treatment center it is acquiring, nor could executives elaborate on the purchase following an email inquiry, the $58M deal is highly significant because except for some relatively small transactions, most of which have been centered around methadone maintenance clinics, CRC has been absent from what has otherwise been a booming addictions mergers and acquisitions arena. (A week after we broke this story, CRC issued a press release identifying the name of the $58M acquired company. READ OUR STORY) The deal could signal that CRC wants to reclaim its former position, pre-financial crisis prior to doing the Aspen deal, at the pinnacle of the addictions M&A food chain. Founded in the mid-1990s, CRC’s growth model has been overwhelmingly one of acquisitions, with the company itself being acquired in a 2005, $750M leveraged buyout by private equity giant Bain Capital. In the last two years or so, the M&A marketplace has come to be dominated by players like Elements Behavioral, which has methodically been purchasing assets, and new players that include some of the biggest names in global investing and finance, including Hyatt hotels scion Nick Pritzker of Chicago. Last summer, Elements bought the Southwest’s largest addictions provider, Houston-based The Right Step, and the Pritzkers bought Foundations Recovery Network. And this year the most significant deal by far has been on the non-profit side, with world famous Hazelden “merging” with even more world famous Betty Ford Center. A vigorous CRC, re-emergent on the bid-side, would increase competition significantly in an already crowded addictions M&A space.

CRC Gives Peek at Acquisition’s Revenues, EBITDA

The only thing CRC would say about the $58M transaction, apart from it being financed with a $50M additional tranche of term-loan debt and that the purchase is expected to close in the first quarter of 2014, is that the assets fit well into the company’s “geographic footprint,” would allow for significant operational “synergies” and integrate easily into CRC’s existing asset base. But as part of an estimate of “trailing 12-month” Sept 30, 2013 revenues and EBITDA including the $58M acquisition, CRC implied it expects annual revenues at the acquired center to be in the $43M area, with EBITDA (cash flow) of $11M annually. CRC said trailing 12-mo Sept 30, 2013 revenues and EBITDA net of the acquisition were $440M and $106M respectively compared to an estimated $483M and $117M including the acquisition, which if completed will easily be in the top 10 percent of addictions deals ever done in terms of size.


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