Private Equity Investors Targeting Outpatient Consolidation

Addiction Treatment Industry Newswire

10/25/1012 – ATIN- A growing number of private equity firms are targeting the myriad small addiction treatment drug rehab alcohol rehab centers that offer primarily outpatient care and whose business, like the vast majority of medical services, is local, getting their clients mostly from within a 10 mile radius of the center’s locale. Because of the steadiness and reliability of payments flows, commercial insurance companies are FAR more likely to approve outpatient than residential/inpatient, and also because of the large potential for economy of scale type cost savings – savings that have been the main driver of virtually all consolidation investment plays since the time of JP Morgan and the great monopolistic trusts – some private equity firms are finding these relatively small and low profile deals very attractive.

The Sweet Spot?

And while these transactions do not have the headline glamour of, for example, the entrance earlier this month of the billionaire Pritzkers into the addictions market through the purchase of primarily residential care provider Foundations Recovery Network, it could be that outpatient consolidation strategies represent the sweet spot of the addictions treatment market in terms of minimizing risk and maximizing reward. There is no doubt that the opportunity is huge, with outpatient addiction treatment players representing well over 90 percent of the more than 10,000 addictions centers listed by SAMHSA and now accounting for perhaps half of the addiction industry’s $30B or so in annual revenues, especially with the recent rapid growth of medicated opiate treatment.

East Coast

Probably the most aggressive firm pursuing this strategy currently is Clearview Capital, which acquired Pennsylvania’s Pyramid Healthcare just over a year ago and has done a number of add-on acquisitions since. The latest deal, and possibly the largest add-on deal so far for Clearview, was the Oct. 2^nd purchase of American Day CD Centers, which is more commonly known as High Focus. Founded in 1989, the 175-employee High Focus has grown slowly but steadily to become one of New Jersey’s largest outpatient psych and addictions providers with four locations in the central and northern parts of the state. So far, Clearview’s deals – Pyramid does have some residential, especially sober living – have been concentrated on the East Coast.

Big Money

A very big moneyed player with a relatively low profile is Harbert Management, a private money management firm based in Birmingham, AL that h

as grown out of the huge Harbert family fortune, which is based on big post WWII plays in global engineering, suburban real estate and independent gas and oil investment. Harbert has been for many years interested in the addictions/behavioral health space having made investments and then exited. Harbert executive Richard Davis is currently managing a fund that has made investments in addictions and psych care through its Onward Behavioral Health entity, which in February bought a 31 location, four state outpatient operation called Life Management. Davis is currently trolling for more deals in the addictions/psych space and, as the fund becomes fully invested, will begin to look at targets as large as $15M in annual free cash.

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