Scoop: Charlesbank backs Action Behavior Centers in $840M deal
Charlesbank Capital Partners won the auction for NexPhase Capital Partners-backed Action Behavior Centers, multiple sources tell Axios.
Why it matters: This is the first major platform trade in autism treatment this year — the last being Cerberus Capital Partners' $400 million-plus buy of Abry Partners' Lighthouse Autism Center in 2021. With other investments in the specialty growing long in the tooth, others might soon test the market.
Details: Charlesbank's deal for ABC was signed around three weeks ago, with the Austin, Texas-based business commanding an $840 million valuation, some of the sources say.
- Run-rate EBITDA is approximately $40 million, with the company projecting $60 million in adjusted EBITDA by year-end, they say.
- The figures account for significant adjustments tied to start up losses to normalize for the company's de novo program, one source adds.
- The organization offers ABA therapy for children on the autism spectrum via centers, the home and school settings — with 3,000 autism professionals in Texas, Arizona, Colorado and Illinois.
Of note: Amid rocky debt financing markets, we aren't seeing too many large deals get done in this market.
Catch up quick: Moelis and Triple Tree were engaged earlier this year to advise on a sale of the business, with the process entering its second round in June, Axios reported previously.
- NexPhase, whose members spun out of Moelis Capital Partners in 2016, recapitalized ABC in October 2018. Cain Brothers advised on that deal.
- The PE firm tested the market for ABC via Berkery Noyes in September 2019, less than a year into its investment in ABC, Sarah wrote previously.
State of play: A hyper-fragmented sector encompassing a variety of models and an evolving payor landscape, ABA therapy providers have fielded increasing attention from the private equity community in recent years, starting around the 2017-2018 timeframe.
- Many PE groups with ABA assets are now surpassing the three-year investment mark while some hit five year holds, suggesting ABC's strong outcome could encourage its peers to soon evaluate sales.
- That list includes FFL Partners, Blackstone Group, TPG Capital, Gryphon Investors, Webster Equity, WindRose Health Investors, KKR, and Arsenal Capital Partners.
Context: Diagnosis rates continue climbing, with about 1 in 44 children now identified with autism spectrum disorder, per the CDC.
- A STAT investigation this week asserted that ABA providers — many with private equity backing — are failing to provide individualized treatment plans.
- Sponsor-backed providers rejected those assertions, saying their investors provide resources to support high levels of quality care.
Yes, and: Staffing shortages have impacted the segment like other health care specialties, but one investor told Axios in June, "We're seeing a rematching of the demand curve and supply of therapists coming back online."
- As the market normalizes, "you'll see a lot more activity," from a dealmaking perspective, the source continued.