Private Equity Parter, Other Dealmakers Share Strategies to Increase Autism Valuations Ahead of a Sale

While some autism treatment providers are hesitant to accept private funding for fear it conflicts with their mission-driven values, the reality is that private equity can help organizations expand and improve their services, ultimately allowing them to reach more patients.

That’s a good thing for the industry, considering that the nationwide demand for applied behavioral analysis (ABA) — the gold standard for autism treatment — far outpaces the supply of providers and clinicians able to provide it.

In an attempt to address that supply-demand mismatch, private equity investors have zeroed in on the space in recent years. And dealmakers predict the behavioral health industry will see more of the same in 2021, with PE firms and their platforms hungry for quality autism investments.

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But not all PE deals are created equal: Providers who invest in marketing their businesses to buyers stand to make more money in the long-run, stakeholders say.

“The instinct is: ‘Everybody wants to buy my business, so I’m just going to go out there and find somebody that wants to buy it,’” said Aytan Dahukey, a partner at the law firm Sheppard Mullin. “People miss the opportunity to make [investors] pay them more money.”

Dahukey — who frequently represents both buyers and sellers in autism transactions — made those comments Wednesday during a panel at the 2021 virtual Autism Investor Summit, which was put on by Sara Litvak and Ronit Molko. 

How lucrative an autism deal will be comes down to how providers present their businesses to the outside world, he said.

First and foremost, that means potential sellers need to make sure their financials and key performance indicators (KPIs) are in order, according to Kevin Taggart, managing partner at the M&A firm Mertz Taggart.

Taggart, who was also on the panel, works with autism treatments providers looking to sell all or a portion of their businesses. Sometimes Taggart’s relationship with those potential sellers starts years.

“You can always sell something quickly and cheaply,” Taggart said. “But if you’re thinking about maximizing your value, the process ideally takes five to six months, and it can take a little bit longer for a variety of reasons.”

Taggart said being able to provide good financial data is key to helping build the trust necessary for a successful PE transaction. John Digiovanni, an investment partner at the PE firm Arsenal Capital Partners and the third member of the panel, agreed.

Digiovanni has been at Arsenal Capital for about three years now. Before that, he spent approximately a decade at Baird Capital, which makes venture capital, growth equity and private equity investments in a variety of companies. At both firms, Digiovanni has focused on health care and being involved with invests in Hopebridge, one of the nation’s largest autism treatment providers.

When it comes to potential acquisition targets, Digiovanni said he looks at a provider’s EBITDA, as well as its story. He advised sellers to work with an investment bank to help get their houses in order and craft their messaging before reaching out to a firm like his.

“It’s all about the story,” he said. “It’s all about … how you’re communicating the merits of your business, how buttoned up your financials are and, as a buyer, we’re [also] very focused on certainty to close.”

Additionally, sellers need to invest in internal audits and other due diligence considerations before courting potential buyers, Dahukey said.

“You may not realize that some of the things that you’re doing might be kind of iffy from a regulatory perspective,” Dahukey said during the panel. “Let’s identify those and clean those up so that when a buyer like [Digiovanni] starts digging in, … [his lawyers] are not sending red flags and flares up trying to tell you there’s this big problem — because, really, what that translates to is a reduction in value.”

When it finally comes time for sellers to approach PE buyers, those interactions must also be carefully strategized, Digiovanni said.

“If I get a blast email that includes your business but also four other businesses in the same messaging, it sort of cheapens the integrity of the opportunity, and I’m not going to pursue it,” Digiovanni said. “If I get a customized teaser package from a recognized investment bank like [Mertz Taggart], it’s more meaningful. It’s different. That’s going to resonate with our investment firm.”

Finally, the dealmakers on the panel advised prospective sellers to also make sure the potential PE buyer is a good fit for them. Beyond asking basic questions, that includes inquiring about company culture and talking to leaders from other businesses the buyer has previously acquired.