Intellectual and developmental disability (IDD) nonprofits Merakey and Elwyn have announced their intentions to merge.
The pair recently signed a non-binding Memorandum of Understanding to create a joint company with a 12,000-person workforce caring for 55,000 individuals in 16 states. The partners said the merged company will be focused on delivering holistic care and coordinating physical, behavioral and educational services for people with IDD.
Combining the companies’ entities would create a business with just under $1 billion in annual revenue. Last year, Merakey reported $618 million in revenue, with Elwyn reporting roughly $385 million.
“We believe that this combination could dramatically improve the delivery of programs and services for our individuals and improve their quality of life, and we are tremendously excited about its potential,” Joseph S. Martz, CEO of Merakey, said in a statement. “An affiliation would maximize the resources to allow for significant new investment in programs and permit technology improvements that would be game-changing in terms of delivering a coordinated array of services.”
Lafayette Hill, Pennsylvania-based Merkey operates in 12 states. It provides behavioral health, IDD and educational services. The provider will bring 8,000 employees to the merger.
Meanwhile, Elwyn is a Media, Pennsylvania-based provider that offers education, treatment and supportive services to children and adults with autism and IDD. Founded in 1852, the provider currently operates in eight states.
In 2021, Elwyn secured a $45 million refinancing package from HJ Sims, a privately held investment bank and wealth management firm. The package included a $30 million line of credit and letters of credit for up to $15 million.
But it hasn’t been all smooth sailing for Elwyn. In 2020, Philadelphia Inquirer reported that Elwyn was struggling financially due, in part, to reimbursement structures. Last year, the provider closed its center for adults with IDD in Wilmington, Delaware.
The M&A landscape is hot across the behavioral health sector. While private equity deals account for the bulk of M&A, the nonprofit space is also heating up. Investment bank Matrix Capital Markets Group reported 439 transactions in the behavioral health space over the last five years.
The bank reported that 39 of those transactions included not-for-profit targets. Additionally, 42 deals included not-for-profit acquirers and 27 not-for-profit mergers with other not-for-profits.
“I think a lot of the nonprofits are going to come to a point where they need to figure out how to get additional capital, which is now more expensive,” Vasanta Pundarika, co-head of health care investment banking at Matrix Capital Markets Group, recently told BHB.“Some of the not-for-profits are probably going to look at their missions and how [they can] continue to grow to fulfill this mission. One of the ways they can do that is by going through an M&A transaction and joining a larger, growing company with the capital resources.”
Elwyn and Merakey expect to complete their due diligence on the merger “over the next several months.” If they agree to continue to pursue a combination, a more definitive affiliation agreement could be signed by mid-summer.
“We believe that this affiliation creates a unique opportunity to build an organization that will innovate and materially change the way our industry operates, focusing on the delivery of whole person care,” Charles S. McLister, president and CEO of Elwyn, said in the statement. “And because of the ways in which we complement each other’s strengths, the new organization would improve quality of life for those in our care as well as those who work with us every day.”
