The Center for Autism and Related Disorders’ (CARD) bankruptcy was bad news for investors placing big bets in the autism therapy space. But there are upsides for the company.
CARD’s new owners, Doreen Granpeeseh and Sangam Pant get a clean slate at the scaled autism therapy company. And it’s a company with which they are well acquainted. Granpeesheh founded the company. She was its CEO for all but a few years of its 32-year existence. Pant, Granpeesheh’s business partner, has advised and worked with the company for years.
About a month before closing, Granpeesheh and Pant set about remaking CARD’s finances. Granpeesheh personally threw herself into leadership and staffing efforts. She re-hired several ex-CARD executives. She also whittled down the top administrative structure of the company, flattening its hierarchy.
“As we were doing this, our goal was to bring in as many savings as we could, and we were successful,” Granpeesheh said on the Behavioral Health Business Perspectives podcast. “We’re starting out with a much more lean company.
“That’s the answer. We have to keep the company lean, go back to taking care of our patients and staff and also pay attention to the business.”
Henderson, Nevada-based CARD remains largely intact and at similar staffing levels post-bankruptcy. The Audax Group bought 15 clinics and three special education schools in the bankruptcy proceedings. That leaves CARD with 115 centers and other business assets.
Looking to slow down a bit, Granpeesheh had planned an exit to a board role after selling a majority stake in the company. She reversed course when the bankruptcy proceedings began.
“[Granpeesheh’s] buying back the company at a lot less than what she was paid,” Kevin Taggart, managing partner at the M&A advisory firm Mertz Taggart, told Behavioral Health Business. “The sale’s good for many stakeholders — other than the debt and equity holders.”
Blackstone (NYSE: BX) invested $700 million for a 70% stake in the company in May 2018. Ares Capital Corp (Nasdaq: ARCC) provided at least $253 million in debt to CARD. This included $18 million to finance the bankruptcy, according to a review of bankruptcy documents.
Other investors find themselves in the same situation.
Starting around 2017, the market for autism therapy platforms was hot. Valuations for autism therapy providers were at an all-time high. M&A volumes hit a streak of historic highs leading into the pandemic. On top of that, deals were financed when interest rates were low, based on continued low Federal Reserve rates.
But then the COVID pandemic led to a series of headwinds that made these juicy deals bitter.
The Federal Reserve interest rate has doubled since this same time five years ago, sending the cost of new debt and variable-rate financing through the roof. A national reassessment of work-life balance and other needs facilitated the “Great Resignation” phenomenon. Inflation made doing business more expensive while worsening workforce challenges.
The CARD bankruptcy and historic investment trends
The year 2023 has been rough for autism therapy platforms. Several have whittled their footprints or offerings to adjust to the headwinds in the market, showing a reassessment of how to approach the autism therapy market.
Golden Gate Capital-backed Invo Healthcare closed its home- and clinic-based operations over the summer. Arsenal Meanwhile, Capital Partners-backed autism provider Hopebridge has pulled back from the Colorado market and faces a potentially detrimental rate-setting process by Indiana’s Medicaid, its home state, and where it operates the most locations.
CARD culled underperforming clinics from its portfolio as a last-ditch effort before filing bankruptcy.
These painful adjustments reset platforms for the present reality of an unfavorable autism therapy market. The major headwinds — workforce issues, flat or diminishing payer rates, high-interest rates — make meeting the tantalizingly high demand for autism therapy services a complicated prospect.
“I think a lot of investors mistook a surplus of demand for an easy ability to generate good financial outcomes,” John Hennegan, partner with Chicago-based private equity firm Shore Capital Partners, told BHB. “Meaning that there were so many children who needed access to care, they assumed your financial success would follow.”
In the five to seven years leading into 2023, several large platforms grew through aggressive M&A or de novo strategies, often opting for large national footprints. CARD and others opted for the latter approach. Hennegan notes that the greater focus across the autism therapy industry is on market density.
Despite the challenges from the investment perspective, the bankruptcy for CARD allows it to go through a “cleansing process,” Adam Abramowitz, managing director and head of health care for Intrepid Investment Bankers, told BHB.
“That’s a real benefit for CARD,” Abramowitz said. “You can unload a lot of baggage and distractions and focus on the right operational things and not have these other factors that are negatively impacting the business.”
Granpeesheh and Pant acquired CARD for $37.4 million to own the company outright. Granpeesheh held a 21% stake in the company before the deal.
Abramowitz added that Granpeesheh and Pant acquiring the company with cash demonstrates their confidence in the core business at CARD “and that they want to help more children and see that entity be successful.”
The investment prospect in autism therapy
Despite the challenges, there is still a case for new autism investments.
But there’s much more to consider in the space than the massive demand for and shortage of service.
“You should never invest in a company or target a particular market just because there’s a lot of demand,” Abramowitz said. “That certainly sets a good foundation for opportunity. But you’ve got to make sure you can make ends meet.”
The key to differentiating a business from the rest of the market is with high-quality care and providing value for three constituents, Abramowitz said: patients and families, providers and payers.
The foundation of demand is as strong as ever, Hennegan said.
“It is very hard to find a sector anywhere in the economy, particularly within health care, that is this fragmented and growing this quickly,” Hennegan said. “Is it perfect? No. No sector is.”
An additional impact that complicated autism therapy investing is multiple compressions. While low-end valuations haven’t moved much in recent years, the average for high-end valuations has come down significantly, according to research from The Braff Group. This makes the prospect of selling a platform acquired at the top of the market for a profit nearly impossible.
For CARD, the immediate-term and short-term work focuses on internal reform and a slight focus on reestablishing operations where it pulled back.
“We have a lot of work to do with the existing clinics,” Granpeesheh said. “Our focus will be to get the centers back up to capacity.”
After that, the specific growth plan is fuzzy. Granpeesheh said she hopes that CARD will reopen clinics in previously abandoned markets. She mentioned Oregon as an example.
The new reality of the autism sector requires a different approach. Granpeesheh will take over the CEO role at CARD and already plans to establish new programs.
CARD will reestablish programs for adults and older children. In recent years, the company has zeroed in on young children and early intervention. The company will also outsource fewer functions to cut costs.
As CEO, Granpeesheh plans to be “very hands-on” and spend a lot of time in the field to understand the deeper issues centers face. In so doing, she hopes to show frontline staff that she prioritizes their issues.
“Although it’s a bigger company, it’s still half the size of what I’m used to, so it’s not that hard for us to interact with our employees and get focused on what we need in order to do their jobs better,” Granpeesheh said.
Staffing is CARD’s No. 1 challenge, Granpeesheh said. The company has about half as many board-certified behavioral analysts (BCBAs) as it had in the past, she added.
To address retention, she plans on reestablishing incentive efforts, including a bonus system for registered behavior technicians, and other programs to enrich clinicians’ work lives.
CARD will also broaden its clinician hiring beyond clinicians that focus on early intervention. The company will also deepen its training efforts, Granpeesheh said. In doing so, she hopes to deepen a mission-focused culture.
“The people who last and come in and make this a career are mission-driven,” Granpeesheh said. “It really is about reminding people about the mission and giving them a sense of how much of an impact they have on those with autism and their families.”