Despite some public stumbles among private-equity-backed ABA providers, investors are still interested in the space.
And 2024 could be a crucial M&A year for autism practices. This is partly because many ABA and autism providers completed their last transaction between 2017 and 2019.
“As you think about the typical investment period, for those capital partners, a number of them are thinking about an exit in 2024,” Christian Chauvet, a partner at Lee Equity, said during a recent Behavioral Health Business webinar. “We suspect we’ll see that activity materialized at some point this year.”
Middle-market PE firm Lee Equity is a veteran in behavioral health care. In 2022, it purchased substance use disorder (SUD) provider Bradford Health. It previously invested in the Eating Recovery Center and Summit BHC as well.
A plunge into the autism industry isn’t for all investors. Some recent high-profile stumbles include The Center for Autism and Related Disorders’ (CARD) bankruptcy, taking place just five years after PE firm Blackstone (NYSE: BX) invested $700 million for a 70% stake. Understandably, that scared off investors.
“We certainly see some buyers that are clearly still looking at it,” Dexter Braff, founder and president of The Braff Group, said during the webinar. “And we see some buyers that just feel burned by it.”
The Braff Group is an M&A advisory firm specializing in the health care industry. Founded in 1998, it has closed more than 375 transactions.
But at the end of the day, proving outcomes and a steady business model will set successful companies apart.
“I think for entrepreneurs who have businesses, it’s going to be all about the results,” Chauvet said. “Have you been able to attract and retain technician talent? You need to service the patient base. What’s happening with year-over-year wage increases? If those results are conducive to a growth investment thesis, we think capital will flow into the sector.”
A school-based future?
One factor that could set ABA providers apart in the eyes of investors is if they are working with school districts.
“Buyers are much more open to and interested in school-based services than two years ago,” Braff said. “Two years ago, it was all about the clinic setting … . School-based services are now perceived as more attractive.”
Investors like school-based services partly because of the safety of the customer base and scope. Customer acquisition costs are cheaper if you get a decent contract, Braff said. And while providers could lose those contracts, the deals still mean providers get a “big chunk of business at one time.”
The school-based setting also has some upside on provider retention.
“In those school-based business models, you’re able to guarantee hours,” Chauvet said. “It’s easier for the caregiver to get ingrained in that setting and community that helps retention, which has been a major issue in that sector. So I agree that’s been an area where investors historically were less focused, or I think today, there’s much more interest in that.”
