The transition of three high-profile CEOs within the autism therapy space highlights the pressure that top executives are under to defy the odds in the face of enormous challenges.
Private equity investors’ expectations to meet or beat multiples set when valuations were previously sky-high are putting CEOs in positions that require them to achieve the improbable. On top of that, the proverbial corner office is where all of the problems autism therapy providers face come home to roost. Many of those challenges come from or tie back to the Sisyphean task of fighting staff churn in an ultra-competitive workforce environment complicated by inflation and lagging payer rates.
Just like any other role, employees tend to leave jobs in search of better prospects when faced with what feels like impossible situations. This gives at least one point of commonality between top executives and their front line staff.
“Ultimately, the PE financial model is a struggle in this space and what you have is many of the CEO’s struggled to hit the performance markers for PE to get their returns hence after five to six years, I’m sure there is a ton of pressure for these CEOs,” Tim Saumier, president and founder of behavioral health staffing company Tyges BHR, told Behavioral Health Business. “Typical hold periods for a PE is three to five years before they try to flip for a return. In this case, the return for their investment is most likely not there.”
Within two weeks in April, the CEOs of 360 Behavioral Health, BlueSprig Pediatrics and NeurAbilities Healthcare stepped down from their respective roles. Jason Owen announced that he had taken on the CEO role at Envision Healthcare, a multispecialty physician and management group, after leading BlueSprig for two years. A few days later, Kathleen Stengel, CEO of NeurAbilities Healthcare, announced she would be stepping down from the role. Rob Marsh announced on April 30 that he would be leaving his role as CEO at 360 Behavioral Health. He is now the CEO of Bradford Health Services, a multi-state addiction treatment provider.
“360 Behavioral Health is an incredible company that offers best-in-class services,” Marsh told BHB. “Nothing about the organization or its offerings pushed me away. But within the industry, the constant fight for better rates and the increasing presence of providers in it for the wrong reasons make the entire industry less attractive than other opportunities.”
He also acknowledged that companies that received their latest private financing or investment round in or around 2018 did so at “the highwater mark for valuations.” Data from the Braff Group shows that multiples ranged from 5.75 to 14 times earnings from the middle of 2016 to the middle of 2019. Between 2020 and 2023, high-end multiples tumbled to 10 times earnings while low-end multiples only ticked down slightly to five times earnings.
Marketwide, CEOs are tasked with finding a way to make up the difference between what the market used to value their company and the more sober and sophisticated view of autism therapy. And if they don’t perform, they are out, whereas an employee may be given a performance improvement plan.
“[Investors] are saying [CEOs] need to drive this much business, this much profit, but if you do that, either you don’t accomplish it or you’re doing it where you’re having to sacrifice the company’s integrity — and one of two things has to happen,” Amanda Marlar, CEO of Mental Health Matchmakers, told ABN. “Because you’re this unrealistic target, you’ll see more and more exits because the goals are unattainable.
“And they (CEOs) are Type A players. That’s how they’ve achieved that amount of success in the first place. They are so driven, but they are being reminded every single day that they’re a failure because they will never get to that goal.”
Marsh shared a similar market assessment but said it was not a factor in his decision to depart from 360 Behavioral Health.
“I think leaders within the industry may be thinking about the incredibly high hill they have to climb to get back to even [with] those valuations,” Marsh said. “That may be more than some believe is attainable, or at least more than they are willing to stick around for.”
All three companies at hand — 360 Behavioral Health, BlueSprig Pediatrics and NeurAbilities Healthcare — mark 2018 as their last major investment milestone. DW Healthcare Partners acquired 360 Behavioral Health in a deal announced in August 2018. The investment giant KKR announced that it formed BlueSprig in January 2018. NeurAbilities, then known as Center for Neurological and Neurodevelopmental Health, announced that it received investment from the health care-focused private equity firm Council Capital in October 2018.
The moves may be suggestive of junctures in each CEO’s career as well as junctures at their respective companies. The stage of a company’s development requires specific leaders with specific skills sets. As a company grows and evolves, the leadership team needed to keep the company’s progress going is often very likely to change, if not completely turnover, according to previous BHB reporting.
For now, interim leadership has been installed at two of the three companies. BlueSprig Pediatrics’ board of directors formed an “office of the CEO” that’s managed by senior company leaders. The company’s Chief Transition Officer Dr. Ania Labno is leading the interim management team as the company searches for a new CEO. 360 Behavioral Health COO Kate Sheldon-Princi is holding the CEO role on an interim basis. Representatives of NeurAbilities Healthcare have not yet responded to a request for comment.