Buyers and sellers are starting to see eye to eye on valuation when it comes to applied behavior analysis (ABA) services deals.
Following the flurry of M&A activity in the wake of the COVID-19 pandemic, valuations soared, and coming back down to earth has taken some time. However, stakeholders are now finally beginning to have realistic expectations for one another.
“I used to have a lot of conversations with founder/owners who had an expectation on value that wouldn’t make sense,” Rajat Bangar, managing director for Welham Advisory, said at the Autism Investor Summit. “I had to have the tough conversation with them and was kicked out of the room for saying that, but I would say over the last couple of years, that’s not as frequent. I think many owners understand [if they are] a platform or … an add on. And the criteria for what is a platform has changed. Anything could be a platform five years ago in this sector. And there’s different multiples for that.”
Welham Advisory is an M&A services group focused on the behavioral health sector.
Buyers are coming into these deals with a more disciplined approach. Bangar noted that many strategic buyers had a rocky road with some of their ABA portfolio companies. These buyers are now asking questions about how potential assets fit with their core strategy and market, as well as their clinical quality.
Financial buyers, which mainly stayed on the sidelines for the first wave of ABA dealmaking, are also beginning to partake in autism services dealmaking but have learned from previous mistakes.
The other big change in ABA dealmaking is an emphasis on clinical quality of care. Sellers need to be prepared to go through a longer due diligence process.
“The level of diligence that we’re being asked to do is greater today than it was five or six years ago. I think that’s, in part, [because] it was a little bit of a gold rush,” John Arnold, a partner at Holland & Knight, said at AIS. “Everyone wanted to get in. People were willing to kind of look the other way. I think buyers are, again, they’re a lot smarter now. So they know the questions they ask.”
Holland & Knight is a law firm with over 2,220 attorneys in more than 250 areas of law, including mergers and acquisitions, and behavioral health.
While a longer due diligence process may slow down deals, it can also lead to better alignment between buyers and sellers.
