Aurora Behavioral Health Auction Attracts Interest from Acadia Healthcare
May 13 2016 - 3:10PM
Dow Jones News
Behavioral hospital operator Signature Healthcare Services LLC
is attracting interest from prospective bidders, including one of
the industry's largest operators.
Acadia Healthcare Co.—backed by private equity firms Bain
Capital and Waud Capital Partners—has engaged investment bank
Jefferies LLC in the auction for the Corona, Calif.-based
Signature, which does business as Aurora Behavioral Health Care,
according to people with knowledge of the process.
One of these people said private equity firm Welsh Carson
Anderson & Stowe also is interested in Aurora and would merge
it with portfolio company Springstone Inc., which operates
hospitals treating mental illness and substance abuse.
Universal Health Services Inc., of King of Prussia, Pa., also is
said to be a potential bidder in the process, the people said.
First round bids for the process, run by investment bank Goldman
Sachs Group Inc., were due Wednesday, they added.
The auction for Aurora presents a rare chance for behavioral
health operators to acquire a sizable asset in a highly fragmented
industry.
Last month, Dow Jones reported that Aurora recorded $130 million
in earnings before interest, taxes, depreciation and amortization
last year. Based on the average purchase price multiples behavioral
health companies typically command in the current market, Aurora
could potentially be valued at well over $1 billion.
However, the people added that Aurora's Ebitda number was the
sum of the earnings of Aurora's 14 facilities and was heavily
adjusted. The Ebitda figure that private equity would likely use as
a basis for bids, which would include the costs of corporate
overhead, was closer to $50 million, the people said.
The people said the fact that Aurora uses the adjusted Ebitda in
its pitch to prospective investors could suggest that the seller
prefers strategic buyers over private-equity investors that don't
already have an existing company into which they would merge
Aurora. Strategic investors often have greater bidding power than
private equity buyers, because they can factor in cost savings they
would achieve by combining operations, such as marketing and sales
or back office accounting.
Founded in 2000 by retired psychiatrist Dr. Soon Kim, Aurora
operates 14 facilities. The Press-Enterprise, a Southern California
newspaper, reported in May 2015 that Aurora acquired seven acres in
Riverside County to build and operate a 150-bed treatment center,
expected to open in the spring of 2018.
UHS and Acadia have both been active acquirers in recent years
and, together, accounted for a combined 8.3% share of the $17.2
billion mental health and substance abuse clinics industry in 2015,
according to industry tracker IBISWorld.
Last year, UHS bought Foundations Recovery Network LLC, an
operator with four facilities and eight outpatient centers and
backed by Nick Pritzker Capital Management, for about $350 million.
That same year, it also acquired English psychiatric-care provider
Alpha Hospitals from London firm C&C Alpha Group Ltd. for £ 95
million.
Acadia, meanwhile, acquired U.K. provider Priory Group earlier
this year, adding onto a slew of deals it did over the past two
years. Those deals also include the acquisitions of Bain
Capital-backed CRC Health Group Inc. for $1.18 billion,
Philadelphia inpatient behavioral health-care provider Belmont
Behavioral Health and a 15-bed Southampton, U.K., rehabilitation
facility called The Manor Clinic.
Welsh Carson's Louisville, Ky.-based Springstone, which
currently runs 14 hospitals in seven states, is much smaller than
UHS and Acadia. Welsh Carson has backed the company since 2010,
when it committed $100 million to develop the behavioral
health-care and psychiatric hospital platform.
Write to Amy Or at amy.or@wsj.com
(END) Dow Jones Newswires
May 13, 2016 14:55 ET (18:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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