Aurora Behavioral Health Auction Attracts Interest from Acadia Healthcare

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)

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