Rothschild’s Five Arrows Capital starts sale process for Stepping Stones

The provider of behavioral health services to school-age children fielded first-round bids last week, sources said.

Five Arrows Capital Partners is seeking a buyer for Stepping Stones Group, a behavioral health platform focused on providing comprehensive services to school-age children, according to sources familiar with the firm’s plans. 

A competitive sale process aimed exclusively at private equity buyers recently kicked off for the Chicago-based business, with Moelis engaged for sell-side advice, sources said. First round bids for the company were submitted in early November, they added. 

The process comes four years after Five Arrows, the North American corporate private equity business of Rothschild Merchant Banking, acquired Stepping Stones. The December 2017 deal produced an approximately 7x return for selling investor Shore Capital Partners, sources told PE Hub at the time. 

Stepping Stones’ growth under its latest owner is also significant. 

The company is projecting approximately $65 million of EBITDA for the 12-month period ended June 30, 2022; up from approximately $9 million of anticipated EBITDA for the 12-month period ended June 30, 2018, per PE Hub’s previous report. 

Strategically speaking, Stepping Stones under ownership by Five Arrows broadened its behavioral health services beyond the school setting and into community environments. The company has been growing double-digit organically, one source said, while it also has completed eight acquisitions since Five Arrows’ investment. 

Today, the platform provides therapeutic, behavioral, autism, nursing and educational services to children in the school, community settings and home, as well as via telehealth offerings. 

With broader demand for behavioral health services on the rise, the company’s future growth playbook is likely to involve additional M&A as well as organic growth, both within its existing customer base and via expansion into new school districts and geographies, sources said. 

The process comes as behavioral healthcare services across the spectrum command significant private equity interest. 

In recent activity of note, Apax Partners and Oak HC/FT jointly bought Eating Recovery Center in a deal worth around $1.4 billion, identifying a vast opportunity to expand access to treatment for eating disorders and mood and anxiety conditions.

The deal came on the heels of Patient Square Capital’s September acquisition of Summit BHC, a substance abuse treatment and psychiatric services platform, for an enterprise value of $1.3 billion, PE Hub wrote.

Elsewhere, Onex Partners completed its investment in Newport Healthcare in July, in a deal valuing the network of teen-focused mental health treatment centers at $1.3 billion, sources told PE Hub

In the autism treatment sector, Cerberus Capital Management this summer agreed to buy Lighthouse Autism Center from Abry Partners in a deal valued just north of $400 million, sources said previously.

Five Arrows and Moelis declined to comment.