Apax, Oak HC/FT to buy Eating Recovery Center in $1.4bn deal

The investors will fuel expansion of the eating disorder treatment platform both physically and virtually, while supporting further diversification into other behavioral health conditions.

Apax Partners and Oak HC/FT have joined hands to acquire Eating Recovery Center, identifying a vast opportunity to expand access to treatment for eating disorders and mood and anxiety conditions.

The pending deal values Denver-based ERC at approximately $1.4 billion, sources familiar with the deal terms told PE Hub. The company is projecting $91 million of pro forma mature EBITDA for 2021, some of the people said. 

Indicating significant growth in value under ERC’s existing investor, New York’s CCMP Capital bought ERC in August 2017 in a $580 million deal, sources said previously. The sellers engaged Moelis earlier this year to weigh a sale of the business, PE Hub wrote in April.

Apax and Oak HC/FT plan to announce the deal on Tuesday.

With a like-minded approach of backing companies in sectors with multiple growth levers, Apax and Oak HC/FT teamed up early on in their pursuit of ERC, the investors said, declining to comment on financial terms of the deal. 

Apax partner Andy Cavanna, for his part, has long tracked the eating disorder market. Before joining Apax in 2017, Cavanna, while at Vestar Capital, helped lead the firm’s 2015 investment in Veritas Collaborative, a specialty hospital system for the treatment of eating disorders. 

Both then and now, Cavanna found that the industry faces a shortage of good providers, hence lending to an attractive investment opportunity. “There is more demand for services than providers.” With ERC, the pair of new investors plan to tackle that problem with a “growth thesis to expand access,” he said. 

In this case, ERC has the opportunity to expand both physically and digitally. With the new growth capital, the platform will grow geographically via the building of new clinics, whether inpatient, residential or outpatient – all settings in which its model has proven out. Another important accelerator addressing the market’s “access problem” will include leveraging its existing virtual capabilities and expanding digitally, the investors said. 

“Once you have clinical quality and a strong management team… you really have to have this omni-channel approach to patient care; that’s just the way the world is going,” said Andrew Adams, co-founder and managing partner of Oak HC/FT. “That’s what’s really exciting. There are so many opportunities and ways to invest in the category.” 

Broadly, the disruption to the healthcare industry in the wake of the public health crisis has cast a light on the value of telehealth. Behavioral healthcare has proven to be a particularly applicable area of virtual health services. 

Complementing Apax’s knowledge and early identification of the opportunity in the eating disorder treatment market, Oak HC/FT has deep roots at the nexus of behavioral healthcare and virtual care and technology. Relevant existing investments include US Healthvest, Brightline and Quartet Health and notable former portfolio companies include Therapy Brands. “The power of technology is something we’ve invested behind a lot at Oak,” Adams noted.

ERC will also continue to prioritize diversification, expanding upon its recent entrance into mood and anxiety disorder treatment, the investors said. Its Pathlight division addressing these conditions now represents about 15 percent of ERC’s revenue today, Cavanna said. 

While the primary focus is organic growth, Cavanna noted there is M&A to be done,  particularly outside of ERC’s eating disorder business.

Apax joins a growing list of investors investing behind the underlying trends fueling a greater need for behavioral health services, be it growing public awareness or increasing adoption of telehealth. 

On one level, “payors have lowered barriers to coverage for a host of regulatory reasons,” Cavanna said. At the same time, “you have societal acceptance that this is an illness that needs to be treated.”

In other recent activity of note, Onex Partners completed its investment in Newport Healthcare in a deal valuing the network of teen-focused mental health treatment centers at $1.3 billion, people familiar with the deal terms told PE Hub.

Elsewhere, TPG in the height of the pandemic agreed to buy LifeStance at a $1.2 billion value, providing a full equity backstop. Less than a year later, the national provider of behavioral health services in June went public at more than five times that value.

Update: This report has been updated to clarify Oak HC/FT’s current and former behavioral health-related portfolio companies.