Auction for Lee Equity’s Eating Recovery approaches second round

First-round bids in the sales process for Lee Equity Partners’ Eating Recovery Center LLC were submitted late last week, two sources familiar with the matter told Buyouts.

Second-round bids for the provider of eating-disorder-treatment services are likely to come in around mid-July, one of the people said, speaking on the condition of anonymity. About six parties are currently in the process, the other source said.

Moelis & Co, which is conducting the auction, is said to be guiding for a $500 million-plus valuation ahead of management meetings, one of the people said.

The Wall Street Journal reported on June 20 that the PE-backed company was working with Moelis to explore a sale. Marketing materials have been distributed to potential suitors and the company is projected to produce about $45 million in 2017 EBITDA, the paper wrote.

Depending on adjustments, pro-forma EBITDA for 2017 for mature facilities ranges $30 million to $40 million, the two sources said. The $45 million EBITDA figure includes additional adjustments, one of the sources noted.

As behavioral health remains a highly sought-after area for private equity, sources expect the ERC auction to command significant interest from financial buyers.

Whoever prevails in the sales process for ERC is a logical buyer for the even larger Discovery Practice Management, a Webster Capital Management portfolio company that does business as Center for Discovery, one of the sources noted.

Webster, which invested in Center for Discovery in 2011, hired Cain Brothers in early 2016 to consider bringing the company to market in Q3 or Q4 of that year. The sponsor ultimately chose to hold off on launching a process. The Los Alamitos, California, eating-disorder and mental-health company was anticipated to generate revenue of as much as $80 million and EBITDA of about $20 million in 2016, sources said at the time.

Cinven Ltd, Vestar Capital Partners, Nautic Partners, Advent InternationalBain Capital and Waud Capital Partners are among other firms that have invested in behavioral health.

Notable deals in the eating-disorder segment include Centre Partners Management’s September 2015 sale of Monte Nido Holdings of Malibu, California, to fellow PE firm Levine Leichtman Capital. Terms weren’t disclosed, but sources at the time said the Harris Williams & Co-led auction produced a deal valued at around $280 million, representing an 11.5x to 12x multiple of EBITDA.

Strategic buyers in the behavioral-health space include Acadia Healthcare Co and Universal Health Services Inc, both of which were said to have participated in the auction for Monte Nido.

ERC provides treatment for anorexia, bulimia, binge eating disorder and other eating disorders. The company provides services for female and male adults, adolescents and children through its inpatient, residential, partial hospitalization and outpatient programs.

Founded in 2008 in Denver by CEO and Founding Partner Ken Weiner, ERC today includes facilities in Texas, Washington, Illinois, Ohio, Colorado, South Carolina and California.

Lee Equity, the New York PE firm, completed a recap of ERC in January 2013. The transaction marked an exit for the previous backer, Trinity Hunt Partners, which invested in the eating-disorder company in 2010.

Partner Yoo Jin Kim of Lee Equity sits on the ERC board.

Representatives of Lee Equity and Moelis declined comment.

Action Item: Lee Equity’s current portfolio:

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