Frontenac’s Behavioral Health Group gears up for auction

Chicago’s Frontenac is bringing Behavioral Health Group to market about seven years into its investment in the opioid-treatment-network, according to three people familiar with the matter.

Piper Jaffray has been engaged to advise the company on a sales process, the people said. The process is expected to launch later this month, one of the people said.

Frontenac’s investment in BHG dates to October 2011, when the lower-middle-market firm completed its recapitalization of the behavioral-health company in partnership with founding management and longtime industry exec Mike Cannizzaro.

Cannizzaro holds the post of chairman, while Jay Higham leads BHG as CEO.

BHG, Dallas, provides opioid-addiction-treatment services at 46 clinics in Alabama, Colorado, Georgia, North Carolina, South Carolina, Kansas, Kentucky, Louisiana, Missouri, Tennessee and Virginia.

Ebitda lies at about $25 million, according to two of the people, one of whom said the asset is likely to command a mid-teens multiple of Ebitda. That suggests a possible valuation upward of $250 million.

The expected process comes as deaths from opioid-related overdoses continue to rise. That being the case, the private equity community has already proved eager to play a role in addressing the worsening epidemic.

Besides publicly traded behavioral-health giant Acadia – a former Waud Capital portfolio company –  one of the most active buyers in the space is Webster Capital’s BayMark Health Services. The Lewisville, Texas, company in March bought one of its largest peers in Canada, Canadian Addiction Treatment Centers, bringing its clinic total to just under 170 locations in 26 states and Ontario.

Other financially backed opioid-treatment groups include Linden Capital Partners’ Pinnacle Treatment Centers, Revelstoke Capital Partners’ Crossroads, Housatonic Partners’ Aegis Treatment Centers and Warwick Group’s Colonial Management.

Also on the market is Community Pharmacy Partners, a specialty pharmacy network focused on alternatives to prescription opioids to treat pain, Buyouts reported in April.

Frontenac, which closed its 11th fund at $325 million in October, partners with executives to invest in lower-middle-market businesses. The firm invests in consumer, services and industrial businesses typically generating between $5 million and $20 million of Ebitda.

The firm’s associated BHG investment team includes Managing Director Michael Langdon and Associate Brain Bai.

A Frontenac representative declined comment, while those with BHG and Piper Jaffray didn’t immediately return requests for comment.

Correction: An earlier version of this report incorrectly stated Frontenac first invested in BHG in 2016. The correct date is 2011. The report has been updated. 

Action Item: Reach out to Frontenac’s Langdon at mlangdon@frontenac.com