How LLCP tripled Monte Nido before sale to Revelstoke

After initially investing in Monte Nido, a provider of treatment programs and services to adults and adolescents with eating disorders, in 2015, Levine Leichtman Capital Partners sold the company to Revelstoke Capital Partners LLC in August. LLCP tripled EBITDA during its roughly seven-year hold period, according to sources familiar with the deal. No financial terms were disclosed on the sale that was in the works since October 2021.

PE Hub reached out to Matt Rich, a partner at Beverly Hills-based LLCP, to learn more about what the firm did to grow and scale the business. In an email exchange, Rich also shared insights on getting deals done in the current environment.

“We can’t comment on the specifics of the deal, but at a high level we are proud of the progress the company made under our ownership and that it was able to triple in size during this period,” explained Rich.

Before LLCP purchased Monte Nido, it was an amalgamation of two founder-backed companies that had not yet been fully integrated, according to Rich. The company operated 13 facilities across four states.

Rich said during ownership, the firm focused on three key initiatives.

“The first was building out and expanding an outstanding behavioral health management team,” he said.

CEO Candy Henderson, CFO Michael Bagley, COO Paul Reed, and chief development officer Jennifer Gallagher, and “other top talent, were all specifically recruited,” according to Rich.

Henderson was previously COO at American Addiction Centers. Bagley has more than 25 years of CFO experience, including more than a dozen in healthcare. Reed held positions of CEO, regional director and VP of operations in three of the national behavioral health organizations. Gallagher has been with the company for six years now and previously was CDO of Elements Behavioral Health.

The second key for the firm was a focus on the tech leverage.

“We wanted to ensure technology and all business functions were supporting growth and end goals,” he said. “We worked with the team to replace the company’s homegrown or substandard IT systems (Enterprise Resource Planning, Electronic Medical Records, Customer Relationship Management, etc.) with ones that would provide better, real-time information to manage our business and that would allow us to scale rapidly.”

The third and final piece for LLCP was expanding the company’s footprint through strategic expansions of facilities.

“Under LLCP’s ownership, we helped Monte Nido open 22 de novo facilities and acquire 10 facilities, bringing its current total to 45 facilities in 15 states,” said Rich. “The M&A efforts also helped the company expand into a new care setting, inpatient facilities, allowing Monte Nido to better care for all types of patients.”

LLCP also had two major acquisitions during the ownership period. First in October 2020, the firm bought Rosewood Center for Eating Disorders, which enabled the company to enter the inpatient treatment market and the state of Arizona.

Then in September 2021, the firm purchased Walden Behavioral Care, further expanding its inpatient offerings and geographic footprint in New England (particularly in Massachusetts).

With all the current macroeconomic challenges, PE Hub asked Rich what returns are like in this environment.

“As a structured private equity investor, we are focused on finding great companies with enviable market positions, premium products or services and resultant pricing power, and then partnering closely with their management teams to double, triple, or quadruple EBITDA. Our strategy is not that dependent on leverage levels and pricing, as we’ve shown over our 39-year history,” he said.

PE Hub asked Rich if it was more difficult to agree to a price tag for this deal and in general if deals are harder to get done than in previous years.

“Per our strategy, we focus on value creation to enable the buyer to directly step into a company and see the potential for future success,” he said. “Whenever there is a buyer and seller, there will be a spread between the bid and the ask, no matter the point in time, but we have not seen a wider gap than normal.”

Rich added that the firm is able to execute on deals, thanks to its strategy of investing in “highly differentiated market leaders that operate in less correlated markets and are well positioned to handle various macroeconomic environments.”

“Our approach typically uses less leverage at the time of investment than traditional LBO private equity firms and focuses on developing a specific multi-year value creation plan to grow our companies and position them for future success,” said Rich. “Our asset selection and robust value creation efforts have been key components of our success in these uncertain times.”

Monte Nido is a “great” example this, according to Rich.

“This business was able to grow consistently throughout the pandemic and operates in an a-cyclical behavioral health sector,” he explained. “In addition, we supported management in building a multi-faceted organic growth strategy, centered around de novo facility expansion and strategic M&A efforts. At the time of sale, the company enjoyed significant embedded growth potential, due to recently opened facilities and a two-year pipeline of de novo facilities in development. These factors, among others, enabled the buyer to underwrite a purpose-built growth plan with demonstrated success in even the most challenging of economic environments.”

Rich noted that LLCP’s view across the current landscape is that there has been “a clear bifurcation in this rising input cost and inflationary environment.”

He added: “The best companies that are capably navigating these challenges due to attractive market positions, product or service differentiation and pricing power, can maintain premium valuations,” he said. “While other companies that are struggling more in the current environment are seeing that reflected in current market valuations.”

To learn more about LLCP’s investment strategy, see the profile in PE Hub’s healthcare spotlight series.