Patient Square buys Summit BHC in $1.3bn deal

Proving a testament to the nation's growing demand for behavioral health services, exiting investors Lee Equity and FFL Partners are each poised to make 4x their money with the sale, sources say.

Patient Square Capital is acquiring Summit BHC, a substance abuse treatment and psychiatric services platform, for an enterprise value of $1.3 billion, according to people familiar with the deal terms. 

Marking the first traditional buyout deal (and fourth transaction to date) for the firm launched by ex-KKR chief Jim Momtazee, Patient Square is backing a veteran C-suite team with vast public-company experience led by CEO Brent Turner. 

The all-cash transaction provides an exit for existing shareholders Lee Equity Partners and FFL Partners. The pair of firms jointly acquired a combined 75 percent stake in Summit in October 2017, taking equal stakes in the Franklin, Tennessee-based company, the sources said.

With the sale, New York’s Lee and San Francisco’s FFL are each set to reap 4x gross multiples of invested capital while generating an approximately 42 percent gross IRR, the sources said. Summit grew EBITDA by 350 percent under Lee and FFL, alongside annual revenue growth of 44 percent, they added. 

On a fast growth-track, Summit’s pro forma EBITDA is nearing $100 million by the end of this year, one source said. When PE Hub first wrote in July the company had launched a sale process, sources cited maturity-adjusted EBITDA for 2021 in the high-$80-million to low-$90-million range, with current run-rate EBITDA in the mid-$70-million range. 

Summit came to market earlier this summer – via Moelis and Jefferies – in the backdrop of a broader behavioral health market that has witnessed greater demand for services in the face of covid-19. The process was “modestly narrow,” one source commented, aimed initially at some 12 to 15 parties, and ultimately, three parties running hard at the end. 

Patient Square, Lee, FFL, Moelis and Jefferies all declined to comment on deal metrics. Summit did not immediately return PE Hub‘s request for comment.

Although the consequences of the global health crisis have created long-term distress, the unfortunate and longstanding secular tailwinds calling for more behavioral health services pre-date covid.

Industry growth is “driven by increasing societal recognition of its importance and continued need for expanded access,” Patient Square founding partner Alex Albert, who joined earlier this year from Ares Management, said in a press release.

Summit, for its part, is unique in that it was one of the first addiction treatment providers to have an in-network focus – which makes care much more affordable for patients. Summit has long sought to fill a gap in a landscape encompassing largely out-of-network providers; its commercial payer book of business is now nearly 100 percent in-network, sources told PE Hub in July. 

M&A has been a critical component of the playbook with Summit completing seven acquisitions in the last four years, expanding eight of its facilities and opening five others. “M&A is a big part of what they do,” one person said, with significant white space for additional consolidation, sources said.  

Importantly, acquisitions have fueled Summit’s diversification beyond substance abuse treatment and into acute psychiatric care – positioning it for multiple avenues of growth. Acute psych care is expected to account for some 30 percent of 2021 revenues, some of the sources said. 

With 24 centers across 16 states today, the company also owns the large majority of its real estate, one source said previously. 

Under FFL and Lee, Brent Turner was recruited to assume the CEO post at Summit BHC in September 2020, having previously led publicly-traded Acadia Healthcare’s expansion from six facilities to almost 600. Before that, Turner spent seven years as an executive at Psychiatric Solutions, which was acquired by Universal Health Services in 2010 in a $3.1 billion deal. 

Several other members of the leadership team came out of Acadia, Universal Health Services and Psychiatric Solutions, among other organizations. Patient Square, meanwhile, has had a longstanding relationship with Summit’s Turner and his seasoned management team.

For Patient Square, Summit marks its fourth transaction as it continues raking in capital for its debut fund. The first-timer, which is targeting up to $3 billion for its first fund, is eyeing a first close on more than $1 billion, PE Hub affiliate Buyouts wrote in early August

Patient Square’s first investment came in June, when it led a $145 million financing in Apollo Therapeutics, taking a controlling position in the UK business. Apollo has a pipeline of more than 15 therapeutic programs in development across oncology, inflammatory disorders and rare diseases. 

Patient Square in July followed with an investment in Kriya Therapeutics, leading a $100 million Series B financing in the gene therapy-focused platform company. 

In May, Montes Archimedes Acquisition Corp, a SPAC sponsored by Patient Square, agreed to a business combination with Roviant Sciences – through which the biopharma company plans to ultimately list on the Nasdaq as a public company. Following completion of the deal, Roviant is expected to have an initial market capitalization of $7.3 billion inclusive of its pro forma net cash balance of approximately $2.3 billion.