Lee Equity and FFL Partners are seeking a buyer for Summit BHC, a substance abuse treatment and psychiatric services platform led by a seasoned C-suite team with a proven track record, according to multiple people familiar with the matter.
Moelis and Jefferies are providing financial advice on the sponsor-focused sale process, which launched about three weeks ago, the sources said.
The Franklin, Tennessee-based business is projecting maturity-adjusted EBITDA for 2021 in the high $80 million to low $90 million range, whereas current run-rate EBITDA is in the mid-$70 million range, some of the sources said.
Lee Equity, based in New York, and FFL Partners, headquartered in San Francisco, partnered in 2017 to acquire Summit, with Moelis having also advised on the prior sale process. The two mid-market-focused firms, both with prior investment experience in behavioral health, own equal stakes in the company, one source said.
As the growth of the broader behavioral health market has accelerated in the face of the global pandemic, Summit offers several differentiating characteristics that are expected to appeal to potential suitors.
One of those, sources said, is the fact that Summit has built a multi-market platform in behavioral health, which means it has more avenues for growth, including through M&A and organic initiatives.
Summit’s substance use disorder treatment services make up roughly 65 percent of the business, with the remaining 35 percent or so on the acute psychiatric care side, one source said. The latter business over the last 24 months has grown rapidly through acquisitions. With 26 centers across 16 states today, according to its website, the company owns the large majority of its real estate, this person noted.
Summit is also unique in that it was one of the first addiction treatment providers to have an in-network focus, a strategy pursued since its founding, sources told PE Hub. Seeking to fill a gap in a landscape encompassing largely out-of-network providers, Summit’s commercial payer book of business is nearly 100 percent in-network.
The company is steered by a seasoned management team that has successfully grown two very large behavioral health companies.
Brent Turner joined Summit BHC as CEO in September 2020. Turner is the former president of now publicly-traded Acadia Healthcare, having led the behavioral health company’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.
Also in the C-suite is former private equity investor Chuck Edwards, a co-founder of Summit. Edwards, CFO at Summit, joined the company from Waud Capital, Acadia’s previous majority owner. Several other members of the leadership team came out of Acadia, Universal Health Services and Psychiatric Solutions, among other organizations.
The process comes amid an industry backdrop that is calling for both a greater supply and more access to behavioral health services, including alcohol and drug addiction treatment. Consequences of the global health crisis, be it unemployment or loss of life, have created long-term distress, boosting demand for providers of such mental health services.
For example, drug overdose deaths in the US rose nearly 30 percent in 2020, according to preliminary data released earlier this month by the Centers for Disease Control and Prevention.
Both Lee and FFL are experienced investors in behavioral health.
For Lee, the anticipated exit will follow the sale of Eating Recovery Center to CCMP Capital in 2017. Terms weren’t disclosed, but PE Hub wrote previously that the deal commanded a $580 million value, producing a 4x return for Lee. The firm has two other active healthcare investments in the physician practice management segment: Solaris Health, a leader in urological medicine, and Inception Fertility, a national reproductive health provider network.
FFL, on the behavioral health front, is currently invested in Autism Learning Partners, which it acquired in a $270 million transaction in late 2017, PE Hub reported. Its current umbrella of healthcare investments includes Eyemart Express, New Look Vision Group, Orthodontic Partners, US Orthopedic Partners and WellStreet Urgent Care.
In addition to sector-specific tailwinds, Summit is riding the coattails of a robust level of PE investment in high-growth healthcare services companies spanning multiple specialties; Sponsors remain eager to put capital to work in companies with a strong market position in segments with a lot of perceived white space.
In recent behavioral health activity, Onex Partners’ recent investment in Newport Healthcare valued the network of teen-focused mental health treatment centers at $1.3 billion, according to people familiar with the deal terms. More recently, PE Hub wrote that Cerberus Capital Management was buying Lighthouse Autism Services in a deal valued just north of $400 million.
Elsewhere, a little over a year after TPG, at the height of the pandemic, agreed to buy LifeStance at a $1.2 billion value providing a full equity backstop, the national provider of behavioral health services went public in June at more than five times that value.
Lee Equity, FFL and Moelis declined to comment. Jefferies and the company did not return PE Hub’s requests for comment.