WCAS-backed SpringStone seeks $1bn-plus in sale

Welsh, Carson, Anderson & Stowe is evaluating the sale of SpringStone, a network of behavioral healthcare hospitals it backed and founded over a decade ago, according to four sources with knowledge of the matter.

Centerview Partners and Moelis have been engaged for sell-side financial advice. Fireside chats are occurring with prospective buyers, including private equity firms, however a formal process has not kicked off.

The sellers are targeting a valuation upward of $1 billion, some of the sources said. The Louisville, Kentucky-based company’s EBITDA lies around $60 million to $75 million, sources said.

WCAS in 2010 invested $100 million in SpringStone, taking a majority interest in the newly-formed entity as it backed a team of seasoned healthcare operators. The company that year got its start with one newly-constructed psychiatric hospital in Evansville, Illinois.

SpringStone since that time has reached 33 outpatient locations and 18 inpatient locations and is growing, its website states. Led by CEO Phil Spencer, the company serves patients across nine states, employing more than 4,000.

SpringStone facilities offer various programs for different populations, treating a number of behavioral health conditions and disorders, as well as drug and alcohol addictions.

There could be several strategic and PE buyers for SpringStone, sources said, pointing to publicly-traded strategics like Acadia Healthcare, a pure-play behavioral health hospital company, and Universal Health Services (UHS), which has long had a large behavioral health footprint.

Acadia, after selling its UK subsidiary Priory Group to Waterland Private Equity for £1.1 billion ($1.5 billion) in December, may now be in a better position for M&A, sources noted, while acknowledging there has also remained speculation of a take-private in recent years. Acadia’s shares have also bounced back over the last 12 months, finishing above $57 per share on Wednesday, up from around $17 per share a year ago.

The timing of a prospective sale comes as more individuals continue seeking mental health services coming out of the pandemic, driving a massive need for more psychiatric hospitals, sources said.

Other private equity-backed psychiatric hospital networks include General Catalyst-backed Oceans Healthcare, which operates across Texas, Louisiana and Mississippi. Elsewhere, Oak HC/FT, Polaris Partners and F-Prime Capital Partners are all investors in US HealthVest, which owns psychiatric hospitals in the Chicago, Atlanta, Seattle and Indianapolis markets. Other notable players include Strategic Behavioral Health, a start-up launched by the Dobbs Family’s Dobbs Management Service in 2006.

LLR Partners owns SUN Behavioral Health, while Health Enterprise Partners and NaviMed Capital are investors in CenterPointe Behavioral Health System.

The challenge in the space has historically been finding bigger things to buy; however, whoever ends up buying SpringStone could then step up to acquire other smaller psychiatric hospitals in the $20 million to $40 million EBITDA range, all the while continuing to grow organically, one person speculated.

Organic growth doesn’t happen quickly given that it takes both time and capital expenditure to build a new hospital – so as new facilities are opened, that can fuel chunky EBITDA growth, this person added.

In other areas of behavioral healthcare services, LifeStance Health and Refresh Mental Health traded hands in 2020. The companies don’t own hospitals like SpringStone, but might offer services – whether inpatient, outpatient, in-home or via telemed – to those same patients once they are stabilized and have gone through a psychiatric hospital.

TPG last April agreed to buy LifeStance Health in a deal valued at $1.2 billion, representing a high teens multiple of EBITDA, while Kelso & Co. later in the year clinched a deal for Lindsay Goldberg‘s Refresh in a deal valued close to $700 million, PE Hub wrote.

WCAS and Moelis declined to comment. Centerview and the company did not immediately return PE Hub’s requests for comment.