Brentwood-based Odyssey Behavioral Healthcare has completed its first two acquisitions, both in Florida.
Odyssey is a partnership between Rhode Island-private equity firm Nautic Partners and Scott Kardenetz, a behavioral health care veteran who previously helped lead Haven Behavioral Healthcare, Psychiatric Solutions and Ardent Health Services, among other.
The two acquired facilities, Pasadena Villa Psychiatric Residential Treatment Centers and Lifeskills South Florida, both provide adult residential and outpatient treatment services. Terms of the deals were not disclosed. Franklin-based Brentwood Capital Advisors represented Pasadena in its transaction.
“I’m thrilled to launch Odyssey Behavioral Healthcare with backing from Nautic Partners,” Kardenetz said in a release. “With their impressive facilitates, top clinical staff and exceptional reputations within the industry, I believe that Pasadena Villa and Lifeskills of South Florida give Odyssey an impressive platform from which to launch our company.”
Odyssey and Nautic plan to invest up to $50 million to support the company’s growth strategy through de novo development and acquisition, according to a release.
“We believe the delivery system for behavioral health care is inadequate and in need of investment and leadership,” Scott Hilinski, Nautic Partners managing director, said a statement. “With the addition of Pasadena Villa and Lifeskills, two prominent treatment centers, Odyssey has established an outstanding foundation from which to expand high quality access to those in need of psychiatric and addiction treatment care.”
A number of local behavioral health care companies have been at the forefront of consolidating the sector in recent years. In addition to Acadia Healthcare — which now has a market capitalization of more than $5.6 billion — other players include addiction treatment specialists AAC Holdings, which went public last year, and JourneyPure, which is being backed by an investor group led by Clayton Associates’ Rolling Hills Ventures group.
American Physician Partners has acquired Align MD and Elite Emergency Services, forming a new health care management and staffing venture.
The Brentwood-based company serves 23 hospitals in six states, providing clinical, administrative and operational support to emergency department and hospitalist programs. Founder and CEO John Rutledge previously was a co-founder and president of RegionalCare Hospital Partners. Also leading the company are fellow RegionalCare veteran Tom Pemberton, who is COO, and Emdeon alum Bob Newport, who is CFO.
“We understand the challenges hospital CEOs are facing,” said Rutledge, who is pictured here. “Combine that business experience with the medical expertise of our new partners from Align MD and Elite Emergency Services, and you have a joining together of clinical and management perspectives that we believe is truly unique for this sector of the health care industry.”
Terms of the acquisitions of Clarksville-based Align and Lexington, Tennessee-based Elite Emergency Services were not disclosed, though American Physician Partners recently raised $25 million in acquisition and growth financing from Goldman Sachs Specialty Lending Group. Brentwood Capital Advisers acted as financial advisor.
One of the strengths of Nashville’s business leaders is their propensity to help others succeed. No matter where you turn, someone is reaching out to help someone else make a connection, improve a product or land a big client. This year’s All-Star Board — check out the 2014 and 2013versions, too — represents only a tiny sliver of the universe of supremely competent advisors in this city. But we think it paints a good picture of the wide range of skills available to entrepreneurs and leaders looking to get better. As in the past, we didn’t just come up with these suggestions ourselves but also sought out recommendations from leaders whose judgment we trust. They didn’t fail us and — if they’re available to you — neither will the members of the 2015 All-Star Board.
Scott Kozicki — Brentwood Capital Advisors
With 20 years of technology and health care experience, Kozicki has a keen eye for changes and disruptions in both industries and is particularly attuned to the evolving space where they intertwine.
Beginning his career in the early dot-com days, Kozicki was co-founder and chief technology officer for BlueStar Communications, the South’s first DSL-based broadband services provider. Built out of Kozicki’s apartment, BlueStar was in 45 markets across the Southeast by 2000, when it was acquired by Covad. Kozicki joined Healthways in 2003 as chief technology officer, establishing the company’s health monitoring infrastructure, then one of the largest in the industry. He spun off his own care management company in 2007, TruuHealth, which catered to self-insured employers wanting to lower their health care costs.
Since then, Kozicki has been involved with business accelerator Jumpstart Foundry and was a co-founder of Jumpstart alum Evermind Inc. In 2011, he joined Verizon Wireless, managing product development and operations. Last year, he entered investment banking as a Brentwood Capital Advisors managing partner.
Investors are pouring money into the operators of U.S. rehab centers as many more Americans get health care coverage for addiction treatment, driving up valuations and triggering a consolidation of businesses in the fragmented sector.
Under President Barack Obama’s healthcare law, new health plans must cover ten core health benefit areas. This includes substance abuse and mental health disorders, opening up services such as alcohol and drug detox or addiction therapy to many Americans who previously couldn’t afford them.
The healthcare law also allows young adults to stay on their parents’ insurance plans until age 26. This offers coverage to many young people struggling with drug abuse and eating disorders.
And the economic recovery has helped as well, as it means more people can afford to pay the expenses that the plans won’t cover.
There are now a growing number of major investors, led by private equity firms and healthcare companies, seeking to take advantage of a market for addiction services that experts say has grown to $35 billion a year now from $21 billion in 2003.
Prices for rehab businesses are climbing so high that some of those who bought assets in the previous decade are taking their profits and selling to a new wave of investors betting on the sector on expectations of continued strong growth.
“The appetite among private equity firms for these assets tends to be greater because there is less payer reimbursement risk and the growth opportunities are so great,” said James Clark, a managing director at investment bank Harris Williams & Co.
The latest wave of investors includes Goldman Sachs Group Inc’s private equity arm, which gave tens of millions of dollars to two healthcare industry veterans Mitch Eisenberg and Lewis Gold at a company called Advanced Recovery Systems late last year to acquire and develop rehabilitation clinics. Franklin, Tennessee-based investment banking boutique Brentwood Capital Advisors is similarly backing another management team led by former Universal Health Services executive Scott Kardenetz to build a rehab center business, according to people familiar with the matter.
Goldman said in a statement that it was part of an investor group that “funded more than $50 million towards the recapitalization of an existing asset in central Florida and committed significant additional capital towards the de novo build-out of new facilities as well as the pursuit of add-on acquisitions, on a national basis.”
Advanced Recovery Systems and Brentwood Capital did not respond to requests for comment.
They are competing against several major publicly traded companies in the sector, including Acadia Healthcare Company Inc and Universal Health Services Inc, which have also been acquiring such assets. Acadia agreed in October to buy CRC Health Group for $1.2 billion from private equity firm Bain Capital LLC, which bought the company for $723 million in 2006.
AAC Holdings Inc, the parent of American Addiction Centers – which operates six substance abuse facilities across the U.S. – has seen its shares climb nearly 70 percent since going public in early October.
MENTAL HEALTH LAW
When Obamacare was signed into law in 2010, many investors wondered whether it would end up being quashed in Congress or the courts before it was implemented. But once its healthcare exchanges began providing plans to millions of Americans this year, investors became more convinced that there was a longer-term opportunity.
A 2008 mental health parity law that requires health plans that offer mental health and substance use disorder benefits to provide coverage comparable to other medical and surgical benefits has also helped.
According to a 2013 National Survey on Drug Use and Health, an estimated 22.7 million Americans needed treatment for a problem related to drugs or alcohol but only about 4.1 million people received treatment at a specialty facility.
“The affected patient population today has greater financial resources, which combined with a stronger economic environment, enables patients to pay for treatment,” said Rich Harding, a managing director at investment bank Moelis & Co.
With the prices for rehab businesses climbing as demand outstrips supply for such assets, investors are keen to snap up more clinics so they can lower costs per patient and keep profit margins healthy.
While there are more than 14,500 specialized drug treatment facilities in the United States providing care for substance use disorders, the industry is very fragmented and the largest operators do not own more than several dozen treatment centers, which offers plenty of scope for consolidation.
Facilities are often small, with the average operator holding no more than 150 beds, analysts said. Because of efficiencies of scale, larger facilities and bigger firms are more likely to have higher margins, as are those that focus on patients that can pay through their own means or private insurance rather than relying on government-backed insurance.
Earnings before interest, tax, depreciation and amortization (EBITDA) margins at rehab treatment centers, as a percentage of revenue, can reach as high as 25 percent, according to brokerage William Blair.
Market valuations have been surging. Shares of Acadia and AAC Holdings are trading at 32 times and 56 times their projected 12-month earnings respectively, versus 17 times for a broader group of U.S. healthcare companies, according to Thomson Reuters data.
Among those selling is private equity and venture capital firm Frazier Healthcare. Its high-end rehabilitation facility operator Elements Behavioral Health, for example, is up for sale, sources said. Elements Behavioral Health, which was set up in 2008, did not reply to a request for comment. Frazier Healthcare declined to comment.
Brentwood Capital Partners has invested an undisclosed amount in Spear Education, an Arizona-based dental education company.
Linden Capital Partners, a Chicago-based private equity firm, led the recent recapitalization of eight-year-old Spear, which specializes in postgraduate classes. Brentwood Capital Advisors served as the financial advisor to Spear. Through a subscription-based platform as well as a Scottsdale campus (pictured here), Spear offers staff training, treatment advice and practice growth tools.
“Spear’s full continuum of dental education tools, growth characteristics, recurring revenue model and market-leading position enabled BCA to position the company as an attractive opportunity for investors,” Nick Carteaux, Brentwood Capital Advisors managing director and partner, said in a release. “We believe this investment will provide the resources necessary to drive significant future growth of dental education and the Spear platform.”
Brentwood Capital Partners is a $15 million fund that also has invested in Hendersonville-based revenue cycle play Xtend Healthcare and diagnostic lab company PathGroup.
Brentwood Capital Advisors announced today it has added Dave Meagher as managing director.
Meagher will focus on advising clients on various health care sectors, including medical technology, specialty pharmaceuticals and contract research organizations.
Previously, Meagher served as managing director and head of healthcare investment banking with Duncan-Williams, Inc., in Nashville. Prior to that, he was a senior member of the healthcare investment banking groups at Morgan Keegan and SunTrust Robinson Humphrey, both in Nashville.
Meagher started his investment banking career at Canaccord Genuity in Boston and later spent several years in corporate banking relationship management roles, serving medical device and biotechnology companies at FleetBoston (now part of Bank of America).
A Boston native, Meagher is a graduate of College of the Holy Cross.
“We are delighted to have Dave join our team” Kevin Murphy, managing partner of the Franklin-based independent investment banking boutique company, said in a release. “He brings deep medical technology industry expertise as well as extensive transaction experience. Dave’s addition will accelerate our efforts to expand into more healthcare sectors and serve more businesses in these attractive, high-growth sectors.”
Brentwood-based The Rehab Documentation Company, known as ReDoc, has been acquired by Net Health, a Pittsburgh-based software company.
ReDoc provides integrated electronic medical records and other solutions for physical, occupational and speech therapy markets. Through the deal, terms of which were not disclosed in a release, Net Health intends to expand from the outpatient speciality care market into the rehabilitation sector.
“We saw that the quality of their solution was so well regarded that it was adopted by some of the biggest names in hospital-owned rehabilitation therapy services,” said Anthony Sanzo, Net Health CEO.
Net Health is a portfolio company of Spectrum Equity, a technology-based growth equity firm. Brentwood Capital Advisors served as financial advisor to ReDoc in the transaction.
“The culture and customer-focused approach at Net Health made it a natural fit,” said Bill Southwick, ReDoc CEO. “The ReDoc team constantly develops and improves our products and services for an increasingly sophisticated rehabilitation customer base. As a component of Net Health’s integrated outpatient solutions, with a combined workforce of nearly 200 employees, ReDoc now has the opportunity to surpass customer expectations of service, integration and connection to the broader patient care community.”
What does Nashville need to truly become a tech power?
Depends on whom you ask.
Some say more venture capital would do the trick. Some say a big successful exit of a homegrown tech firm is the secret sauce. Others believe Music City needs a local office of a major tech company (think Google or Apple).
But Michael Burcham, head of Nashville’s Entrepreneur Center — a driving force in the city’s emerging tech scene — says one thing won’t do it. In Burcham’s view, you’ll never need just one thing to grow a tech ecosystem; you need five.
A thriving technology ecosystem requires talented people, basic technology infrastructure, a tolerant community, business leaders to serve as coaches and mentors and a flow of capital to fund new businesses, Burcham said. For the past few years, Nashville has invested heavily in fostering talent, adding necessary infrastructure and courting business-leader support, Burcham said. And, politically, the city has always been a “blue island in a big red ocean” that’s more tolerant of diverse ideas than its surroundings, he said.
But while those four buckets overflow, Burcham said, the fifth will, of course, look low in comparison.
“So the one piece that’s the lowest right now is the capital,” Burcham said. “It’s not necessarily been the lowest at any other point, but it’s the lowest right now.”
Even as entrepreneurs and others bemoan the scarcity of capital, Burcham said the tides are turning. Crestlight Venture Productions, a California venture services firm, recently announced plans to open a partner office here. Brentwood Capital Advisors, a Franklin-based investment-banking firm, has brought on a new vice president with California experience to bolster its tech cred in advance of arriving venture capital.
“We’ve got new West Coast capital showing up here and opening some partner offices that weren’t here before,” Burcham said. “That’s not happening because they’re bored. That’s happening because they say, ‘There’s some really new hip investments in Nashville, and we want to be part of it.’”
Spend a few days at the Nashville Entrepreneur Center, and it’s easy to get swept up in the optimism and momentum of the city’s fledgling tech scene.
Spend four days on a bus trip to Texas, though, and you’ll start to get a sense of the mountain left to climb.
Each time the coordinators of this spring’s StartupBus competition in San Antonio announced a new round of advancing teams, there was a hint of incredulity in their voices when they called out On The List, a representative from Nashville.
“Whenever they announced our name … I think they were kind of surprised,” said Grayson Carroll, one of five Nashville natives at the helm of the startup, which uses corporate sponsorships to enhance concert experiences.
But the team’s name kept being announced, as On The List advanced from an initial group of 40 startups from across North America to the six-team final round.
“There wasn’t a lot of expectation of us doing well in the competition, because no one outside the region really understands the caliber of the startups that are in Nashville,” said Steve Repetti, co-founder of investment group Crunchfire Technologies, a recent Nashville transplant and the conductor of Nashville’s first StartupBus. “That single event put Nashville on the map of a lot of important folks that didn’t have a clue.”
Although it didn’t take home the grand prize, On The List is one of a handful of recent success stories for Nashville companies at out-of-state startup competitions and demo days. San Francisco online ticketing company Eventbriterecently chose Nashville over dozens of other potential cities — including tech hotspot Austin, Texas — as the home of its second office. And just last month, Silicon Valley venture firm Crestlight Venture Productions announced it will open a Southeastern partner office in Nashville.
Then there’s Google’s growing interest in Music City, as Nashville now serves as one of the California-based giant’s eight Google for Entrepreneurs Tech Hubs and was recently named one of 40 cities to split $1 million as part of a Google program aimed at fostering female entrepreneurship. The search giant’s interest may expand further if Nashville is selected for Google Fiber gigabit Internet. At the very least, that potential has driven AT&T to consider the metropolitan area for its own ultra high-speed service.