Intrepid’s Healthcare team recently attended the inaugural Autism Investor Summit, where Adam Abramowitz spoke on a panel titled: “How to Maximize Value in a Sale Process.” As the first-ever event exclusively focused on investing in the autism services sector, the conference brought together entrepreneurs, private equity (PE) investors, and larger strategic companies for a day of interactive discussion and insights on the market. With record levels of M&A and investment activity in the space, there was no shortage of interesting perspectives.
Big Money Comes In for a “Land Grab”
With mega funds such as Blackstone (CARD), FFL (Autism Learning Partners), TA Associates (Behavioral HealthWorks), and TPG (Kadiant) coming into the space, there is clearly a race to back larger providers in a highly-fragmented market and support their future growth. While one of the conference’s most lively debates included questioning whether these large investments could be damaging to the industry, the general consensus among the conference attendees was that these investors should bring operating expertise and proven playbooks from other more established healthcare services sectors to help this nascent sector scale more rapidly.
Consolidate or De Novo Growth?
As a result of robust PE activity, it is inevitable that larger players will start to consolidate platforms as opposed to limiting their investing activities to smaller, add-on acquisitions. Furthermore, as valuations reach peak levels, many existing platforms may expand through new locations instead of acquisitions. There was plenty of discussion during the conference about CARD’s preference to leverage its strong infrastructure to drive its expansion through de novo growth instead of M&A. Platforms that can demonstrate organic growth capabilities may be seen as more attractive to investors, as growing through acquisitions is less predictable.
Other Ways to Play
One interesting theme emerging for some investors centers on identifying ancillary services within autism, outside the traditional delivery of therapy. Such services include electronic records technologies, revenue cycle management, training and enterprise software all tailored to the unique needs of the space. While ABA therapy may have attributes that do not resonate with some investors, we expect to see increased investment in the ecosystem that supports the industry.
Payors Are Getting Smarter
Given the autism services mandates in 48 states, commercial payors are seeing a tidal wave of demand and trying to determine how to handle the growth best. Over time, expect payors to rely on a narrower network of strong providers who offer excellent service, can manage large patient populations, and deliver attractive outcomes.
Data Is Gaining More Importance
As payors become more sophisticated purchasers of ABA services, tracking service-level data and outcomes is increasingly important. This information is becoming critical for improving revenue cycle functions, enhancing therapy programs and providing insights back to the payors. Investors are gravitating to providers that have the data tracking capabilities to demonstrate clinical value to payors.
What About the Adult Population?
Nearly all the investing activity has focused on early intervention and services for children. Many experts raised the question about the unmet need for adults on the autism spectrum. It would not be surprising to see a new wave of M&A activity involving service providers who cater to adults with alternative care models.
The dynamic nature of this emerging space may certainly lead to exciting activity to come.