TCIV: Favorable tailwinds entice buyers

The addiction treatment industry is experiencing a climate of favorable tailwinds, according to Robert Waggener, vice president of addiction services for Universal Health Services, speaking at the 2016 Treatment Center Investment & Valuation Retreat in Scottsdale, Ariz., on Tuesday. And those favorable tailwinds will continue to attract the attention of investors.

“It’s a common phrase, and I hear it everywhere I go,” Waggener said. “It means consumer demand outstrips supply.”

A number of variables have contributed to the climate, including:

• Improved access to care under Affordable Care Act provisions;
• The decline in the stigma surrounding addiction treatment;
• Bipartisan policies that support treatment and recovery;
• The shift from incarceration to treatment; and
• The culture of the millennial generation that is increasingly seeking treatment for addiction.

For investors, the growth proposition has helped to enhance the attractiveness of the market, especially when coupled with the opportunity to consolidate the fragmented space. Deal volume has been relatively high for several years with the trend expected to continue for some time.

Waggener said the buying and selling cycle is the longest he’s seen in his entire career thus far, however, the market just recently has softened to an extent. Overreliance on lab services and the potential changes in payment rates for out-of-network providers are among the risks that investors are examining.

When to sell

Treatment centers might be wondering if they should follow the trend and consider selling their businesses.

“The best time to sell is when market is high, and right now it’s crazy high,” Waggener said. “But I can’t stress this enough, the best time to sell is not when you’re in crisis. If you’re in a good place and your business is going well, then it’s a good time to sell—when your house is in order.”

He recommends that treatment centers gather as many performance metrics as possible before considering a sale. Clean up your accounting, dig into your earnings details and look closely at your expenses, he said. Buyers will ask for a great deal of data before considering a transaction, and the businesses that have data will likely be more attractive than those that don’t.