This newsletter presents the outcomes of mergers and acquisitions within the autism services and pediatric therapy practices sector for the initial quarter of 2024.
Mergium has compiled data on M&A activities in this segment from 2019 through the first quarter of 2024, analyzed on a quarterly timeline.
The graph below depicts the distribution of transactions segmented by buyer category on a quarterly basis since 2019:
Sources:
Mergium research
Securities and Exchange Commission (Edgar database)
Notes:
Types of buyers:
M&A by private equity: These are transactions by private equity firms (“PE”). The statistics include secondary buyouts (SBOs) or sale of a practice by a PE to another PE.
M&A by Platform of PE: Typically, after closing of an M&A by a private equity (1 above), the acquired company (“Platform”) grows through acquisitions of smaller practices, de novo locations, increase in the in-home services or services in the community. The acquisitions of those smaller practices are registered here.
M&A by Strategic Investor: These are acquisitions of practices done by a company that is not a PE not a Platform of a PE. The buyer is a player in the autism services segment as well.
Private placement investors: These are acquisitions of shares by private investors when a company sells newly issued shares. These transactions are regulated by the U.S. Securities and Exchange Commission.
Types of transactions:
Sale of majority interests - 100% or more than 50% of shares or interests.
Sale of minority interests - Less than 50% of shares or interests.
Equity private placements - Sales of newly created shares to a limited pool of pre-selected investors and institutions.
Practices offer applied behavioral analysis (ABA), but also ABA and/or a combination of other therapies such as occupational, physical, and speech.
Most of these practices offer services primarily to kids and young adults to 21 years old.
Practices have different models including home, school, and community-based models.
It covers transactions in the fifty states and DC.
The study does not include companies that offer only information technology solutions (such as digital platforms, software, etc.) without offering therapies to kids.
Our observations regarding activity during Q1 2024 are the following:
Excepting private placements, we registered 4 M&A transactions in Q1 2024, compared to 7 in Q1 2023, 11 in Q1 2022, 7 in Q1 2021, 9 in Q1 2020, and 9 in Q1 2019. This represents the lower number in 5 years.
Thus, softness in M&A activity continues, but the number of transactions in Q1 2024 did not decrease compared to Q4 2023.
The decreasing trend of transactions by platform companies of private equity firms continues.
Interestingly, we registered 2 transactions by private equity firms, which match the same number in Q2 2023. This is encouraging in the sense of the continuing interest from institutional investors.
In our conversations with owners of firms in this segment, we continue to see difficulties in the financial situation of small providers. These companies continue with pressures coming from competition for staff, wage inflation, and the rigidity of rates from payors. Our prevision is that these forces will continue in the near future. Unfortunately, we foresee a number of small players operating at below historical average margins, others been forced to close or to sell at lower-than-expected prices.
Given the continuation of inflation pressures and the recent pronouncements of the Fed regarding decreases in interest rates, M&A activity in general (all sectors in the economy) and in this segment, might continue to see a lower number of transactions when compared to prior years.
Simultaneously, buyers in this segment have become more selective and are willing to pay lower multiples than in the recent past. Large practices continue assessing de novo vs acquisition of smaller practices, and the latter will be determined mostly by strategic fit. T
It would not be unreasonable to expect that this year we would have a lower number of transactions from platform companies of private equity forms.
As mentioned in our prior newsletter, there are buyers interested in acquiring practices with the following characteristics:
Good clinical outcomes.
Brand recognition in the community.
Stability or growing rate of revenues.
Sustainable and healthy financial margins.
Low staff turnover.
Stable or growing patient census.
Good training models and healthy learning environments.
Healthy internal cultures.
Robust internal processes.
Strong information systems (financial, operational, etc.).
Owner's valuation expectations in line with the current macroeconomic situation and economics of the segment.
Additional resources:
If you need assistance selling or valuing your pediatric therapy practice, contact us
If you need to read more about how to sell your pediatric therapy practice (ABA, OT, PT, ST), click here.
If you need to read more about selling a business, read more
If interested in reading more articles and insigths by Mergium, click here
If interested in knowing about our experience in selling / acquiring healthcare services companies, click here