Mergium analyzes mergers and acquisitions and capital raises (private placements) activity for autism services and pediatric therapy practices from 2019 to Q3 2024.
M&A – The numbers
The following graph presents the number of mergers and acquisition transactions by buyer type on a quarterly basis from Q1 2019 to Q3 2024:
Source: Mergium research.
Notes:
This analysis:
Focuses on practices that offer: (1) therapies for kids and young adults with autism and other disabilities; (2) treatments such as behavioral (applied behavioral analysis (ABA)), developmental (speech, occupational, physical, feeding therapies, and others), educational, and social relational; (3) services in-clinic, in-school, in-home, and/or telehealth; and (4) testing for autism.
Excludes companies that develop and market solutions, products, and tools to providers and families such as: (1) IT solutions (software, apps, and the like); (2) technologies for diagnostics tests (e.g. MARABio, Cognoa, BioROSA, EarliTec); (3) medications; (4) matching platforms; and (5) virtual reality devices.
Types of buyers:
M&A by private equity: Transactions by private equity firms (“PE”). The statistics include secondary buyouts (SBOs) or sale of practices by one PE to another PE.
M&A by Platform of PE: Typically, after closing of an M&A by a private equity, the acquired company (“Platform”) grows through acquisitions (“add-ons”) of smaller practices and de novo locations. 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, nor a Platform of a PE.
Types of transactions:
Sales of majority interests - 100% or more than 50% of shares or interests.
Sales of minority interests - Less than 50% of shares or interests.
M&A activity is increasing but still lower than 2019-2022
As we were expecting, the number of M&A transactions during the first nine months of 2024 (“Q1-Q3 2024”) increased when compared to the same period of 2023 ("Q1-Q3 2023") (24 vs.19 transactions).
The greater number of transactions was driven by private equity transactions (9 vs. 3). There were fewer add-on transactions but more transactions by strategic investors.
The total of 24 transactions in the period Q1-Q3 2024 is lower than the number of transactions for the same period for 2019, 2021, and 2022. The reasons for the decrease in the number of transactions are: (1) high interest rates in 2023 and 2024; (2) high inflation; (3) the financial crises of 2023 (related to the collapses of First Republic Bank, Silicon Valley Bank and Signature Bank) that created uncertainty and instability in the financial sector; (3) a gap in valuations expectations between buyers and sellers; and (4) the compression in margins due to wage pressures in an industry with rigidities on the price of service.
High interest rates, high inflation, and the financial crises of 2023, certainly brought uncertainty to the economic environment and therefore created a negative impact to M&A activity.
M&A - PE Holding Times will favor M&A activity
Typically, PEs hold platforms for an average of 5 years. Close to 45% of current platforms have holding times greater than 5 years. Those platforms will be looking for an exit. This will increase the number of M&A transactions. Once those platforms are sold, they will also do additional M&A transactions (add-ons).
Source: Mergium research.
Private Placements – Opportunities for owners
The graphs below present the number of private placements (debt and equity) on a quarterly basis since Q1 2019 as well as the values of those private placements:
Sources: Mergium research, Securities and Exchange Commission.
Notes: Private placement: These are acquisitions of shares and debt instruments by private investors when a company sells newly issued shares or acquires debt. These transactions are regulated by the U.S. Securities and Exchange Commission.
Sources: Mergium research, Securities and Exchange Commission
Investors continue to be interested in pediatric therapy companies. There is a combination of interest in funding the traditional delivery model (in clinic, in home, in school) and some sort of combination with digital solutions in the service delivery.
The number of private placements in Q1-Q3 2024 was the same as in Q1-Q3 2023 (6 vs 6). But the values were higher ($117 mm vs $100 mm). That difference is much more pronounced if the equity received by Cortica in 2023 is not accounted for. Additionally, if the equity received by Cortica and Elemy is not considered, Q1-Q3 of 2024 represents the period with the largest equity raise.
The largest equity private placements were those of Cortica and Elemy (total of almost $500 mm).
What To Expect Moving Forward
We expect an increase of M&A activity and private placements in 2024 and 2025. Obviously, there are several moving parts that will determine how strong or weak that increase will be, including the evolution of interest rates, inflation, closing of gap in valuation expectations, and macro and health sector policies of the new Administration.
With the significant amount of PE dry power (capital available to be invested) and the relative high levels of fundraising by focused healthcare PE in the last four years and a half ( about $77 billion from 2021 to H1 2024 (Source: HealthCare Funds Report, Pitchbook, 8/24)), we expect continuation of investments by PEs.
What the Buyers Are Telling Us
Buyers in this segment are interested in M&A transactions with targets that offer a good number of the following characteristics: 1) Good clinical outcomes; 2) Medicaid compliance; 3) Growing revenue and sustainable and healthy margins; 4) Payor mix; 5) Growth opportunities; 6) Low therapist turnover and good management in place; 7) Good information systems (financial, operational); 8) Robust internal processes; 9) Good training models and healthy learning environments; and 10) Sellers’ 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 insights by Mergium, click here
If interested in knowing about our experience in selling / acquiring healthcare services companies, click here