Would you rather flip burgers or work for Blackstone?
Autism platform bankrupt after labor market disaster
Happy Sunday. Let’s get started:
Certain deals are bellwethers within their niche or vertical — everyone has their eye on the outcome, which can determine market perception and future valuations, or whether future assets transact at all.
The one outcome you really don’t want to see? Bankruptcy (no surprise).
Unfortunately, that’s where we’re at with The Center for Autism and Related Disorders (CARD), Blackstone’s 130-location autism platform.
What’s interesting with this one — there was never a slowdown in demand, which is so frequently the critical piece of a bankruptcy story. Perversely, demand really could not have been better.
Let’s break it down:
Two years after Blackstone’s initial purchase, the pandemic upended the investment. CARD took a heavy hit when in-person visits halted, though bounced back from the initial shock relatively quickly.
The bigger issue was the dramatic tightening of the labor market. For a bit of background…
The end result, Blackstone and CARD couldn’t hire new employees, their current employees were constantly quitting, and any replacements they found were significantly more expensive than their predecessors.
Struggling to staff clinics and unable to meet demand, CARD began turning away patients.
That all sounds pretty bad, but probably would have been manageable if not for CARD’s payor contracts.
The business had previously negotiated long-term reimbursement deals, some dating back to 2012. At the time, it seemed like a solid move. Lock in coverage and rates so you have a sustainable, predictable business.
Unfortunately for CARD, that supposedly savvy deal-making turned out to be a donkey-brained blunder. Just like how your morning coffee is now $8 (+ 30% tip), CARD’s cost of service delivery ballooned over the ~ten years since those deals were struck.
By late 2020, a number of CARD’s contracts were operating at a negative margin. The more patients CARD signed up, the more money it lost.
But, like so many of 2023’s bankruptcies, the cherry on top was CARD’s debt burden.
Initially levered at a relatively conservative ~5.0x, the business took out additional debt financing to weather early pandemic clinic closures.
Combine the greater debt load with the fundamental challenges facing the business, and things quickly got ugly. Toss in twelve months of aggressive rate hikes, and it’s almost surprising CARD didn’t plunge into insolvency sooner.
The Company’s well-known struggles, alongside issues at competing platforms, drove a change in market perception for the previously hot roll-up strategy, dragging down multiples and cooling demand for autism assets. It’s never really a good look when you see a sponsor-backed platform close nearly 100 clinics.
But, just as CARD kicks the bucket, things may now have finally turned a corner, according to industry bankers and operators.
There’s a clear go-forward playbook. Figure out a way to solve, or at least improve, labor recruitment and retention, avoid locking yourself into unprofitable contracts, and then ride the demand wave straight to a hefty exit.
At least that’s the plan for CARD’s founder, Doreen Granpeesheh, who’s nearing a deal to acquire CARD out of bankruptcy for $25 million. Probably not the outcome she expected back in 2018 when Blackstone bought their majority stake from her at a valuation of $600 million.
Best to adopt this attitude when someone brings up PE involvement in children’s mental health providers
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This week’s other big dog deals…
⁃ Nasdaq agreed to buy trading and risk management software firm Adenza from Thoma Bravo for $10.5 billion.
⁃ Novartis reached an agreement to acquire Chinook Therapeutics for $3.4 billion, including a $200 million earnout. Focused on kidney disease, existing backers include Samsara, Frazier, BlackRock, and Versant.
⁃ TriNet Group has brought in Morgan Stanley to lead a sale of the company, currently trading at a $7 billion market cap.
⁃ KKR and HarperCollins are reportedly bidding for publisher Simon & Schuster, whose proposed $2.2 billion acquisition by Penguin Random House was blocked by antitrust regulators.
⁃ Barrick Gold has held preliminary discussions with $17 billion market cap miner First Quantum Minerals over a potential acquisition, but has gotten the cold shoulder thus far.
⁃ Rosen Group, a manufacturer of O&G pipeline testing equipment with $200 million of EBITDA, has handed Baird the mandate to lead a sale process.
⁃ Bain made an initial approach to acquire SoftwareOne, a Swiss cloud software provider, for $3.2 billion. The Company rejected the offer, claiming it “materially undervalues” the business.
⁃ Earthstone Energy has reached an agreement to acquire Novo Oil & Gas from EnCap Investments for $1.5 billion.
⁃ Gibson Energy agreed to purchase the South Texas Gateway terminal from Buckeye Partners for $1.1 billion.
⁃ One more energy deal — Patterson-UTI Energy agreed to buy NexTier Oilfield Solutions in an all-stock transaction that creates a $5.4 billion oil services firm.
⁃ Apollo, Sixth Street, and Warburg Pincus are each among the field of bidders vying for installment lending firm GreenSky, currently in a sale process banked by Goldman.
⁃ EQT has brought in Goldman to lead a process for content marketing firm Sitecore in a deal that could be worth up to $2 billion.
⁃ Michael Andlauer has reached an agreement to acquire the NHL's Ottawa Senators from the estate of Eugene Melnyk for approximately $1 billion. Andlauer, founder of a healthcare cold chain logistics business, is a big hockey guy, with the Senators purchase slotting in alongside majority ownership of Hamilton Bulldogs (Ontario Hockey League) and a minority stake in the Montreal Canadiens.
⁃ Towerbrook is looking for liquidity on Kevin's Natural Foods, a pre-made meals business that could bring in north of $700 million.
⁃ Duke Energy has agreed to sell its renewables business to Brookfield Renewable for $2.8 billion.
⁃ Just a couple extra Bs, no biggie — KKR has bumped up its bid for Telecom Italia's landline grid by €2 billion, submitting a revised offer of more than €23 billion.
⁃ Pritzker Private Capital is reportedly among the potential buyers tracking chemicals business Chase Corp., currently trading at a market cap of $1.2 billion.
⁃ GoldenTree is readying an exit of hotel chain Travelodge in a deal that could be worth up to £1.2 billion.
⁃ Madison Dearborn Partners is offloading gum business Bazooka Candy Brands, which could be worth nearly $700 million.
⁃ Glencore is down bad — after having earlier bids rejected for the whole company, they’ve now offered to buy Teck Resources’ steelmaking coal business.
⁃ Madhive, an adTech developer, completed a $300 million raise from Goldman Sachs at a $1 billion valuation.
⁃ Mistral AI, a French generative AI startup, took in $113 million from a combined seed through Series B raise. Lightspeed led, with participation from JCDecaux, Motier Ventures, Headline, and Sofina, among others.
⁃ Synthesia, a provider of generative AI video software, raised a $90 million Series C led by Accel, with participation from Kleiner Perkins, GV, and Firstmark.
⁃ TA Associates brought in $16.5 billion for its 15th fund.
⁃ TCV is having a tough go of it, nearing a raise that’s 50-75% less than its target of $5.5 billion.
⁃ GrowthCurve Capital raised a $1.4 billion debut fund.
⁃ Addition raised a $1.5 billion fifth venture fund.
⁃ Constitution Capital Partners raised a $1.1 billion sixth flagship fund and remains in the market for a separate $300 million special situations vehicle.
⁃ Bicycle Capital is targeting a $500 million debut venture fund.
⁃ The Engine is seeking $350 million for its third venture fund.
⁃ Recharge Capital is launching with a $200 million debut fund focused on ex-U.S. women’s health investments.
⁃ Peakview Capital raised $145 million for both direct and indirect venture investments.
⁃ Hidden River Strategic Capital raised a $245 million debut buyout fund.
Thanks for reading, catch you guys next week. Drop a line with any feedback or scoops (just reply here; kept anonymous).