Are Private Equity Firms Making Money in Applied Behavior Analysis (ABA) and the Autism Industry?

A BILLION dollars would go a long way towards improving the lives of people with Autism, right? Well, you would think so… but what’s the TRUE impact of Private Equity investments in ABA businesses? Who’s winning in this game of ABA roll-up?

The formula is a no-brainer and success is almost guaranteed for PE firms who venture into Autism investing. The investment thesis is clear and convincing. The demand for ABA services is almost endless as the autism prevalence rates continue to rise without any sign of abating. Monies available to pay for the very expensive ($60,000 according to Autism Speaks), yet highly effective, Autism intervention called Applied Behavior Analysis (ABA) now exceeds several billions of dollars as decades of successful lobbying has resulted in government-mandated funding for ABA and other related services for individuals with autism. 

According to Autism Speaks, on April 25, 2019, 49 states had passed laws to compel private insurance companies to offer coverage for medically necessary intervention for individuals with Autism Spectrum Disorder (ASD).  On August 3, 2019, the state of Tennessee, and the final holdout, became the 50th and final state to pass the insurance mandate. What a milestone!!!

The supply side of the equation is equally as attractive. In the U.S., there are between 5,000 to 8,000 companies providing ABA services, most of which were started by clinicians or parents of kids with ASD with limited business background, knowledge or experience. There are very few market leaders with a large enough geographic footprint to access the available funding in all 50 states. In short, this is a market ripe for a roll-up picking. You can achieve scale very quickly by acquiring businesses under a platform and by bringing in professional management team, sales and marketing, and infrastructure support, a PE firm can increase topline revenues and improve bottom line profits simultaneously.

 Since October 2004 when Trimaran Capital Partners was the lone PE investor, there have been over 60 PE firms, ranging in size from $200 Million to $500 BILLION playings in what used to be a very small pond.

So, how’s the bet paying off?

Trimaran’s platform acquisition, Education Services of America (ESA), which eventually became ChanceLight Behavioral Health and Education sold in May 2018 to the Halifax Group ($1.5B under management) for a reported $125 million. With current EBITDA multiples fetching around 15X to 20X (for large ABA organizations), there’s no doubt that Trimaran’s return on this deal was worth the long wait, but the true poster child in autism investing is Autism Learning Partners. 

In January 2010, Great Point Partners ($370M under management) acquired Autism Learning Partners. Over the next 8 years, Great Point, along with Scopia Capital Management ($2B under management) and Jefferson River Capital, acquired 6 additional agencies under the platform. In December 2017, Great Point (along with Scopia and Jefferson River) sold Autism Learning Partners to FFL Partners ($4.5B under management) for $270 million.

Not too shabby for just 8 years of work. 

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