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Ethically Achieving the Private Equity (PE) Investment Thesis

35 blog avatar Ten Steps to Financial Planning for Parents of Children with Special Needs
Expert Name: Karen Chung,
Expert Title: CEO & Founder
Company Name:  Special Learning, Inc.
Company URL: www.special-learning.com
Short Bio: Karen is the CEO and Founder of Special Learning. She graduated from Kellog and was introduced to the ABA field and ancillary therapies over a decade ago.

 It became her life’s passion to share knowledge of these evidence-based therapies to the global community who either work or have a child/adult with Autism Spectrum Disorder (ASD) or a related disorder. She has become one of the thought-leaders in this space and is achieving her goal through the works of Special Learning, Inc.

Ethically Achieving the Private Equity (PE) Investment Thesis

Private Equity (PE) firms have a LOT of money – think hundreds of millions, even billions of dollars. Their job is to invest this money in order to provide their investors (typically pension funds, hedge funds, ultra-high network individuals) willing to make a calculated “gamble” looking to get an above average return on their money. Their Limited Partners – i.e. investors – expect their money back in 5 to 7 years, although they may elect to leave their money in the PE fund by investing in the PE firm’s new fund by rolling it over (if there’s no need for liquidity and the performance of the previous fund was above average).

NOTE: PE firms DO NOT take risks! That’s why they generally only invest in mature businesses that are already generating cash. They like to invest in industries in which there’s an opportunity to “exploit” (or take advantage of) emerging market dynamics. Common examples of PE models looking for higher than average is called a “roll-up” or “aggregation” of smaller firms in a specific industry because their “investment thesis” a/k/a return justification are written by extremely smart people with degrees from Harvard, Stanford, MIT, University of Chicago, and of course, Kellogg Graduate School of Management at Northwestern University.

Prior to any action taken, these analysts conduct very thorough research to understand both the macro (industry-level) and micro (company-level) dynamics. This exhaustive research is called “due diligence.” Due diligence typically includes discussions with many target companies, reviewing published information on the industry and companies, and spending millions of dollars on expert consultants, accountants, attorneys and whomever else can verify that the rewards outweigh the risks. If due diligence indicates the there is a high probability of achieving their investment thesis, they just will jump in.

When they come “all in,” along with it comes tens, if not hundreds of million dollars with which to acquire additional businesses and to fund the growth organically. The 1st step in the implementation of their investment thesis is with a “platform” company. Often, the first company acquired is often used as a platform to acquire additional investments. This platform can be developed from a single acquisition, multiple acquisitions consolidated under a single umbrella, a single company purchased in an adjacent field or simply just creating one from scratch. Once Newco has been solidified, the M&A game really intensifies.

Upon the 1st success of a PE-backed firm, the rest of the PE firms who might have been circling around may decide to go “all in” as well. Due to the increase in competition for acquisitions, the rule of supply/demand is fully at play and PE firms are now willing to pay a substantial premium on the platform or add-on acquisitions to get to the finish line first.

That’s the business of Autism today. I will go on about why the field of behavior analysis is such a great business for PE to be in, but at a later time. I just want to focus on the mechanics.


PE firms buy businesses based on what’s called a “multiple of earnings.” This number can range from 3 times to 15 times (although 5X to 7X is the norm), depending on the industry. Typically, the less mature the industry, the higher the multiple. But since dynamic will only hold for a limited number of years, once there’s a proven success, EVERYBODY is looking to get in. PE firms are no different than any other businesses. They have a follow the leader mentality. And why not, when the “leader” can sell a business for $270 million to another PE firm in less than 7 to 10 years!


Blackstone’s PE Group: They have a lot of other types of investment vehicles and do this to diversify risk or  to maximize opportunities, depending on how you look at it. Back to the story… Blackstone paid $700 MILLION to purchase Center for Autism and Related Disorders (CARD). This is the single largest deal of a SINGLE ABA agency in the history of the field of behavior analysis!

If I work backward, the numbers are as follows:

I am told that the average net margin (profits/earnings) for an ABA organization is around 10%. Currently, ABA agencies are selling for 10X to 15X earnings. I’ll go with 10X because the math is simpler. Again, working backward, that means CARD’s net margin would have been around $70 million, which would also mean that their sales would have been around $700 million at the time of the transaction. And by all means, feel free to pick apart my analysis. The only data point that I’m sure of is the $700 million sale price. All the rest are my estimates (or guesstimates, to be more accurate).

So, fast forward 5 to 7 years. I’m almost positive – actually, I’m 100% positive! – that Blackstone will not be looking to sell the new CARD for $700 Million that they paid in 2018. Let’s call this a CARD PLUS deal. This “newco” would be CARD as a platform company with acquisitions and limited organic growth. Side note: I think that they would have to gobble up the already gobbled up PE-backed agencies since there are very few big fish left in the pond.

The only way for Blackstone to achieve their “investment thesis,” which I reasonably expect the goal to sell the rolled-up entity for $1 BILLION dollars, is to do a combination of the following:


(1) Increase revenues. Companies typically do this by acquiring new customers, getting into another line of business, increasing prices, or a seemingly troubling trend in our field – across the board billing “padding”

(2) Reduce costs. In most service-based organizations, the largest cost elements are those related to people. But in most other health sectors, it’s not critically necessarily have the level of clinical structure in place to maintain good clinical outcomes. Once you start tweaking with the “formula” without having other contingencies in place, bad things can happen. 

In our field, in order to be able to provide quality outcomes, these are the MUST haves:

(a) Qualified Staff to provide direct services. I personally think that 40-hours is a crazy low number. After all, do you want your child to receive ABA services – which can potentially transform their lives (or not) – from someone who has ONLY had 40 hours of RBT training? Hell no!!!

(b) Minimum Supervision 5% for RBTs (this is the Ethics Code mandate). Regardless, since this is THE MOST critical element of maintaining treatment integrity, you shouldn’t place an upper limit on supervision (case oversight), but most funders don’t pay for this, right?

c) Training and coaching. Because there are so many iterations of what a program needs to look, for a given client, at any given moment in time (well, at least monthly) and how it should be implemented, clinicians MUST have access to continuing education. After all, nobody knows everything.

These other variables also add to the profit equation, but to a much lesser extent:

(3) Increasing in operational efficiencies

(4) Decreasing operating costs

(5) Financial engineering



Unless executives who run ABA organizations, PE-backed or not, really know the mechanics of how to run a fundamentally sound business, care about ethics, is mission-driven, and are making an investment for the long haul, it’s unlikely that you will “win.” Why? Because this game has some “rules” and rules will be obeyed.

RULE #1: BCBAs are overhead. The less BCBAs a company has on staff, especially at an average salary of $100,000 (this includes benefits), the higher the profits. Cutting BCBAs without reducing caseload is literally like dropping money down to the bottom line. When you can cut 10 BCBAs who are being paid $100K ($85K in salary + $15K in taxes and benefits), you can add $1 million to the bottom line – at the snap of a finger (hopefully, no agency has adopted the practice of termination via text yet). And in this hyperactive M&A market, $1 million in profits can translate to $10 million in cash. Now, that’s quite an incentive – ethics? What’s that?

RULE #2: RBTs generate revenues. They are the worker bees upon which ABA agencies are built. Since this “class” of workers are completely unrepresented and virtually powerless in this global Autism Ecosystem, it’s very easy to exploit them. So, the practice of paying an RBT (or any direct care staff whose time can be billed) as 1099 staff vs. W-2 employee is a great way to keep costs down (illegal, yes, but profitable). Remember, employers have to pay their employees’ portion of taxes (FICA – social security and Medicaid tax), which is 7.65% of gross wages. Not to mention state and federal unemployment taxes. Add to that benefits and OMG! We’re talking about millions and millions of dollars in cost – or lost profits if you treated RBTs ethically. Although, being in violation of IRS regulation is not the smartest business decision. But then again, neither is billing fraud, but that seems to be commonplace as well.

RULE #3: Every billable hour adds up. In a BIG way! Dr. Jon Bailey is someone whom I see as the Ethics guiding light in the field of behavior analysis. In preparation for our Organizational Ethics & OBM Series, he and I have shared a few Ethics scenarios submitted by BCBAs – he’s usually the one doing the sharing.

Here’s a scheme, which is becoming a very troubling theme. We’ve had a few BCBAs who have reported that their agency has a mandatory minimum billing policy. Basically, in certain organizations, every client gets (and presumably receives) 10 number of hours of services per week – whether they need it or not.

Let’s do some quick math: If an agency has 100 clients and they bill a minimum of 10 hours per week for each client, that equals 1,000 extra hours per week. At an average reimbursement rate of $50 per hour, that translates to $50,000 in additional billings per week. Multiply the weekly billing by 52 weeks and that number becomes $2.6 MILLION!

Multiply that by 10X and that number becomes $26 MILLION! Let’s cut that assumption by 50% to account for variables that I haven’t factored in – like the client actually needs services, and we’re still left with $1.3 MILLION / $13 MILLION profit motivation.

To quote Dr. Bailey –” I’m hearing about various ways some companies are working to increase revenue without increasing their client base that is not necessarily in the best interest of the client. Profit-Forward rather than client-centric seems to be the sub-rosa message.”


I went into the “business” of Autism because I saw a chance to make a difference in the lives of parents living in the farthest reaches of the world without any access to Applied Behavior Analysis (ABA), an intervention that I still think is like a miracle. Or as Dr. Jon Bailey refers to it – “a cure for cancer.”

I am deeply troubled that clients, BCBAs and RBTs are being exploited. I resent that BCBAs, thousands of who are our clients, and many of whom are my friends, are put in situations that are so distasteful to them that they would rather quit without a job (and put their family at risk) because they can’t stand to stick around for another minute.

I am sickened by the fact that RBTs are being exploited.

Most of all, I HATE those clients that we’re supposed to be protecting are being put at risk because of “profit first” corporate policy.

My God! Imagine the consequences if funding sources decide to pull funding for ABA services! They never wanted to fund ABA in the first place! Ironically, this is EXACTLY what’s driving the PE M&A feeding frenzy in our field…The seemingly endless pots of money from insurance companies and customers lined up until you can’t see the line anymore…



Why? Because you can’t have a profitable ABA organization without BCBAs. If enough ethical BCBAs decided to shun unethical ABA organizations, I can almost guarantee that you will see behavioral change.

Do you want to be part of the solution? Send me an email: kchung@special-learning.com.

p.s. Let me proactively address comments that I know will come up. YES, I do realize that non-PE-backed organizations also behave badly. The difference is that when industry behemoths engage in unethical (and illegal) acts, it can bring the entire industry down with them. If I owned Karen Chung’s ABA Agency (I don’t have an agency. I never saw that model as an effective one to “bring ABA” to the world), and my agency decided to engage in unethical and illegal acts, no matter what I do, my actions will NEVER have the same impact on the field.


Most BCBAs and RBTs work really hard staying ethical. They apply their standards, of ethics, morals, and integrity across boundaries, both professional and personal. Of course, as BCBAs or RBTs, they must also abide by the BACB Code of Ethics and Professional Conduct as well. But the system of control that the BACB has in place to curtail unethical behavior has severe limits.

As a case in point, the Medicaid Fraud issue in S. Florida turned the ABA “industry” upside down. In addition to placing sanctions on those named agencies, Medicaid also imposed a 12-month moratorium on signing up any new ABA providers. Think about how many clients this affected. As a parent, I would be devastated!

What exactly was the Consequences of Billing Fraud? Just look at those BCBA-owned ABA Centers in S. FL sanctioned by Medicaid. Last time I checked (last week), their BACB certifications were still valid.


Big Money in ABA Series- Module 1: Who’s Buying? Who’s Selling? Who’s Winning? Who’s Losing? (RECORDED)

Ethics of Private Equity (PE) in the Field of ABA

Ethics of Private Equity (PE) in the Field of ABA


Parent Waitlist Program


November 02, 2023 | 12pm-1pm PDT

Journey to Independence

Community-based program designed to support families on waitlist

Being an RBT for me was extremely fun because where were you going to find a place where you can be completely silly without having to worry what people thought about you? This was the only job that made me feel like I could make a dramatic difference while being myself.

I also liked to be surrounded by people that had the same goals of wanting to help kids and the teamwork made the job much easier and more enjoyable.

Change and progress was the ultimate goal for our kiddos. The early intervention program was seriously only a miracle because I saw changes in the kiddos that from day one, you wouldn’t even recognize who they were.

Changes from being able to utter 3-4 words where they can only make a syllable from when they started, the behavior decreases in which kiddo that used to engage in 30-40 0 self-harm to only half, learning how to wait during games, table work where they use to swipe and drop to the floor if they had to.

My favorite was when the parents would tell us what amazing progress they were making at home. I used to tear up and felt for these parents so much because it was already difficult for them and now, they can trust and rely on ABA and the therapists knowing their goal was ours.

By Emma Rogers, BA, RBT

Mother Child
Special Learning’s Free Hotline

This is an independent SL Hotline that is part of our VCAT service. This hotline has no connection with any other association or membership group.

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