American Addiction Centers, a Brentwood, Tenn.-based substance abuse treatment provider, has entered into an agreement to buy another facility, its third purchase since its initial public offering.
The deal comes as AAC sees a wide opportunity to consolidate the fragmented substance abuse market as more patients gain insurance coverage to help them pay for treatment, said CEO Michael Cartwright. Its recent IPO also has given it the firepower for acquisitions, he said. Shares of parent company AAC Holdings have nearly doubled since pricing at $15 in October.
In its latest deal, the company will pay $6.6 million and assume $0.5 in liabilities to buy Sunrise House Foundation in Lafayette, N.J., a not-for-profit provider of substance abuse treatments. The Sunrise campus includes 110 inpatient beds for rehab and detox, 30 beds at two halfway houses and two outpatient treatment centers.
The purchase is expected to close in the third quarter. AAC plans to spend $5 million to renovate the campus over the next year.
The agreement follows a January deal to buy Clinical Services of Rhode Island for $665,000 in cash and $1.3 million in restricted shares of AAC common stock. AAC also forged a December deal to buy Recovery First, a substance abuse and rehab provider in Hollywood, Fla., for $13 million in cash.
AAC, headquartered in the for-profit healthcare belt surrounding Nashville, aims to build a national brand in the behavioral health space by buying up independent operators. It is taking its cue from the eldercare space, which was largely fragmented several decades ago until larger companies began buying up facilities, Cartwright said.
AAC's growth also is coming at a time when substance abuse is transitioning from a self-pay market to a more lucrative insurance market.
The Mental Health Parity and Addiction Equity Act of 2008 “really transformed how insurance companies interact with this disease,” Cartwright said. Moreover, the Affordable Care Act expanded insurance coverage to vulnerable young adults by allowing them to stay on their parents' plans until age 26.
State legislators also have made addiction an area of focus, Cartwright said, pointing to Vermont Gov. Peter Shumlin's January State of the State address, which focused entirely on opiate and heroin addiction.
“You're starting to now see multiple states say, this is a problem,” Cartwright said. “And you have a lot more people being able to receive treatment.”
The company earlier this month expanded its borrowing capacity with a $125 million credit facility that will further its growth strategy. “There are thousands of these operations that we think we can buy up over the next five to 10 years,” Cartwright said.