Undoubtedly, the addiction-treatment industry has been watching Michael Cartwright, chairman and CEO of American Addiction Centers (AAC), for the past few months. In October 2014, Brentwood, Tenn.-based AAC launched its initial public offering (IPO), and according to market watchers, it was a confident debut, with AAC early stock price exceeding expectations at $18 per share.
Since then, stock prices have experienced a high of more than $30 and a low around $17.
“It’s a testament to the enthusiasm in the marketplace,” according to Ryan Daniels, a partner with investment banking and asset management firm William Blair, who participated in the due diligence leading up to the AAC initial public offering and continues to follow the company.
Daniels estimated the company would generate revenue of $121 million and earnings of $0.21 per share in 2014. Revenue could reach $154 million with earnings of $0.53 per share in 2015.
“There is definitely a lot of excitement about the industry among institutional investors,” he says. “Individuals like the fact that it is a large and growing space.”
In fact, the sector has garnered so much interest, Bloomberg posted a story on the AAC empire today.
Slice of the pie
Data indicates that 2.5 million people seek treatment at specialty centers every year, and AAC served about 5,000 of them. Daniels says with the company reaching less than .02 percent of a $35 billion market, there’s plenty of room to grow organically and through mergers and acquisitions. The AAC growth potential is especially attractive to investors.
In fact, in December 2014, the company announced it was acquiring Recovery First and its 56 beds for $13 million—a deal analysts hadn’t specifically predicted. Then in January, it also announced it would acquire three outpatient centers in Rhode Island for $665,000 in cash and $1,335,000 worth of restricted shares of AAC common stock.
“With that many assets out in the field, this company, with this capital, could be a logical acquirer of some of the other entities in the space,” Daniels told Behavioral Healthcare prior to the deal’s announcement.
But today’s industry competitors shouldn’t be overly concerned, he says. There’s plenty of market share to go around, and AAC now has the resources to do much-needed clinical-outcomes research that will benefit the industry as a whole.
By fall, AAC will move its headquarters and call center operations from its current home base of 21,800 square feet of office space to a 102,000-square-foot building in Brentwood, Tenn.—located just over a mile away. About 80 percent larger, the new office offers room to grow.
AAC’s future growth plan also includes opening new treatment centers. It recently opened a 164-bed location in Tampa, and in January obtained licensure for an outpatient facility in Las Vegas. Another facility is in the works for Dallas, and a flagship location is planned for New Jersey. All the facilities are marketed under the American Addiction Centers name.
Going public is a significant move in the behavioral healthcare market, which is generally comprised of smaller organizations and not-for-profit institutions. According to Cartwright, the industry sorely needs capital to meet its growth potential in healthcare’s new era. He projects that AAC will now be able to evolve into the industry’s first national brand with a dozen or more residential properties and 30 to 40 outpatient centers covering every major market in the country. It’s been his vision to create a national brand with high-end facilities and proven clinical quality.
While the investment dollars will certainly open up opportunities for acquisitions and organic growth, AAC has also committed some of its new financial resources to a project with Nashville-based Centerstone Research Institute to conduct four three-year studies that will evaluate AAC's clinical approach. The research will aim to document how lengths of stay enhance long-term outcomes because, according to Cartwright, the best predictor of patient outcomes is length of stay. While the treatment industry knows that as an intuitive fact, the Centerstone data is expected to back that up and provide evidence to help payers agree to optimal coverage of services.
Cartwright tells Behavioral Healthcare that he still struggles with the lifelong disease of addiction himself and goes to regular meetings.
“I’ve been sober for 23 years,” he says. “I’ve been at this for 21 years, and the reason why I got into [the addiction treatment business] is to help others,” he says.
Cartwright says AAC aims to raise the bar for the entire industry because not enough resources and research dollars have gone into fighting addiction. He believes it’s time to consider an update for the 20- and 30-year-old methodologies that so many treatment professionals have been offering patients.
BH: Why did you want to take American Addiction Centers public?
Cartwright: Our goal as a company is to build a national brand. If you look at other industries in the United States, you can point to national brands, and most of those are large companies. The addiction world has been lacking that in a lot of respects because of the size of the organizations.