This morning, American Addiction Centers launched its initial public offering—a milestone CEO Michael Cartwright has been working toward for quite some time. Trading under the stock symbol AAC, the company is offering 250,000 shares with estimated net proceeds of $66 million. About an hour in, the stock was trading above $18 per share.
It’s a significant move in the behavioral healthcare market, which is generally comprised of smaller organizations and not-for-profit institutions. However, for-profit and public entities aren’t so rare in the larger business of healthcare overall. It’s not unusual for pharmaceutical and device manufacturers, insurance carriers and some hospital companies to be publicly traded.
“It’s a matter of perception,” says Paul Schwada, a Chicago-based business consultant. “If it’s healthcare, it’s work that needs to be done. And sometimes it’s better for it to be done by a for-profit than by a not-for-profit.”
Schwada says behavioral health entities can operate with a profit-making model because treatment and recovery services provide benefit to the many people nationwide who need them. Too often, not-for-profit organizations struggle with accountability and lack of strong leadership, he says. In his estimation, AAC has a good mix of executives with for-profit and not-for-profit experience.
“You just plain get better results when you are for-profit and when people have to perform,” he says. “If they can do it better than anybody else, they will expand and perform and provide people with real help.”
According to the Nashville Tennessean, Cartwright’s goal is to build AAC into the first billion-dollar brand in the addiction space. His 2013 total compensation package amounted to $1.9 million, which included a $1.2 million bonus, according to its recent filing with the Securities and Exchange Commission. And observers are calling AAC a worthwhile buy.
“There is a lot of money in behavioral health because the need is so widespread,” Schwada says.
In fact, he says he wouldn’t be surprised if AAC grows from its current six locations to 60 or more and moves behavioral health from a cottage industry to a franchise industry.
“Folks are going to look at this as a bellwether,” he says.
AAC growth projection
As chairman and CEO, Cartwright propelled AAC to $115 million in revenue in 2013, earning it a position on the Inc. Top 500 list, at No. 474. With six owned/leased inpatient centers accounting for 467 beds, AAC also has three new facilities under development (Tampa, Dallas and Las Vegas), as well as an additional property pending for purchase in Ringwood, N.J. Acquisitions are part of its growth strategy moving forward, according to the company, and it is particularly interested in claiming existing properties that lend themselves to behavioral health care models.
AAC is in a position to benefit from the increasing sources of payment for addiction treatment that have emerged as a result of the Affordable Care Act. Not only are more individuals covered by private health plans under the law’s provisions, their plans are also more likely to cover mental health and SUD services. In 2013, 90% of AAC’s revenues came from a mix of commercial payers, with the balance paid by individuals directly.