Acadia Healthcare (ACHC, Financial) provides behavioral health care solutions for mental and substance use disorders. It manages 587 behavioral health facilities with 17,400 beds in 39 U.S. states, United Kingdom and Puerto Rico.
The company is valued at $4.85 billion in terms of market capitalization, which is based on last week’s closing price of $55.42.
Acadia and addiction treatment industry
One of the main focus areas of Acadia is the treatment of substance abuse, including legal and illegal substances, such as alcohol, tobacco, marijuana, prescription medications, cocaine, methamphetamine and more.
The industry of drug and alcohol addiction rehab is huge. According to Substance Abuse and Mental Health Services Administration, the industry generates over $35 billion annually, and there is a great potential in the future. This is because only 11% of the addicts receive care at an addiction treatment facility, according to the same source.
The impact of alcohol and drug abuse is drastically affecting the U.S. economy. According to Per Wickstrom, CEO of Best Drug Rehabilitation:
“Drug addiction has severe negative consequences for individuals and society as a whole. In fact, the total cost related to drug abuse and addiction exceeds $600 billion in the U.S. each year. This staggering figure includes $428 billion for alcohol and tobacco and $193 billion for illegal drugs. These numbers may be overwhelming, but they do not accurately portray the breadth of destruction and the safety implications associated with drug addiction. Every year, jobs are lost, families are torn apart, and abuse takes place at the hands of addiction.”
Acadia Healthcare was involved in the development of addiction rehab solutions right from the start, becoming one of the most important names in the industry. Founded in 2005, the company went public six years later after listing on the NASDAQ in 2011, at an IPO price of $8.40.
The company’s stock didn’t pick up the rhythm until 2013 when it started trending upward. However, that rally seems to have stalled over the last 10 months with the share price falling from the highs of $85 to the current level of about $55.
As illustrated in the chart above, you could see Acadia Healthcare’s stock price depicted by a series of higher highs and higher lows, since finding the support position above $40 per share in the late months of 2013. Its peak was in August 2015, when Acadia Healthcare’s share price reached $85.62.
Acadia’s acquisitions
In 2011, Acadia’s new boss Joey Jacobs set the company on an acquisition binge in a bid to steering its expansion.
The company’s first acquisition came in April that year when it bought Youth & Family Centered Services, based in Austin, Texas. And shortly, next up on the list was the purchase of PHC, also known as Pioneer Behavioral Health. And in 2014, Acadia successfully completed 5 acquisitions, including the purchase of McCallum Place.
However, the biggest deal in the US addiction industry was to come in 2015, when Acadia acquired the California-based CRC Health Group for $1.18 billion, after which it reached its peaks.
In February 2016, Acadia completed the acquisition of the UK-based Priory. The latter was a key provider of behavioral healthcare services in the UK, with over 300 facilities and 7200 beds. The deal reached $1.94 billion and remains the largest acquisition of ACHC.
CEO Joey Jacobs said about the deal: “We have already taken a major step toward continuing our strong performance in 2016 by completing the acquisition of the Priory Group. Priory brings approximately 7,100 behavioral healthcare beds in 327 facilities to Acadia and generated revenue of approximately $865 million for the twelve months ended September 30, 2015. We welcome the high-quality Priory team of more than 13,000 people to Acadia, and we are confident of our prospects for producing further growth as the UK’s leading independent provider of behavioral healthcare.”
The Brexit effect
On June 24, Acadia Healthcare share price dropped by 11.24%, from $62.44 to $55.42. The last time when Acadia lost 11% during a single day was in June 2012.
The main reason for such a huge drop is the Brexit referendum’s shocking result – the U.K. citizens voted to leave the EU. The result generated turmoil in the Forex and stock markets.
Acadia had two huge acquisitions of U.K. companies: Partnerships in Care and Priory. As such the number of the company's British facilities exceeds the number it owns in the U.S. This U.K.-oriented direction was exposed after the Brexit results, and the share price dropped by over 11%.
What to expect?
Acadia Healthcare is a major player in the addiction treatment industry, and it has a bright future in the long term. The Brexit results could be confusing investors and subsequently result in a short-term volatility in the share price.
This is why you shouldn’t jump into buying or selling the stock, but rather, stay on the sidelines and watch it closely. Once the correction starts, it might make sense to consider long positions with long term trading.
Disclosure: I have no position in any stock mentioned in this article.
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