Earlier this month, Clearview Capital announced that its platform company, Senior Care Centers of America, Inc. had made an add-on acquisition. By acquiring the adult daycare division of Beelong Adult Day Services, Clearview Capital made its eighth add-on acquisition to this platform in six years. An add-on is an acquisition funded by an investment firm that is “added on to” or “bolted on to” an existing platform company. In this case, Senior Care Centers is the platform that Clearview Capital is clearly building into a larger entity. Keep in mind that strategic buyers also acquire companies using a variation of an add-on strategy to grow as well.
Background on Clearview Capital
Before we get into this specific deal, let me give you some background on Clearview Capital and Senior Care Centers. Clearview Capital LLC is a private investment firm specializing in the “acquisition and recapitalization of North American companies with operating profits of $4 – 20 million.” The firm’s management team has a successful track record of completing transactions and then creating new value in their portfolio companies. As a team, the principals have invested in ten platform companies and have also completed numerous add-on . In aggregate, the company’s current portfolio has and operating profits in excess of $500 million and $100 million, respectively.
Clearview Capital is especially interested in “businesses whose management and/or selling shareholders wish to be significant stakeholders in the newly acquired enterprise.” It clearly believes that companies are more likely to prosper when management has a meaningful ownership stake and shares Clearview Capital’s objective of creating long-term value in a new entity.
Who is Senior Care?
With a total of 27 centers in New Jersey, Pennsylvania, Connecticut and Mississippi, Senior Care Centers of America Inc. is the “second largest operator of adult day health centers in the United States.” Senior Care’s centers provide a daytime program of nursing care, social services, meals and recreational activities to frail, elderly and disabled adults. As a cost-effective alternative to in-home and nursing home care, “adult day services fill a growing need to provide health care to an aging population while allowing patients to maintain their independence.”
In December 2005, Clearview Capital supported a management buyout of Senior Care Centers. While Clearview has a controlling equity stake, management remains in day-to-day operational control of the business. This last statement is really critical. Clearview Capital prefers to structure their deals so that existing ownership is not only retained but also keeps a portion of the equity of the new entity (they have some “skin in the game” as they say). Not only does this solidify Clearview Capital’s relationship with management, it also helps them to retain key talent while at the same time providing much needed capital for expansion.
Size is Not a Deal-Breaker for Add-Ons
What really struck me about this deal was just how small the transaction was in relation to Clearview Capital’s other holdings. According to the press release, “The adult daycare division of Beelong Adult Day Services consists of three adult day health centers located in Bucks and Montgomery Counties of Pennsylvania.” Notice the segment I have bolded above. Beelong is comprised of only three locations!
Many small business and middle-market owners are amazed to learn that equity firms will invest in really small companies if they are making add-on acquisitions to an existing platform. That is clearly the case here. Obviously I don’t know how much revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) Beelong is generating. However, with only three locations, they do not fit the criteria that Clearview Capital states are its minimum for investing (companies with operating profits of $4 – 20 million). This illustrates that middle-market equity firms acquire small add-on companies when the targets have specific criteria that match their platform companies.
If you are the owner of a, you might be surprised to learn about equity firms operating in your industry using the same philosophy as Clearview Capital. Keep in mind that most of these transactions fly under the radar and are not widely publicized. And don’t let your relative small size cause you to erroneously believe that you are too small to be an add-on.
Having said that, of course, not every middle-market company will be a target of an equity firm. The only way to determine this is to consult with an expert in M&A activity who can give you his/her candid advice on the types of buyers that might find your firm attractive.
One final note: Don’t assume that Clearview Capital is only focusing on the healthcare industry. They’re not. In fact, according to their website, they currently have nine platform companies in a wide range of industries. This also can be considered a common characteristic of equity firms that specialize in the . They look for investment opportunities that make sense. They often are completely industry agnostic. If you look at Clearview Capital, this is visibly the case.