By: Dexter Braff
There’s a game out there called “six degrees of Kevin Bacon.” Akin to the concept of “six degrees of separation,” CNN explains that the object is “to link celebrities to Bacon, in as few steps as possible, via the movies they have in common. The more odd or random the celebrity, the better. For example, O.J. Simpson was in The Naked Gun 33⅓ with Olympia Dukakis, who was in Picture Perfect with Kevin Bacon.”
Well, in mergers and acquisitions, A Few Good Men (and women) often play a similar game, targeting acquisitions that are one or two “Kevin Bacons” from either a platform that they are already invested in or a sector that is undergoing substantial growth.
For example, consider The Big Picture in behavioral health care M&A.
In order to develop new growth prongs, diversify risk, or sustain an acquisition strategy in markets that are nearing The End of the Line, a consolidator of residential substance abuse treatment may look one degree of separation from their core competency to acquire a non-residential, partial hospitalization or intensive outpatient program, a medication assistance treatment company (methadone or suboxone), or perhaps a sober living home.
Alternatively, buyers may look two or perhaps three degrees of separation away from their core – call it a Sleepers strategy – in order to build out a broader continuum of service or substantially increase their market capacity.
Acadia Healthcare is a Picture Perfect example of a company that stayed in its behavioral healthcare lane but branched out across several degrees of separation to avoid ever becoming one of the Flatliners.
Initially, Acadia focused its consolidation efforts on mental health until it went all Wild Things and pivoted two degrees to bet big on CRC Health Group, a predominately medication-assisted treatment company. Shortly thereafter, the company began to acquire residential treatment providers which, as suggested above, were only one degree from CRC. 45 or so transactions later, Acadia is one of the nation’s largest providers of behavioral health care services with revenues just shy of $3 billion.
[Which, according to Box Office Mojo, just so happens to be near the adjusted total box office take of Kevin Bacon’s movies.]
Coincidence?
You be the judge.
The other strategy we see is buyers targeting deals one or two degrees away from a hot sector.
Staying with our behavioral health example, rather than acquire treatment providers and becoming Trapped in reimbursement and liability risk (among others), shrewd buyers will seek out acquisition candidates that support the sector, such as those focused on electronic health records, revenue cycle management, data analytics, and others In the Cut.
Notably, buyers that target technology-enabled support of hot sectors get a double dose of Kevin. Not only can they leverage the enthusiasm for an attractive health care market, but they also get an extra lift from the Tremors technology companies are creating in the market all on their own.
So if you’re a seller, it wouldn’t be a false step to proactively consider the value proposition you may bring to buyers a couple of Kevin Bacons away from what you do, because, you know, sometimes, that’s Where the Truth Lies.
And, we know.
Enough of the Kevin Bacon movie references.
We were just feeling a bit Footloose.