IPO Report: Civitas Solutions (CIVI)

Civitas Solutions ($CIVI) is the leading national provider of home- and community-based health and human services to must-serve individuals with intellectual, developmental, physical or behavioral disabilities and other special needs. It is based in Boston.

Six other companies are scheduled for the week of Sept. 15, 2014, including Alibaba. The full IPO calendar is available at IPOpremium.

The manager and co-managers are Barclays, BofA Merrill Lynch, and UBS Investment Bank. The joint managers are Raymond James, SunTrust Robinson Humphrey, BMO Capital Markets, and Avondale Partners.

CIVI scheduled a $251 million IPO with a market capitalization of $794 million at a price range midpoint of $21.50 for Wednesday, Sept. 17, 2014 on the NYSE. SEC filings

Civitas Solutions IPO Report

Overview

CIVI is the leading national provider of home- and community-based health and human services to must-serve individuals with intellectual, developmental, physical or behavioral disabilities, and other special needs.

The price-to-tangible book value is a negative -1.9, which indicates the private equity owners have stripped as much cash as possible from the company.

Valuation

Glossary

Conclusion

The rating is neutral to negative. 

CIVI is a leveraged buyout wanting to IPO to repay debt to decrease interest charges.

Adjusting for IPO proceeds to repay debt, CIVI's P/E ratio is 249. 

Business

CIVI is the leading national provider of home- and community-based health and human services to must-serve individuals with intellectual, developmental, physical or behavioral disabilities and other special needs.

These populations are large, growing and increasingly being served in home- and community-based settings such as those CIVI provides. CIVI’s clinicians and caregivers develop customized service plans, delivered in non-institutional settings, designed to address a broad range of often life-long conditions and to enable those CIVI serves to thrive in less restrictive settings.

CIVI believes it offers a powerful value proposition to government and non-public payors, referral sources, and individuals and families by providing a continuum of high quality, cost-effective residential, day and vocational programs, and periodic services.

CIVI currently offers its services through a variety of models, including (i) neighborhood group homes, most of which are residences for six or fewer individuals, (ii) host homes, or the “Mentor” model, in which a client lives in the private home of a licensed caregiver, (iii) in-home settings, within which CIVI supports clients’ independent living or provide therapeutic services, (iv) specialized community facilities to support individuals with more complex medical, physical and behavioral challenges, and (v) non-residential care, consisting primarily of day and vocational programs and periodic services that are provided outside the client’s home.

During its nearly 35-year history, CIVI has evolved from a single residential program serving at-risk youth to a diversified national network providing an array of high-quality services and care in large, growing and highly-fragmented markets.

As of June 30, 2014, CIVI operated in 36 states, serving more than 12,500 clients in residential settings and more than 15,700 clients in non-residential settings.

CIVI has a diverse group of hundreds of public payors that fund its services with a combination of federal, state and local funding, as well as an increasing number of non-public payors in its newest service lines.

CIVI’s services are provided by over 20,000 full-time equivalent employees, as well as 5,500 independently-contracted host home caregivers.

For fiscal 2013, CIVI generated net revenue of $1.2 million and a net loss of $(18.3) million, and for the nine months ended June 30, 2014, CIVI generated net revenue of $938.9 million and a net loss of $(16.9) million.

Over the last three fiscal years ended September 30, 2013, CIVI grew its annual revenue 19%, or $195 million, 54% of which was from organic growth and 46% of which was attributable to businesses acquired during this period or in the preceding year.

CIVI believes that its new start investments and its substantial acquisition pipeline, coupled with new opportunities to expand its services in new and existing markets, position CIVI for continued strong growth.

History of losses

For the years ended September 30, 2011, 2012, 2013 and the nine months ended June 30, 2014, CIVI generated net losses of $43.5 million, $14.3 million, $18.3 million and $16.9 million, respectively.

Dividend Policy

No dividends are planned.

Intellectual Property

None.

Competition

The I/DD market is highly fragmented, with both not-for-profit and for-profit providers ranging in size from small, local agencies to large, national organizations.

CIVI and the other leading national provider only account for less then 5% of services by revenue in the I/DD market.

Although state and local governments continue to supply a small percentage of services, the majority of services are provided by the private sector.

Not-for-profit organizations are also active in all states and range from small agencies serving a limited area with specific programs to multi-state organizations.

Many of the not-for-profit companies are affiliated with advocacy groups such as community mental health and religious organizations.

The at-risk youth and troubled youth market is extremely fragmented, with several thousand providers in the United States. Competitors include both for-profit and not-for-profit local providers serving one particular geographic area to a single state, and, to a limited extent, multi-state providers.

CIVI competes with local providers, both large and small, including hospitals, post-acute rehabilitation facilities, residential community-based facilities, day treatment centers and outpatient centers specializing in long-term catastrophic care and short-term rehabilitation.

This market also includes several large national providers of general inpatient and outpatient rehabilitation services.

5% stockholders

NMH Investment LLC 68%

Use of proceeds

CIVI intends to use the $231 million in proceeds from its IPO as follows along with cash on hand:

redeem all of the $212 million in aggregate principal amount of the senior notes issued by NMHI at a redemption price of 106.25% plus accrued and unpaid interest thereon to the date of redemption and pay a transaction advisory fee of $8 million to Vestar under the management agreement with Vestar, which agreement will terminate upon completion of this offering

The senior notes mature on February 15, 2018 and have an interest rate of 12.50% per annum.

CIVI intends to use any remaining net proceeds for general corporate purposes.