ays presentation v10

8/14/2019 AYS Presentation v10

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Commercializing InnovationTeam 11 – HPV Ventures

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ASPEN YOUTHASPEN YOUTH

SERVICESSERVICESANDREW BOZZELLIANDREW BOZZELLI

LAITH FAROUQILAITH FAROUQIJASMIN FARSHIJASMIN FARSHI

SOHAM TILLUSOHAM TILLU

NOVEMBER 24, 2009NOVEMBER 24, 2009

http://www.youtube.com/watch?v=i5QgTYjK4qA




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What is Aspen Youth ServicesWhat is Aspen Youth Services(“AYS”)(“AYS”) Source: CaseSource: Case

Business Description Treatment of “at-risk” youth is an emerging industry, composed of

Education Services: Residential (Private) and Outpatient/Day-School(Government)

Behavioral Treatment: Residential (Private), Wilderness (Private), andOutpatient/Day-School (Government)

Juvenile Correctional Services: Residential (Government)

Background Los Angeles-based provider of both residential and non-residential

special education, behavioral treatment, andrehabilitation/correctional services

AYS currently operates 17 programs in 7 states

Stage/Opportunity AYS is getting spun-out of College Health Enterprises (“CHE”), and

is looking for additional capital in order to fund growthstrategies

Looking to focus on certain market segments, and expansion into

new markets Growth-stage (40% discount rate)




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RecommendationRecommendation AYS = Love Deal

Strategic Focus and Changes

Target Market: High-end Private Pay (non-government)customers with need for “at-risk” youth services in theeducation and behavioral services

Exit Juvenile Correctional Services

Not a Love Deal Company is cash-constrained

Customers tend to be low-income

Government is a single payer, cash collection is slowand cumbersome

Invest Rollout new therapeutic residential educational facility in

Algonquin, IL (similar to Mt. Bachelor Academy)

Peak Cash Need = $5.8 million

Unit model 10 year IRR = 34.6% and Cash-on-Cash = 6.4x




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Macro Industry StructureMacro Industry Structure Overall market size for the treatment of at-risk youth is an

estimated $40 – 50 billion Special Education - $32 billion

Treatment - $4 - $7 billion

Corrections - $5 billion

Highly fragmented

Approximately 10,000 – 15,000 organizations consisting mostlyof small “mom and pop” shops

Organizations limited geographically

In recent years a trend of consolidation has occurred

Market growth is attributed to: Growing number of adolescents

Decline of quality in the public educational system

Increasing rate of juvenile crime

Increased demand for innovative behavioral treatmentmodalities

Court mandates to downsize overpopulated state-run facilities

Source: Case



Commercializing InnovationTeam – HPV Ventures

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S.U.C.C.E.S.S.S.U.C.C.E.S.S.Criteria DescriptionSize of Market

A

- -Overall market size for the treatment of at risk youth is an estimated $40 50billion

Uncertainty B Hiring and retention of new management team and quality staff

Potential liability issues-Growth is acquisition driven

Customer +B-Target customer is high end families with the need for assistance with their

-at risk children, , ,Partnerships with consultants schools therapists and other

/advisors counselors

Competition

-B,Market consists of mostly small geographically limited organizations: , ( .Educational services competitors CEDU Shankman Orthogenic School Univ of

)Chicago: ,Behavioral treatment competitors Magellan Health Services Partners in

ParentingEntry Barriers

+B Licenses and certifications Experience and expertise: ( . . )Centrality relationships with those you are partnering with i e referrals

Suppliers

-B, , , .Skilled employees such as nurses program advisors therapists and counselors

Reliance on finding new land and buildings for new facilities/Contractors for building out new acquired spaces

Substitutes +B, , , - ,Boarding schools counseling boot camps state run facilities and wilderness

programs




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M.M.M.M.M.M.M.M.Criteria Description

Market (Local) -A( . . ) -

Chicago land i e Woodstock provides ample opportunities for drawing at risk youth from the metropolitan area as well as surrounding Midwest towns

-Large amount of high end private payers/Large acreage for residential campus grounds

Model +B–Hybrid Facility based and Geographic based model

,Residential therapeutic educational care facility built for 80 students length-of stay between 8 14 months

, / -Revenue consists mostly of tuition averaging $5 000 month for 12 month program: - , ,Negatives acquisition driven difficulties in scalability liability issues

Management -B, ,Chairman who along with his family are the chief owners of AYS has

’successfully grown the business from its inception in the early 1970 s/President CEO has several years of experience and in 1997 was named one of the

100 most influential healthcare leaders in California by California Medicine Magazine

Opportunity to add to the management team to find a new VP of Business, .Development to lead acquisition strategy as well as find a new Sr VP to lead

Midwest growth efforts that has centrality to the Midwest. – : , - .Sr VP Midwest Operations Peter Myers Co Exec Director Orthogenic School

Money B Significant capital is necessary to fund acquisitions Additional time and financial resources required to permeate Midwest market

/Potential grant opportunities from federal state governments




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F.A.C.E.S.F.A.C.E.S.Criteria Description

FOCUS

B , ,Currently operating in education treatment and correctional Limited evidence of a focused growth plan

ASH B ,Upper management have solid backgrounds however additional due diligence is necessary to fully determine ASH

CAPABILITY

B ,Upper management have proven capabilities however there is a need

for new management team members to lead the growth strategy especially in new regions-Acquisition driven growth model can be difficult to implement

EXIT +B Exit opportunities exist for a potential IPO or strategicacquisition

SCALABILITY B :Positives numerous current small organizations to acquire provides expansion into new regions: ( . .Negatives difficulties in acquiring current businesses i e

, )capital culture




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Analogs – Selection CriteriaAnalogs – Selection CriteriaCriteria Description

At-risk youth Youth with high risk of failing at school; 13-18 years

Residential program Longer term (at least 12 months) school program with on-campus boarding

Treatment program Treatment for mental, behavioral and physical disorders

“Love deal” Focus of customer is wellbeing opposed to price

High quality staff service High grades for quality of service provided

Website optimization The use of website to market and promote services, communicate with prospectsand customers, and generate revenue

Acquisition-driven growth Company grows through the acquisition of existing businesses

Referral Prospect customers are being referred through a referral channel, such as, psychiatrists, education consultants, etc…




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Analogs – SummaryAnalogs – SummaryAnalogs Strengths Weaknesses

Magellan Health Services High quality services hospitalBig emphasis on the "Love Deal"Provides behavioral health facilities

Does not target "at-youth" onlyDoes not offer "Residential Education"programs

Res-Care Targets "At-Youth"Big emphasis on the "Love Deal"Provides behavioral health facilitiesGrowth by acquisition


Nobel Learning Communities, Inc. High end educational center Some emphasis on the "Love Deal"

Does not target "at-youth"Does not offer residential programs

GEO Group Target "At-Youth"Growth through acquisitionTreatment program

No emphaise on the "Love Deal"Big emphisis on the "Correctional"Services

Universal Health Services, Inc. High quality services hospitalBig emphasis on the "Love Deal"Provides behavioral health facilities





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Income Statement A(Dollars in Thousands)

Revenue assumptions




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Income Statement Assumptions Continued….Income Statement Assumptions Continued….

COG assumptions

Staff




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Income statement and cash flow assumptions continued…Income statement and cash flow assumptions continued…

G&A Assumptions

Executive Assistant

Legal Secretary




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Unit ModelUnit Model(Investment Assumptions)(Investment Assumptions)




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Unit Model – Income Statement AssumptionsUnit Model – Income Statement Assumptions

U i M d l I S A i ( )U it M d l I St t t A ti ( t )




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Unit Model – Income Statement Assumptions (cont.)Unit Model – Income Statement Assumptions (cont.)




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Unit Model - Advertising AssumptionsUnit Model - Advertising Assumptions




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Unit Model – 10 Year Income StatementUnit Model – 10 Year Income Statement




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Unit Model – 10 Year Cash Flow AnalysisUnit Model – 10 Year Cash Flow Analysis




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Unit Model - Correctional SegmentUnit Model - Correctional SegmentAnalysisAnalysis

RecommendationAYS should exit correctional segment because

Lack of strategic fit (It is not a love deal)

It is a single payer business (Government is the primary payer).

Low margins compared to educational and treatment segments.

Modeling correctional segmentCorrectional segment can be modeled in similar fashion as the other two segments.

The sales will be driven by direct sales approach rather than mass media.

Long term service contracts with the government (state and federal) will be required.

Closer relationship with charitable foundations will be required.

If these initiatives are achieved then correctional segment will have economics of a utility

i.e. predictable but low returns.




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RolloutRollout

Roll Up AssumptionsRoll Up Assumptions




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Roll-Up AssumptionsRoll-Up Assumptions(Actual General & Administrative(Actual General & Administrative

Expenses)Expenses)

Roll UpRoll Up




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Roll-UpRoll-Up(Consolidated)(Consolidated)




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Return MatrixReturn Matrix

Return Matrix

HPV Returns

5.5x27% 36% 42%

4.2x 6.2x 8.3x

5.0x25% 34% 40% IRR

3.8x 5.7x 7.6x CoC

4.5x23% 31% 38%

3.4x 5.1x 6.8x

50% 75% 100%

Operating Performance (EBITDA)

$26.43mm

Y e a r 7 E B I T

D A M u l t i p l e

$13.21mm $19.82mm




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APPENDIXAPPENDIX




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Unit Model – 24 MonthsUnit Model – 24 Months




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Unit Model – 24 Months (cont.)Unit Model – 24 Months (cont.)




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Market ResearchMarket Research Goals




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Market Research (cont.)Market Research (cont.) Estimated Costs of conducting Market Research:

Total Estimated Cost = $56,500

Source: Class Notes (Application of Market Research for Validation)

Type of Research Individual Cost Total Cost

Focus Groups $8,000 per group, 3-groups $24,000

Phone Interviews withParents/Families

$500 per interview, 25 families $12,500

Phone Interviews with PotentialReferrals

$500 per interview, 20 $10,000

Other – including marketreports

Various $10,000

A l D il A




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Analog Detail - AAnalog Detail - A

A l D t il BAnalog Detail B




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Analog Detail - BAnalog Detail - B

A l D t il CAnalog Detail C




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Analog Detail - CAnalog Detail - C




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Analog Detail - DAnalog Detail - D

A l D t il EA l D t il E




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Analog Detail EAnalog Detail E




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ReferencesReferences



LINKSLINKSCan I Afford It?" (Windows Media) (Real Player)

"[You get to the point where you say] I don't care what Ihave to do. I am going to get them the help theyneed. And suddenly the money doesn't matter….Itwas worth every penny.“

http://www.aspeneducation.com/video/parentsspeak.html



ays presentation v10

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