August 17, 2005
A Business Built on the Troubles of Teenagers
By Louise Story
Mary Ann Davies has spent
more than $100,000 in the last year to send her 16-year-old daughter
to one private counseling and educational program after another. She
has just signed up to go further into debt, committing herself to
spend another $100,000 over the next two years for a boarding school
in New York that she hopes will help her daughter overcome a drug
problem.
"We're saving this life,"
said Ms. Davies, who works in advertising in Richmond, Va. "You
can't put a price on that."
More and more parents of troubled teenagers are
following the same course and sending their children to special
programs - no matter the cost. At the same time, the number of
programs available has soared. They differ from the tough boot camps
and the long-term psychiatric stays that were the main options a
couple of decades ago. The new "feel good" programs combine therapy
and education, often in an outdoor setting, at an average cost of
$5,000 a month.
Those numbers have drawn the
attention of some big money investors, who see a growing need for
the kind of services these programs provide. Although there have
been allegations of abuse within the industry, and those have
garnered most of the media attention on the schools, officials at
several companies said almost all the incidents had been at a
handful of less reputable programs.
Caleb Kenna for The New York Times
Bromley Brook is part of the Aspen
Education Group, one of the more
prominent providers of programs for troubled teenagers.
 At
the same time, the influx of money from investors seeking a high
return on equity is worrying some traditionalists in the field, who
are concerned that the bottom line may take precedence over
students' needs. So far, they said, the schools are able to charge
enough to make solid profits while keeping most customers satisfied.
Seeing
opportunities in many places
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"If you've got a child with problems, this is your most precious
asset, and I don't think any parent would ever cut corners if they
thought there was a way to help their child through the problem
they're experiencing," said Joseph Kenary, the president of the
corporate finance business at CapitalSource Finance, a lender to the
Aspen Education Group, based in Cerritos, Calif., and one of the
more prominent providers of programs for troubled teenagers. If the
programs are "run well, if they're full, they generate a pretty
attractive return on a cash-on-cash basis."
Caleb Kenna for The New York Times
An art class at the Bromley Brook School
in Manchester Center, Vt., a boarding
school for girls with behavioral problems.
No one tracks the industry's
enrollment, revenues or claims of success or failure, in part
because the programs fall through the regulatory cracks and in part
because the industry is still so fragmented. But financial analysts
and educational consultants estimated that the number of teenagers
attending such programs had quadrupled since 1995, to as many as
100,000 this year. They estimate that annual revenues now total at
least $1 billion.
Venture capital firms like
Warburg Pincus and the Sprout Group, a division of Credit Suisse
First Boston, have found it a promising business opportunity.
Two of the larger private
companies, Aspen and Three Springs, based in Huntsville, Ala., have
been buying up smaller programs and founding new ones. Universal
Health Services, a public company that primarily owns hundreds of
hospitals, has expanded into teenage behavioral programs.
John L. Santa, a co-owner of
Montana Academy, a school based in Marion, Mont., that he co-founded
in 1996, and president of the National Association of Therapeutic
Schools and Programs, said he had been approached several times by
companies looking to buy the school. But he decided not to sell,
even though he said he believed that most large companies had been
doing a good job so far.
"You're caring for
individual kids," Dr. Santa said. "You're not making widgets.
There's a fear as you move into a more corporate structure, you will
lose some of what we do."
In contrast with companies
focusing on general education - like Bright Horizons Family
Solutions, the day care provider, and Edison Schools, the charter
school company - the behavioral programs are dealing with a
population that presents a higher risk.
"These kids are difficult,"
said Andrew E. Kaplan, a partner at Quad Ventures, a private equity
firm that has been looking to invest in the field for about four
years. "If something bad happens at one, it may be something that's
completely out of your control. You may have done everything right,
and still something happens."
Officials at the programs
acknowledge that their type of therapy does not work for all
teenagers. Even parents who were happy with the programs said they
were not sure whether their teenager had simply matured or had
changed because of the experience.
The teenagers who attend
these programs have often been diagnosed with attention deficit
disorder or other behavioral problems and are taking medications.
Some have used drugs or have been sexually abused. Many have been in
trouble at school or in minor trouble with the law. Others have run
away from home or stolen from their parents.
The National Association of
Therapeutic Schools and Programs lists 140 schools and programs,
about 100 more than it listed in 1999. But educational consultants,
who advise parents on these programs, say the total number of
programs available is now closer to 300.
Since 1990, Lon Woodbury, an
educational consultant who has published a newsletter on the
industry for 15 years, said he had noticed an increase of 20 to 30
percent in the number of help programs for teenagers. In June, he
wrote a column saying that there was still "plenty of room" for new
programs.
"All indications are that
the market is still growing," he wrote. "The consensus is that
increasing numbers of children are in trouble and are not growing up
very well."
It is not clear, however, if
more teenagers have problems than a generation ago or if more
parents are sending their teenagers away for help. Educational
consultants said there seemed to be less of a stigma about seeking
therapy today.
Perhaps most important, more
parents have the disposable income or the equity in their homes to
pay the typical price of $400 a day for an outdoor program. While
most parents have to pay the bills themselves, some also receive
help from their school district or insurance company.
The field began to
commercialize in the mid-1990's. In 1998, the Sprout Group and
Frazier Healthcare Ventures of Seattle bought the majority of Aspen,
a company with a handful of programs at that time but with major
plans to expand. In 2002, Warburg Pincus invested $15 million in
Aspen; around the same time, the company received at least $48
million in loans from CapitalSource and Caltius Mezzanine, two
companies that specialize in lending to small and midsize companies.
Investors are particularly
drawn to the field because it is almost entirely supported by
individual payments rather than being dependent on public financing.
"I've been in the private equity business for 15 years, and I don't
like to invest in companies where, with one strike of a pen, you can
wipe out your business," said Nader J. Naini, a general partner with
Frazier Healthcare and also the chairman of Aspen's board.
Since Frazier invested in
Aspen, Mr. Naini said he had been approached several times by other
groups wanting to buy the company. Frazier is in no hurry to sell
its share, though, he said, because he expects continued growth.
Aspen and similar companies
may go public at some point, company officials said. If Aspen went
public, it would have to open its books to investors, allowing them
to see its profit margins and operating costs. The company has 31
programs in 11 states, up from 6 programs in 1998. Aspen has
recently expanded into the obesity market, offering schools and
camps for overweight teenagers.
Industry analysts estimate
that the companies typically generate profit margins of 10 to 20
percent.
Kirsten Edwards, an equity
research analyst at ThinkEquity Partners, a research and investment
banking firm in San Francisco, said larger companies were more
efficient because they could spread the cost of their curriculums,
marketing and overhead as they expand.
Universal Health Services,
the hospital management company, acquired 12 properties from Charter
Behavioral Health Systems for $105 million in 2000. That acquisition
included the Provo Canyon School in Utah, which has been around
since the 1970's as a help center for teens.
The company is set to take
over several therapeutic schools that were run by CEDU Education,
the earliest large company in therapeutic teenage help and a branch
of Brown Schools, now bankrupt. Brown, which was based in North Palm
Beach, Fla., went bankrupt in March largely because of lingering
legal costs from lawsuits filed by several former students, said a
spokesman for McCown De Leeuw, the private equity firm that owned
Brown. Universal Health's bid of $13.35 million for the properties
has been accepted by the bankruptcy judge, and the sale is expected
to close at the end of the month, said George L. Miller, a partner
at Miller Coffey Tate in Philadelphia and the bankruptcy trustee for
Brown.
Another private company,
Three Springs, has seized on the market growth in the last five
years, adding six new programs. Three Springs now has 25 programs,
and may continue to expand.
"What we are trying to do
is build a continuum," said Sharon Laney, the company's chief
operating officer. "If the kid does not fit this model, we have
another."
Many teenager help programs
were founded by counselors and therapists wanting to start their own
businesses or by people who have had troubled teenagers in their
lives. Some parents of graduates of these programs - among them
Joel J. Horowitz, chairman of the board and the former chief
executive at Tommy Hilfiger - have been so impressed by the schools
that they have started foundations to help finance the programs for
those who have trouble affording them.
A new reality television
show on ABC this summer, "Brat Camp," which shows a wilderness
program in action, could spur even greater interest by giving more
parents insights into the programs.
Ms. Davies, the Richmond
mother, said she wished she had found her daughter's new school in
New York sooner. The other programs her daughter attended, she said,
were not the right matches - and they cost a lot of money.
For now, Ms. Davies said,
she is focusing on her hopes that her daughter will have a
breakthrough and realize that she needs to change. But she said she
was also wondering how she and her husband would meet all the bills.
Already, they have dipped into their home equity.
"We're going have to
reconcile this at some point, and it's going to be tough," she said.
"I don't think we have a choice."
Link to the article:
http://www.nytimes.com/2005/08/17/business/17teen.html
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