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FFL and Two Sigma Impact acquire opioid treatment provider CMS

Opioid use disorder care is one of the largest and fastest growing segments of US healthcare and is suffering from a supply constraint of qualified medical professionals.

FFL Partners and Two Sigma Impact have acquired majority ownership of Community Medical Services (CMS), a provider of treatments for opioid use disorder (OUD). Affiliate title PE Hub interviewed the lead investors from both firms, as well as the CEO of the target.

Founded in 1983 and headquartered in Scottsdale, Arizona, CMS operates more than 45 clinics in nine states. The company aims to provide high-efficacy treatment for OUD while reducing the stigma associated with it. CMS is credited with opening the nation’s first 24-hour opioid treatment-on-demand centre in Phoenix in 2017. The company was an early adopter of telemedicine and currently delivers about half its services via that medium.

“Society has a punitive mindset about people who use drugs,” Nick Stavros, CEO of CMS, told PE Hub in an interview. “CMS provides compassionate care and harm reduction in a nice, inviting environment, a place where they can heal.” Stavros’ sister died from an overdose of heroin approximately 20 years ago.

When seeking investors, Stavros said he looked for partners who shared the company’s “mission, vision and values of putting patient care first and who looked to us to make a huge dent in the opioid crisis.” Stavros said he liked what he heard when he spoke with CEOs of companies that the lead investors from FFL and Two Sigma Impact had invested in previously. He added that he admired FFL’s reputation for operational excellence in behavioural health and Two Sigma Impact’s emphasis on data science and workforce development.

“We have been active in the behavioural health space for some time now and have spent the past several years looking to make an investment in the medication assisted treatment space,” Chris Harris, managing partner, FFL Partners, told PE Hub.

“When we had the opportunity to meet with the CMS team, it was clear that they were looking to build something different. With the opioid crisis intensifying, we are seeing a massive gap between those in need of care and available providers,” he said. “CMS’s dedication to not only providing treatment but improving access for those who otherwise would not have been able to receive care was something that really resonated with our team.”

“Behavioural health is well positioned for value creation,” Geoff Lieberthal, partner, Two Sigma Impact, told PE Hub. “CMS is on the cutting edge of addressing supply issues and providing quality treatment. They have a track record of opening up new locations in new geographies.”

Harris and and Lieberthal have known each other for 20 years and worked together previously. Lieberthal mentioned the growth plans include inorganic growth through potential acquisitions.

OUD care is one of the largest and fastest growing segments of US healthcare and is suffering from a supply constraint of qualified medical professionals, according to CMS. Opioid users are one of the most significantly underdiagnosed and undertreated populations in the nation, with only about 43 percent of the 4.6 million individuals suffering from OUD having been diagnosed and only 40 percent to 50 percent of those diagnosed receiving treatment. These factors are creating significant demand for substance abuse treatment programs that are focused on passionate care and positive outcomes.

FFL Partners is a San Francisco-based private equity firm with over $5 billion under management. Two Sigma Impact is a business of Two Sigma. Its mission is to combine active, principled ownership and data science with the goal of achieving superior returns and positive social outcomes.

Terms of the transaction were undisclosed. Sources peg the target’s 2021 revenue at $100 million. The deal marks an exit for Clearview Capital, which invested in CMS in 2018.

CMS was advised by Houlihan Lokey and Alston & Bird LLP, while FFL and Two Sigma Impact were advised by Willkie Farr & Gallagher LLP.

Update: This story was updated to include information about Clearview Capital.