Why PE is coming for ABA
You have probably already gotten the call. A polite associate from a firm you have never heard of, asking whether you have ever thought about "strategic options for the business."
That call is not random. ABA has almost every characteristic private equity looks for. Demand exceeds supply in most markets. Revenue is recurring and authorization-backed. The payer base is insurance rather than out-of-pocket, so collections are predictable once you know what you are doing. And the industry is still overwhelmingly owner-operated, which means it is fragmented — hundreds of two-to-six clinic practices with no dominant regional player.
Fragmentation is the whole thesis. A firm buys one platform company at a fair multiple, then buys smaller practices around it at lower multiples, and the combined entity gets valued at the platform multiple. That spread is most of the return. It is called a roll-up, and it is why a firm will pay you more than your neighbor and still make money.
None of that is sinister. But you should understand it, because it tells you what you are walking into. The buyer across the table has done this thirty times. Most owners do it once.
I have been on both sides of that table. I have sold a company to private equity, and I currently chair the finance committee of a firm that buys them. What follows is what I wish every owner knew before the first call.
What a buyer is actually buying
Owners tend to think they are selling a business. Buyers think they are buying a stream of future earnings with a specific risk profile attached.
That distinction explains almost every frustrating moment in a deal. When diligence pushes back on your numbers, they are not accusing you of anything. They are asking a narrower question: how much of last year's profit will still be there in three years when I no longer have you?
Which means the things that make your business valuable to you — your reputation, your relationships with school districts, your ability to recruit BCBAs because people like working for you — are precisely the things a buyer discounts, because they may walk out the door with you.
So the work of getting ready for a sale is mostly the work of converting personal advantages into institutional ones. Documented processes. A leadership team that runs clinics without you. Referral relationships that belong to the company rather than to your cell phone.
A buyer is not paying for what you built. They are paying for what keeps running after you stop.
The twelve months before you pick a banker
The highest-leverage period in any transaction is the year before it starts. Once a process is live, your numbers are what they are. Before it starts, they are still changeable.
Clean the books
Most ABA practices under $10M run on cash-basis or modified-cash accounting because that is what the tax accountant set up. Buyers want accrual, GAAP-consistent statements, and they want at least two years of them.
The gap between those two things is bigger than it sounds. On cash basis, revenue lands when the payer pays, which in ABA can be sixty to a hundred and twenty days after the session. That timing distortion moves revenue between months and sometimes between fiscal years. A buyer normalizing your numbers will restate all of it, and the restated version is the one that sets your price.
Convert early. If you convert twelve months before a process, you go into diligence with a clean accrual year already on the books. If you convert during diligence, you spend the process arguing about your own financials.
You also want the close to actually close. A monthly close that lands on the fifteenth with a real balance sheet reconciliation is worth more than most owners realize — not because buyers score you on it, but because it is the difference between answering a diligence question in an hour and answering it in a week. Slow answers read as disorganization, and disorganization reads as risk.
Fix the concentration story
Concentration is the fastest way to lose a turn of EBITDA. There are four kinds in ABA and buyers look at all of them.
Payer concentration. If one commercial plan is more than roughly a third of revenue, expect questions. Not because it is fatal, but because a single rate action or network change from that payer moves your whole P&L. If you can add a payer or shift mix before a process, do it.
Referral concentration. If most of your intake comes from two pediatric practices or one school district, that is a relationship risk. Document it, diversify it if you can, and be ready to explain why it is durable.
Clinician concentration. If one BCBA supervises a disproportionate share of billable hours, the buyer will model that person leaving. Non-solicits and retention agreements help. Spreading the load helps more.
Geographic concentration. Several clinics in one metro is a different risk profile than several clinics across a state. Neither is wrong. Know which story you are telling.
Build the data room before anyone asks
Every deal has a diligence request list, and it is remarkably consistent. Three years of financials. Payer contracts with rate schedules. Credentialing records for every clinician. Authorization and utilization data. Employment agreements. Lease agreements. Corporate records and cap table. Malpractice and general liability history. Any correspondence with a payer about an audit or overpayment.
You will be asked for all of it. The only variable is whether you spend six weeks assembling it under time pressure while also running your clinics.
Build it early. A well-organized data room does something beyond saving time: it signals to the buyer that the business is run by adults. That perception is worth real money in negotiation, because it reduces the buyer's perceived execution risk.
The process, step by step
Teaser and CIM
Your banker writes a one-page anonymous teaser and a thirty-to-sixty-page confidential information memorandum. The CIM is a marketing document. It presents your business at its best, with adjusted EBITDA and a growth plan.
Read it critically before it goes out. Everything in it will be tested. A growth claim you cannot support in diligence is worse than one you never made, because it costs you credibility on everything else.
Management presentations
You will present to a series of firms. This is where owners either build or lose confidence. The buyers are assessing whether you understand your own business at the level of detail they will need post-close.
Know your unit economics cold. Revenue per billable hour by payer. Direct cost per billable hour. Utilization by clinic. What happens to margin when a clinic goes from sixty to seventy-five percent capacity. If you cannot answer those without looking at a spreadsheet, prepare until you can.
Letter of intent
An LOI sets headline price, structure, exclusivity, and a timeline. It is mostly non-binding on price and very binding on exclusivity.
That asymmetry matters enormously. The day you sign an LOI, you lose your leverage, because you have contractually agreed to stop talking to other buyers. Everything after that point is negotiated against a counterparty who knows you have nowhere else to go.
So negotiate hard before the LOI, and keep the exclusivity period as short as you can defend — sixty to ninety days is reasonable, and push back on anything longer without a milestone attached.
Quality of earnings
The buyer hires an accounting firm to test your numbers. This is the most consequential phase of the deal and the one owners are least prepared for.
The QoE team rebuilds your EBITDA from source data. They will test revenue recognition timing, examine your add-backs one by one, look for costs that a standalone buyer would incur that you currently do not, and normalize working capital.
Their report becomes the basis for the final price. If QoE finds your adjusted EBITDA is $4.2M rather than the $4.8M in the CIM, and the deal was at 8x, you just lost $4.8M of enterprise value. That is not a hypothetical — it is the single most common way ABA deals lose value.
The defense is preparation. A sell-side quality of earnings, run by your own accountants before you go to market, finds the problems while you can still fix them or at least explain them.
Purchase agreement
Lawyers negotiate representations, warranties, indemnification, escrow, and the working capital mechanism. Owners often disengage here because it feels legal rather than financial. That is a mistake — several million dollars of value live in these clauses.
Where deals lose value
The retrade
A retrade is when a buyer lowers the price after the LOI, citing something found in diligence. It is common, and it is sometimes legitimate. It is also sometimes a negotiating tactic that works because you are ninety days in, exclusive, and emotionally committed.
The best protection is having no surprises to find. The second best is a credible willingness to walk, which is only credible if you prepared for it. The third is a banker who has seen the tactic before.
The working capital peg
Almost every deal is done on a cash-free, debt-free basis with a normalized working capital target — the "peg." You deliver the business with a defined level of working capital at close. Above it, you get paid the difference. Below it, the price drops.
In ABA, the peg is mostly about accounts receivable, and the fight is about how much of your AR is real. A buyer will argue your aged receivables over one hundred and twenty days are not collectible and should be excluded. If your collections process is weak, you will lose that argument, and it can cost hundreds of thousands of dollars.
Clean up AR before a process. It is the least glamorous value creation available to you and among the most reliable.
Earnouts
An earnout defers part of your price contingent on future performance. Buyers like them because they bridge valuation gaps and keep you motivated. Owners should treat them skeptically.
The problem is that after close, you no longer control the inputs. The buyer sets the budget, approves hiring, allocates corporate overhead, and may integrate your clinics into a larger entity where your performance is no longer separately measurable.
If you accept an earnout, negotiate the measurement with real specificity: which metric, calculated how, with what exclusions, measured over what period, and with what protections against buyer decisions that suppress it. And treat the earnout as worth substantially less than face value when you compare offers. Some portion of earnouts are never paid in full.
Rollover equity
Most PE deals ask you to roll ten to thirty percent of your proceeds into the new entity. The pitch is the "second bite" — that your rolled stake will be worth more when the platform sells again in four to six years.
Sometimes that is true and the second bite exceeds the first. But understand what you are accepting: minority equity in a leveraged company you no longer control, with no liquidity until the sponsor decides to sell.
Read the governance terms. What are your information rights? What happens in a down round? Are you dragged along if they sell at a loss? Is there a tag-along protecting you if they sell without you? These provisions decide whether rollover is an opportunity or a trap.
After the close
The deal is not the end of the work. The first hundred days determine whether the thesis holds.
Expect a reporting burden unlike anything you have run before. Monthly packages, budget variance explanations, board meetings, integration workstreams. If your finance function was thin before the deal, this is where it breaks.
Expect your role to change. You may have a three-year employment agreement, but the operational autonomy you had as an owner is gone. Decisions that took you an afternoon now take a committee.
And expect pressure on clinical decisions that you will need to push back on. This is the part I care most about, and I will be direct: ABA companies serve children with autism, and there are places where financial optimization and clinical quality genuinely conflict. Caseload ratios. Supervision hours. Authorization advocacy. The time to establish your position on those is during negotiation, when you still have leverage — not eighteen months later in a budget meeting.
If protecting those standards matters to you, put it in writing. Clinical governance provisions, a defined role for your clinical director, and a documented supervision model are all negotiable. Most owners never think to ask.
What I would do if I were you
If a sale is three or more years out, stop thinking about the transaction and build the business. Grow revenue, professionalize finance, develop a leadership team that runs clinics without you. Everything that makes the company better also makes it more valuable, and you do not have to guess about timing.
If a sale is twelve to twenty-four months out, start the preparation work now. Convert to accrual. Run a sell-side quality of earnings. Fix your AR. Build the data room. Identify your add-backs and gather the support. Have someone who has read a purchase agreement before read yours.
If you are already in a process and something feels wrong, get independent advice immediately. Your banker is paid on close. Your lawyer is expert in documents, not in what a normalized EBITDA should look like for an ABA company. You need someone whose only job is your side of the number.
The owners who do well in these transactions are rarely the ones with the best businesses. They are the ones who understood the process before it started.
If you want to talk through where your practice actually stands, that is a conversation I am glad to have — whether or not you ever hire me.