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watch?v=i5QgTYjK4qA

ASPEN YOUTH
SERVICES
ANDREW BOZZELLI
LAITH FAROUQI
JASMIN FARSHI
SOHAM TILLU

NOVEMBER 24, 2009

Commercializing Innovation AYS| 1

Team 11 – HPV Ventures
 What is Aspen Youth Services
(“AYS”) Source: 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), and
Outpatient/Day-School (Government)
 Juvenile Correctional Services: Residential (Government)


 Background
 Los Angeles-based provider of both residential and non-residential
special education, behavioral treatment, and
rehabilitation/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 growth
strategies
 Looking to focus on certain market segments, and expansion into
new markets
Commercializing Innovation AYS| 2
Team 11 – HPV Ventures  Growth-stage (40% discount rate)
 Recommendation
 AYS = Love Deal


 Strategic Focus and Changes

 Target Market: High-end Private Pay (non-government)
customers with need for “at-risk” youth services in the
education 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 slow
and 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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Team 11 – HPV Ventures
 Macro 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 mostly
of 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 treatment
modalities
 Court mandates to downsize overpopulated state-run facilities
Commercializing Innovation
Team 11 – HPV Ventures
 Source: Case
AYS| 4
 S.U.C.C.E.S.S.
Criteria D e scr ip t ion
A
Size of Market Overall market size for the treatment of at-risk youth is an estimated $40-50
billion

B
Uncertainty Hiring and retention of new management team and quality staff
Potential liability issues
Growth is acquisition-driven

B+
Customer 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

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

B-
Suppliers 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

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

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Team 11 – HPV Ventures
 M.M.M.M.
Criteria D e scr ip t ion

A-
Market (Local) 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

B+
Model 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

B-
Managem ent 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

B
Money 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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Team 11 – HPV Ventures
 F.A.C.E.S.
Criteria D e scr ip t ion
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 strategic
acquisition

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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Team 11 – HPV Ventures
 Analogs – Selection Criteria
Criteria 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 prospects
and 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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Team 11 – HPV Ventures
 Analogs – Qualitative
  Stage Pub At- Tre Res We Lov High  Grow Ref
lic risk  atm iden bsit e  qualit th by  erra
y 
youth ent  tial  e  deal staff  Acqu l
pro edu opti servi isitio
gra cati miz ce n
m on atio
n

Advanced Weight Loss & Rejuvenation Centers  Growth x  x  x  x 
ANASAZI Foundation Mature x  x  x  x  x 
Beacon Education Management Mature x  x  x x 
Corinthian College Growth x  x  x x  x x 
Correctional Corp of America Mature x  x  x  x x 
Eckerd Youth Alternative Growth x  x  x  x x  x  x  x 
Educational Services of America Growth x  x  x  x 
GEO Group (GEO-N) Growth x  x  x    x     x   
Island View Growth x  x  x  x x  x  x 
Kindred Health Care (KND-N) Mature x  x  x  x x  x  x 
Magellan Health Services (MGLN-O) Growth x x x   x x x x x
Nobel Learning Communities, Inc. (NLCI) Mature x       x x x   x
Nutrisystem (NTRI) Growth x  x  x  x  x 
Res-Care (RSCR-O) Mature x x x x x x x x x
Three Springs x x  x  x  x  x  x 
Turnabout Stillwater Academy x  x  x  x  x  x 
Turning Winds Academic Institute  x  x  x  x  x 
Youth Services International (YSI) x x x x x x x
Universal Health Services, Inc. (UHS-N) Mature x x x x x x x x x

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Team 11 – HPV Ventures
 Analogs - Quantitative
Data Select ANALOGS Public Revenue 1 Year COGS ($ COGS % SG&A ($ SG&A % 3 Yr Cash Depr & CapEX
Source ed Ticker ($mil) Sales mil) (Revenue mil) (Revenue CAGR Flow Amort ($mil)
Analo Growth ) ) Sales from
gs % Growth Operati
% ons

(1) (2) D Advanced Weight Loss & Rejuvenation   N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Centers 
(1) (2) D ANASAZI Foundation   $4  N/A N/A N/A N/A N/A N/A N/A N/A N/A

(1) (2) D Beacon Education Management   $13,390  0.6%  $815  6.1%  $8,745  65.3% 0.1% $2,575  $1,238  $1,221 

(1) (2) D Corinthian College COCO $1,069  14.5%  $581  54.3%  $392  36.7% 3.4% $14  $45  $37 

(1) (2) D Correctional Corp of America CXW $1,599  8.1%  $1,123  70.3%  $80  5.0% 6.3% $274  $91  $158 

(1) (2) D Eckerd Youth Alternative   $956  N/A $949  99.2%  N/A N/A N/A N/A N/A N/A

(1) (2) D Educational Services of America   $88  N/A N/A N/A N/A N/A N/A N/A N/A N/A

(1) (2) D GEO Group GEO-N $1,043  1.8%  $822  78.8%  $69  6.6% 19.4% $71  $37  $50 

(1) (2)   Island View   N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

(1) (2) D Kindred Health Care KND-N $4,151  (1.6%) $320  7.7%  $2,754  66.3% -0.9% $183  $122  $53 

(1) (2) D Magellan Health Services MGLN-O $2,625  21.8%  $2,439  92.9%  $0  0.0% 15.8% $268  $61  ($1)

(1) (2) D Nobel Learning Communities, Inc. NLCI $206  12.8%  $176  85.2%  $19  9.0% 8.4% $14  $7  $9 

(1) (2) D Nutrisystem  NTRI $688  (11.5%) $339  49.2%  $251  36.5% 6.7% $92  $9  ($26)

(1) (2) D Res-Care RSCR-O $1,544  7.7%  $1,385  89.7%  $59  3.8% 5.8% $47  $23  $30 

(1) (2)   Three Springs   $13,405  0.7%  $830  6.2%  $8,760  65.3% 0.1% $2,575  $1,238  $1,221 

(1) (2)   Turnabout Stillwater Academy   $13,406  0.7%  $831  6.2%  $8,761  65.4% 0.1% $2,575  $1,238  $1,221 

(1) (2)   Turning Winds Academic Institute    $13,407  0.7%  $832  6.2%  $8,762  65.4% 0.1% $2,575  $1,238  $1,221 

(1) (2)   Youth Services International YSI $13,409  0.7%  $834  6.2%  $8,764  65.4% 0.1% $2,575  $1,238  $1,221 

(1) (2) D Universal Health Services, Inc. UHS-N $5,022  5.7%  $2,133  42.5%  $1,591  31.7% 6.2% $484  $194  $43 

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Team 11 – HPV Ventures
 Analogs – Summary
Analogs Strengths Weaknesses

Magellan Health Services High quality services hospital  Does not target "at-youth" only

Big emphasis on the "Love Deal" Does not offer "Residential Education" 
Provides behavioral health facilities programs

Res-Care Targets "At-Youth" Does not target "at-youth" only

Big emphasis on the "Love Deal" Does not offer "Residential Education" 
Provides behavioral health facilities programs
Growth by acquisition

Nobel Learning Communities, Inc. High end educational center Does not target "at-youth" 

Some emphasis on the "Love Deal" Does not offer residential programs

GEO Group Target "At-Youth" No emphaise on the "Love Deal"

Growth through acquisition  Big emphisis on the "Correctional" 
Treatment program Services

Universal Health Services, Inc. High quality services hospital  Does not target "at-youth" only

Big emphasis on the "Love Deal" Does not offer "Residential Education" 
Provides behavioral health facilities programs

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Team 11 – HPV Ventures
 Income Statement As
(Dollars in Thousands)

Revenue assumptions

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Team 11 – HPV Ventures
 Income Statement Assumptions Continued….

COG assumptions

Staff

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Team 11 – HPV Ventures
 Income statement and cash flow assumptions continued…

G&A Assumptions
Executive Assistant

Legal Secretary
Commercializing Innovation
Team 11 – HPV Ventures
AYS| 14
 Unit Model
(Investment Assumptions)

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Team 11 – HPV Ventures
 Unit Model – Income Statement Assumptions

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Team 11 – HPV Ventures
 Unit Model – Income Statement Assumptions (cont.)

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Team 11 – HPV Ventures
 Unit Model - Advertising Assumptions

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Team 11 – HPV Ventures
 Unit Model – 10 Year Income Statement

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Team 11 – HPV Ventures
 Unit Model – 10 Year Cash Flow Analysis

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Team 11 – HPV Ventures
 Unit Model - Correctional Segment
Analysis
Recommendation
AYS 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 segment
Correctional 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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Team 11 – HPV Ventures
 Rollout

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Team 11 – HPV Ventures
 Roll-Up Assumptions
(Actual General & Administrative
Expenses)

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Team 11 – HPV Ventures
 Roll-Up
(Consolidated)

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Team 11 – HPV Ventures
 Return Matrix
Return Matrix

HPV Returns

27% 36% 42%

5.5x
Year 7 EBITDA Multiple

4.2x 6.2x 8.3x

25% 34% 40% IRR

5.0x
3.8x 5.7x 7.6x CoC

23% 31% 38%

4.5x
3.4x 5.1x 6.8x

50% 75% 100%

$13.21mm $19.82mm $26.43mm
Ope rating Performance (EBITDA)

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Team 11 – HPV Ventures
 APPENDIX

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Team 11 – HPV Ventures
 Unit Model – 24 Months

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Team 11 – HPV Ventures
 Unit Model – 24 Months (cont.)

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Team 11 – HPV Ventures
 Market Research
 Goals

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Team 11 – HPV Ventures
 Market Research (cont.)
 Estimated Costs of conducting Market Research:

Type of Research Individual Cost Total Cost

Focus Groups $8,000 per group, 3-groups $24,000



Phone Interviews with $500 per interview, 25 families $12,500

Parents/Families


Phone Interviews with Potential $500 per interview, 20 $10,000
Referrals



Other – including market Various $10,000
reports


 Total Estimated Cost = $56,500



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

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Team 11 – HPV Ventures
 Analog Detail - A

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Team 11 – HPV Ventures
 Analog Detail - B

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Team 11 – HPV Ventures
 Analog Detail - C

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Team 11 – HPV Ventures
 Analog Detail - D

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Team 11 – HPV Ventures
 Analog Detail E

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Team 11 – HPV Ventures
 References

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Team 11 – HPV Ventures
 LINKS
 Can I Afford It?" (Windows Media) (Real Player)
 "[You get to the point where you say] I don't care what I

have to do. I am going to get them the help they

need. And suddenly the money doesn't matter….It
was worth every penny.“
 http://www.aspeneducation.com/video/parentsspeak.html

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Team 11 – HPV Ventures