Spero Health acquired fellow multi-state office-based opioid treatment (OBOT) provider CleanSlate Centers. The deal saves CleanSlate from closure, according to public documents.

On top of saving CleanSlate Centers from closure, the deal effectively doubles Spero Health’s footprint and expands it into new states. Combined, the company operates 128 locations across Arizona, Indiana, Kentucky, Massachusetts, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Wisconsin. The two companies heavily overlap in Indiana, Kentucky and Ohio.

“We just happened to be at what I thought was the right place and the right time,” Steve Priest, CEO of Spero Health, told Behavioral Health Business. “We’re able to put together a transaction that we believe made sense for both organizations — which are doing a lot of really good things — to be stronger after we go through the integration process.”

The deal closed July 1. The exact terms of the deal were not disclosed. In part, Spero Health assumes the equity interests of CleanSlate Centers in exchange for assuming CleanSlate’s debt and paying the deal expenses, according to a public healthcare merger disclosure document.

“The Proposed Transaction is necessary to prevent closure of CleanSlate and any resulting impacts on the Affiliated Providers … the approximately 150 physicians and other licensed professionals that the Affiliated Providers employ nationally … and the nearly 20,000 patients cared for by the Affiliated Providers across the country,” the document, which is signed by CleanSlate Center CEO Chris Bove, states.

The company points to common market headwinds — diminishing payer reimbursement, increased labor costs, rising interest rates — and “settlement liabilities to the Department of Justice and Massachusetts Attorney General’s Office” as major strains on the company. Its debt has also matured, and it cannot pay it off and continue operations.

The public document further states that care will continue “as is” once the deal closes. Priest added that while there is overlap in Ohio, Indiana and Kentucky, there is little overlap
at the city-market level and that each organization is smaller or larger in the overlapping states.

Granite Growth Health Partner, HealthQuest Capital and CRG list CleanSlate Centers as an active or current portfolio company. Spero Health is backed by Heritage Group, Health Velocity Capital, South Central Inc. and Frist Cressey Ventures.

Both companies are part of the National Alliance for Comprehensive Addiction Treatment Solutions (NACATS). Priest leads the 501(c)4 advocacy entity. It focuses on enabling a mode of care it calls comprehensive addiction treatment. The organization contends that payer and government policies, along with underinvestment in such models, undermine this model of care.

The deal reflects Priest’s overall assessment of the OBOT segment. He has previously said that the industry needs to become stronger; this will require consolidation to allow the existing organization to gain greater market share and leverage with payers and to reduce administrative redundancies.

Spero Health has done smaller tuck-in deals in the past. Priest said this is the first major expansion the company has undertaken via M&A.

Deal flow in the addiction treatment sector has been slow over the last few years. Many of the same pressures CleanSlate articulated, plus the heightened pressure on behavioral health billing brought on by the One Big Beautiful Bill Act (OBBBA) and the Trump administration’s anti-fraud initiatives, have given investors pause as they try to make sense of the regulatory and reimbursement landscape. This is further complicated by how disfavored inpatient and residential care generally have become with payers.

“Everything outpatient these days is more desirable than inpatient,” Kevin Taggart, founder and managing partner of M&A firm Mertz Taggart, told BHB. “There are not as many pure-play outpatient SUD businesses as there are mental health. That market (outpatient mental health) is very strong.”

The addiction treatment industry is also seeing slower M&A activity, in part, because there have been few big-time deals that have produced positive outcomes. Two giants in the space, BayMark Health Services and Discover Behavioral Health, were taken over by creditors this year. The dearth of wins, in turn, cools investor interest, Taggart said.

That said, these many forces have driven down previously irrationally high multiples for deals in the addiction treatment space. And because there are fewer buyers, the likelihood of having to get into bidding wars for assets is lower, further tipping market power toward buyers.

While historically depressed, Taggart maintains that addiction treatment deals are still moving along, but at a slower pace and with a longer sales cycle. The adjusted earnings for a company to be considered for a platform investment have also come down in recent years.

The Spero Health-CleanSlate Centers deal may also reflect unique challenges to outpatient addiction treatment. While not involved with the deal, Taggart’s previous experience with OBOT providers shows that their per-patient revenues and therefore margins tend to be thinner than other addiction treatment modalities. And unlike opioid treatment programs (OTPs), which prescribe methadone on a daily basis, office visits may tend to be relatively lower at OBOTs. That tends to push providers toward diversifying their revenues into other services.

Spero Health, in recent years, has sought to establish telehealth services and intensive outpatient programming (IOP) and partial hospitalization programs (PHP) at some offices. On top of medication-assisted treatment (MAT) for opioid and alcohol use disorder, the company also integrates therapy, recovery support services, care coordination, recovery housing and specialized health services for bloodborne pathogens like Hepatitis C.

Diversifying services and mismanaging them landed CleanSlate Centers in hot water with the Massachusetts officials. At the end of 2021, the state announced the company had agreed to pay $4.5 million to the state over allegations of fraudulent billing related to its medical laboratory work. In November 2016, it paid a $750,000 civil settlement with the federal government over allegations of improper prescribing and false Medicare claims.