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Activist investor Engine Capital is pressuring Acadia Healthcare (NASDAQ:ACHC) to overhaul its board and rethink its growth strategy as the behavioral health provider grapples with federal investigations and steep share losses.
In a letter to the company's board, Engine disclosed a roughly 3% stake, making it one of Acadia's 10 largest shareholders.
The hedge fund urged the operator of psychiatric hospitals and recovery clinics to halt expensive new projects, review its asset portfolio, and add directors with deeper experience in behavioral health and capital allocation.
The letter stated that the company has consistently delivered negative returns, underperforming healthcare peers, leaving shares at a steep discount to intrinsic value.
Also Read: Psych Hospital Operator Acadia Healthcare Downgraded As It Braces For Medicaid Cuts
Underperformance is attributed to weak execution, missteps in reorganization under CEO Christopher Hunter, rising costs, poor capital allocation, and insufficient board oversight.
The hedge fund calls for an immediate halt to growth projects, a focus on operational efficiency and cost control, consideration of asset sales, and repurchase of undervalued stock.
Engine Capital emphasizes the need for a refreshed board with directors experienced in behavioral health operations and disciplined capital allocation.
Engine criticized Acadia's "growth at any cost" strategy, arguing it has led to an oversized corporate structure and limited operational turnaround. It also faulted the company's 2022 reorganization, which it said left an inefficient management framework in place.
The activist investor noted that none of Acadia's current directors have direct operating experience in behavioral health. It proposed asset sales as a means to free up capital, which could then be used for share buybacks, calling the company's stock "deeply undervalued."
The company's market value has fallen sharply, with shares down 71% over the past year. Acadia's equity valuation is just above $2 billion.
Price Action: ACHC stock is up 9.87% at $24.19 at the last check on Wednesday.
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Posted In: ACHC
