Employess Buy Cornerstone NY Using ESOP  E-mail
Addiction Treatment Industry Newswire

12/11/2016 - ATIN - Cornerstone Treatment Facilities Network, more commonly known in the treatment industry as Cornerstone NY, has been sold to its employees using an employee stock ownership plan structure, or ESOP. While Cornerstone NY executives would not provide any financial details of the private transaction, published reports said Connecticutt-based Webster Bank seperately announced it had provided $20M in financing for the transaction.

"Proceeds of the ESOP transaction funded the redemption and sale of shares to the ESOP and a concurrent acquisition of an inpatient treatment facility from a related party. Webster Bank, as sole lender, provided $20 million in senior debt along with $2 million in mezzanine notes from Oxer Capital," wrote ABL Advisor in a recent article published online about Webster Bank's financing of the employee buyout of Conerstone NY. ABL Advisor is a highly specialized publication aimed at the banking industry, according its website.

In an interview with Treatment Magazine, a top Cornerstone NY executive said that Conerstone NY "reached out" to the accounting firm of O'Connor Davies, which the executive said has considerable expertise in structuring company sales to employees using the ESOP structure.

The first ESOP was created in the 1950s by a California newspaper owner who wanted a way to transfer ownership of his company to employees. ESOPs got a big boost in the 1970s when Congress enacted tax breaks to encourage their use. The structure involves the transfer of ownership of company stock into a trust. Banks or other finacial concerns typically finance the transaction in a manner similar to which Webster Bank financed the Conerstone NY deal.

Conerstone was founded by East Coast treatment entrepreneur Norman Sokolow, who has been the treatment enterprise's CEO and had a large stake in the company along with other investors, said Conerstone NY executives who spoke with Treatment Magazine. While Cornerstone NY has been among the most successful for-profit addiction treatment concerns of the last few decades, it has not been without its problems.

According to published reports, Conerstone's Eagle Hill facility near Danbury, CT was put into foreclosure proceedings about 15 years ago by Lutheran General Behavioral of Chicago. Lutheran General Behavioral in the 1980s acted as a major consolidator of treatment centers accross the nation. The attempt by Lutheran General at a treatment industry "roll up" ultimately collapsed amidst a pile of debt when managed care slammed treatment revenues in the early 1990s.

Prior to the foreclosure, Cornerstone's Eagle Hill facility was closed for more than a year by order of state health regulators for failure to follow regulations required under state licensure, according to published reports. Cornerstone NY bought Eagle Hill from Lutheran General, which also financed a portion of its own sale of Eagle Hill to Sokolow and Cornerstone NY, the reports say.

Cornerstone NY currently has large residential centers in Fresh Meadows, NY and Rhinebeck, NY with a total of 260 beds, according to company spokesperson Paul Creary. Cornerstone NY also offers a full continuum of care beyond just residemtial, Creary said.

Advising the Cornerstone NY management team in the transaction was Prairie Capital Advisors, a Chicago-based investment bank with offices throughout the Mid-West and the South, confirmed Prairie Capital marketing exec Wendy Gugora.

Ted Jackson


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