Inperium valued Resources for Human Development at $134 million in new bond offering

Inperium Inc., a fast-growing Reading nonprofit, has moved closer to completing its acquisition of Philadelphia’s Resources for Human Development, a prominent health and human services nonprofit that was on the ropes financially this year and needed a rescue.

As part of its deal for RHD, Inperium now wants to raise $172.6 million in tax-free municipal bonds, according to a preliminary offering statement issued Nov. 26.

Collateral for the proposed bonds includes mortgages on 29 Pennsylvania properties RHD uses to help clients with intellectual disabilities and other challenges live in community settings. After at least two rounds of layoffs this year, RHD employed 2,800 people in roughly a dozen states in September. More than 70% of its revenue is from Pennsylvania.

A central component of the bond offering statement is the refinancing of $50 million of existing Inperium debt. However, the bond sale is contingent on the clearance of regulatory hurdles for the RHD acquisition. Inperium highlighted two so-called no-objection letters from the Pennsylvania Attorney General.

Inperium’s chief of staff Jennifer Gassen did not respond to an email last week asking if the AG had issued the letters, which were expected by Dec. 1. An AG spokesperson declined to comment on whether the office had granted the letters from units that oversee charitable organizations and competition.

» READ MORE: What led to RHD's planned acquisition by Inperium.

Inperium and RHD provide similar services in fields like treatment for mental health and substance use disorders, and support for people with intellectual and developmental disabilities. Inperium also has subsidiaries that work in child welfare and juvenile justice.

The refinancing plan calls for Inperium’s acquisition of RHD to close at the same time as the bond sale. There’s no guarantee, however, that investors will have an appetite for the unrated bonds. Most of the money from the bond sale would land on Inperium’s balance sheet, rather than be used immediately to purchase assets, the offering statement shows.

Inperium founder and CEO Ryan D. Smith has a computer system for tracking the finances of human services nonprofits nationwide using Guidestar, an information service that compiles data from 990 tax returns.

He looks for stagnant revenues, year-over-year declines in cash, trends in administrative expenses, and more than a dozen other financial criteria to spot struggling nonprofits that might be available for consolidation into the conglomerate founded in 2016, Smith explained in a June interview.

The bond statement says Inperium has been selective in its deal making, “having presented 204 letters of intent to target companies but only affiliating with 36.” The number of preliminary offers Smith has sent works out to one every 16 days on average.

RHD turned up on his radar in April 2023. Less than a year later, in February, Smith sent an offer letter to RHD’s board. That month the organization long respected for its services for people with intellectual disabilities and mental illness was reeling from larger-than expected losses for fiscal 2024.

It has already laid off 65 people in January. The board ousted the CEO in March, and in April another 85 RHD staffers lost their jobs. By May, with the bank behind a $25 million line of credit growing impatient, RHD was on the verge of bankruptcy. That’s when the RHD board agreed to the Inperium acquisition.

Even though Inperium’s definitive agreement to acquire RHD wasn’t completed until Oct. 14, Inperium had already taken control of RHD’s board and replaced RHD’s chief financial officer and chief information officer with its own services. Inperium loaned RHD $15.3 million on Oct. 3.

Inperium did not include recent financial information for RHD in the bond statement. The organization’s audit for fiscal 2023 shows a $6 million operating loss. That loss was expected to climb to $10 million in the year ended June 30, RHD’s board chair Jay Deppeler said in a June 6 interview.

Despite RHD’s deepening financial woes, a financial adviser Inperium hired to help with the bond deal set the acquisition price for RHD at $134 million.

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Only $15 million is for the acquisition of property. The remainder, $119 million, is for what accountants call goodwill, the bond statement says. Traditionally, accounting goodwill is the value a company has beyond its physical assets, such as a brand and a customer base.

The establishment of a price for RHD doesn’t mean Inperium will turn over that amount of cash. As is customary in deals involving nonprofits, Inperium will simply assume control. If the bond sale succeeds, much of the money raised would contribute to a projected $150 million increase in Inperium’s cash holdings.

As for RHD’s performance as part of Inperium, a dramatic turnaround is expected. Between fiscal 2015 and 2022, RHD had operating margins of less than 1% in most years, and two small annual losses. That’s not unusual for the sector.

But after bigger losses in fiscal years 2023 and 2024, the bond statement predicts that RHD’s annual operating margin will surge to a steady 6%.

RHD CEO Brian Matthew Rhodes told staff in a September email that big improvements had been made already: “Our financial outlook is looking brighter thanks to the significant changes we have made and our hard work over the past few months.”