Unlike home health, hospice, or urgent care where the core services and settings are relatively uniform, behavioral health is far more eclectic with a wide variety of services (addictions treatment, mental health, developmental disabilities, at-risk-youth) provided in numerous settings (residential, hospitals, clinics, community based). Accordingly, buyers have been slow to consolidate the sector. But with a greater awareness of the need for behavioral health services, and parity initiatives in place to bolster funding, behavioral health M&A has rocketed over the past five years. While addictions and substance abuse was first out of the gate – and remains strong – autism services and services for individuals with developmental disabilities is gaining momentum.
Behavioral Health Experts
With the exception of the tax inspired ”bump and slump” that occurred between 2012 and 2013 as sellers sought to capture favorable capital gains tax treatment, behavioral health mergers and acquisitions have been rising steadily – and meaningfully – since 2010 when health care reform ( and mental health parity
) was enacted.
2015 marked the sixth consecutive year of record breaking transaction volume for addictions and substance abuse treatment providers. We are beginning to see, however a subtle shift in demand from high-end residential programs to more value oriented outpatient and community based programs including PHP/IOP, medication assisted treatment, and transitional living.
Although M&A Activity for providers serving individuals with developmental disabilities has been rising steadily, we saw a spike in volume beginning in 2014. This was due in large part to a surge in interest in autism spectrum
disorder services (beginning 2014) and a recent flurry of private equity sponsored platform investments in group homes
While still at elevated levels, deal flow in mental health has softened since it peaked in 2012. This is due less to a change in sentiment regarding the go-forward prospects for the sector, and more towards a heightened interest
in addictions and substance abuse, autism spectrum disorders, medication assisted treatment, and recently. group homes.
At risk youth is the only sector that has not experienced a sustained period of elevated a M&A activity through 2015. We suspect this is due to a combination of refocused interest in the other segments
— addictions, mental health, and individuals with developmental disabilities — and concerns regarding the liability risk
in managing a difficult population, flurries of bad press,
Private equity continues to be enamored by the growth prospects in behavioral health. What’s more, in 2015 there were more than 20 new platform investments in the space — more than double the previous record. This bodes well for a sustained period of “me-too” investments as well as follow-on deals as sponsors seek to leverage their initial transactions.