BEHAVIORAL HEALTH
April 2025
Autism M&A Roars Back
During our opening presentation at the 2024 Autism Investors Conference, we suggested that unlike all the other sectors we cover, the widespread plunge in deal flow from the second half of 2022 to the first half of 2024 was good for autism.
The Downturn in Deal Flow Was Good for Autism
The macroeconomic conditions during that 24-month period – inflation, high interest rates, staffing shortages, and market instability – upended M&A deal flow globally across all industries. But unlike many of the other sectors we cover that weren’t facing substantial headwinds, autism was reeling from continued bad press, pressure from private insurers, strains on staffing, and notably, hangover from the failure of several high-profile consolidators. So, in what would have been a down year anyway, autism had the opportunity to address many of its problems and be well positioned to bounce back when overall market conditions improved.
And, for the most part, the sector followed this path, rocketing up 32% over the prior year. Moreover, in the first quarter of 2025, the sector notched the most deals since the fourth quarter of 2020.
The reason we say “for the most part” is that on a quarterly basis, there have been wide swings in deal flow, which make annual numbers a tad more delicate to read.
In fact, this performance is even more significant when we compare the autism figures with the overall health care services market (which includes autism’s favorable number), which rose only 1.7%.
PE Exit Activity
Another detail which makes autism deal activity in 2024 even more significant is private equity exit activity. Given PE’s raison d’etat – increasing the value of their investments – exit activity can be a strong barometer of market sentiment. In down markets, they hold. But under favorable conditions, they exit.
Well, based upon The Braff Group’s extensive analysis of PE investment and exit activity in autism services, we could only identify one exit in 2023. But in 2024, there were four, the greatest number since 2022. Moreover, all were what is referred to as “secondary buyouts” where a PE sponsored firm sells to another PE investor. So, great time for PE to exit. And given go-forward optimism in the space, a great time to buy as well.
Outlook
So, what do we make of all this?
Regarding the uptick in aggregate health care service deals in Q1, what’s changed?
If anything, given tariffs, stubborn inflation, frozen interest rates, threats to Medicaid, and fears of recession – all contributing to a lot of uncertainty — we might have expected a downturn.
But as we’ve reported many times, after so many down quarters, buyers have to buy. Particularly private equity which simply must get back in the game in a substantial way to deploy increasingly aging dry powder. Candidly, we’ve been surprised that this factor alone didn’t seem to play out in Q3 and Q4 of 2024, when overall M&A activity was up. So, our read is that buyers in health care services overall are finally catching up to what we’ve seen in the rest of the M&A market.
We expect these competing factors – the downside of tariffs, inflation, interest rates, Medicaid, and economic uncertainty versus the upside of pressure for buyers to deploy capital to remain in place over the near term. But we are cautiously optimistic that buyer needs will offset some of the economic and legislative turmoil. More on this below.
As for the autism space, as suggested above, the sector made the most of the deal slowdown from July 2022 through June 2025 to reset after the difficulties discussed above.
What’s more…
Market Outlook
Demand for autism services is still there – if anything it’s increased with more early detection. After years of flat reimbursement, the sector is beginning to see some increases. According to Behavioral Health News, “Medicaid reimbursement rates are largely trending upward for autism therapy providers.” While they go on to say that “burdensome regulations still pose significant hurdles to growth,” there’s nothing new there. And with goodwill the sector has earned from the public at large and strong advocacy efforts to keep it that way, even if there are cuts, there’s reason to be hopeful that autism might be carved out.
We’ve even seen some providers eek out increases from private insurance if they can truly differentiate themselves in their markets in terms of demonstrable quality and results. And to be clear, in an environment where providers have seen rate cuts in many health care service sectors, even flat reimbursement is seen as positive.
Moreover, all that PE exit activity that occurred in 2024? That not only catches the attention of other autism consolidators, giving them confidence that the proverbial “coast is clear,” but it also brings new players into the mix.
So, remember that “cautiously optimistic” sentiment for M&A activity for health care services overall? Not so in autism. Rather than cautiously optimistic, we are more confident that not only will the sector see sustained elevated deal flow, but it will likely outpace what we will see in most of the other sectors we cover.
Unless all those negative headwinds move from a category two to a category five storm.
Unlikely, but as Scully and Mulder might quip, “they’re out there.”
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