Private equity investment in behavioral health continued to plummet in the first quarter of 2023.
In Q1, there were 13 private equity deals across mental health, substance use disorder, IDD care, ABA and pediatric therapy, according to new data from PitchBook. In contrast, the total private equity deal count in 2022 was 73, an average of 18.2 deals per quarter.
Behavioral health isn’t the only part of health care seeing a drop in deals. PitchBook reports that health care investment has dropped for the fifth straight quarter in a row. Still, health care investment is 20.4% higher than the average quarter in 2018-2019.
Most of the Q1 behavioral health deals were either add-ons or growth transactions, with only one platform deal in the mix. PitchBook predicted this trend was coming.
“Provider shortages, customer acquisition costs, and employer benefit belt-tightening will likely make consolidation among these providers an increasingly attractive option,” PitchBook’s authors wrote in a January report. “While we could see a larger category merger similar to Headspace and Ginger’s tie-up from late 2021, current market conditions mean that tuck-in acquisitions are likely to be the name of the game for the near future.”
Mental health and substance use disorder were the most active behavioral health segment. Pitchbook recorded seven mental health deals, of which four were add-on transactions, one was a platform deal, and one was a growth deal.
ABA and pediatric therapy was the second most active area for investment within behavioral health, with six deals in the first quarter. Three of those deals were add-on transitions and three were growth deals.
Meanwhile, there were no IDD deals last quarter.
Pitchbook notes that some of the larger deals in the quarter included private equity group Avesi Partners’ acquisition of Muir Wood Adolescent and Family Services and LifePoint Health’s acquisition of Springstone.
Although deals have dipped, on the whole, M&A and investment experts are still projecting that behavioral health will be a hot market for some time.
“We are in a transitionary phase, which is code for an M&A guy [saying], ‘It’s not as good as it was last year,'” Dexter Braff, president of M&A advisory firm The Braff Group, said at Behavioral Health Business’ VALUE conference. “So what’s the outlook? Strong, it’s still good. The demand for behavioral health still far outweighs the supply. What we also see, though, is a more disciplined approach towards determining what’s going to be bought and how much is going to be paid.”
