The behavioral health industry may have experienced more mergers and acquisitions (M&A) activity in the fourth quarter of 2019 than previously believed, according to fresh data from M&A advisory firm Mertz Taggart. The new analysis highlights the complexities of tracking transactions in this growing, evolving sector and offers insights into what industry professionals can expect moving forward.
Conflicting Reports Reveal a Busy Fourth Quarter
Previously, Irving Levin Associates — a widely recognized research firm that tracks health care M&A activity — reported a slowdown in behavioral health transactions for the final months of 2019. Their data suggested the market had cooled, potentially signaling reduced investor interest in the sector.
However, Mertz Taggart’s analysis paints a different picture. According to their findings, behavioral health transactions remained stable in the fourth quarter of 2019, with a total of 21 deals completed — exactly the same number recorded in the third quarter of the year.
The discrepancy between the two reports boils down to methodology. While Irving Levin Associates only counts publicly announced transactions, Mertz Taggart includes both public and non-public deals. In many cases, behavioral health M&A activity flies under the radar, with smaller or private transactions going unreported in traditional channels.
A Decline Compared to 2018, but No Cause for Alarm
Although the fourth quarter of 2019 maintained a steady pace compared to the third quarter, overall M&A activity was down on a year-over-year basis. Mertz Taggart found that there were about 40% fewer behavioral health transactions in Q4 2019 compared to Q4 2018.
For the entire year, the industry saw 85 total deals — slightly lower than the 97 transactions recorded in 2018. While this represents a modest drop, many experts say the decline was expected.
In fact, after several years of intense M&A activity in behavioral health — particularly in addiction treatment and autism services — a cooling-off period seemed inevitable. The industry has been on an acquisition streak for much of the past decade, fueled largely by private equity interest and health care investors seeking scalable business models within mental health, substance use disorder treatment, and autism services.
Autism Services Remain a Hot M&A Target
One of the most notable trends in behavioral health M&A throughout 2019 was the continued surge of deals involving autism service providers. While investor interest in addiction treatment facilities has waned slightly following years of aggressive growth, autism remains a highly attractive sector.
Mertz Taggart reported 10 private equity platform transactions in autism services during 2019 alone — with two deals closing in the fourth quarter. Private equity groups are not only acquiring providers but also laying the groundwork for future growth through add-on acquisitions and organic expansion.
Kevin Taggart, Managing Partner at Mertz Taggart, noted in the firm’s Q4 analysis that this level of interest from private equity firms likely signals even more activity on the horizon.
“This is a clear indication of the interest level from private equity,” Taggart stated. “But it also signals the potential for more add-on transactions to be announced over the next three to five years.”
Why the Market Is Still Strong
Despite the slight year-over-year decline in M&A activity, many industry experts remain optimistic about the future of behavioral health transactions. According to Mertz Taggart, the market still offers significant opportunities for buyers who are looking to either expand their regional footprint or establish national networks of behavioral health services.
In particular, there is growing demand for providers who can offer a continuum of care — integrating multiple behavioral health services under one umbrella to improve patient outcomes and streamline operations. Investors see value in building vertically integrated systems that combine outpatient services, residential treatment, and community-based programs.
“The market remains energetic, and we anticipate a steady pace of transactions to continue through 2020,” Taggart said.
Key Drivers Behind Behavioral Health M&A
Several long-term trends are fueling the steady stream of M&A activity in behavioral health:
1. Growing Demand for Services
Rates of mental health disorders, substance use disorders, and autism spectrum disorders are rising across the United States. Increased awareness and reduced stigma have driven more individuals and families to seek care, creating robust demand for services.
2. Favorable Reimbursement Trends
Behavioral health is increasingly recognized as essential health care by private insurers and Medicaid programs. As reimbursement improves for evidence-based treatments, more providers are becoming financially viable acquisition targets.
3. Fragmented Market
The behavioral health industry remains highly fragmented, with thousands of independent clinics, residential programs, and therapy providers operating across the country. Many of these businesses are attractive to buyers seeking to consolidate and create economies of scale.
4. Private Equity Appetite
Private equity firms continue to show strong interest in behavioral health services, particularly in scalable, repeatable business models like outpatient therapy, autism treatment, and medication-assisted treatment (MAT) programs.
Looking Ahead: More Deals Expected
Given these market dynamics, it’s likely that the behavioral health M&A landscape will remain active in the years to come. While deal volume may fluctuate slightly from quarter to quarter, the overall trend points toward steady growth in transactions.
Buyers are expected to prioritize businesses that can deliver strong clinical outcomes, demonstrate operational efficiency, and provide integrated care options. Meanwhile, smaller providers may look to capitalize on rising valuations and heightened buyer interest by exploring their own sale or partnership options.
Conclusion: A Market to Watch
The behavioral health industry remains a dynamic and evolving space, with significant M&A activity continuing despite periodic slowdowns. While 2019 saw a slight decline in overall deals compared to previous years, the market’s resilience — particularly in autism services — suggests strong fundamentals and ongoing investment opportunities.
As private equity firms, health systems, and strategic buyers continue to search for well-managed, scalable providers, behavioral health businesses should stay prepared for potential acquisition interest.
In short, M&A activity in behavioral health is far from over. In fact, according to Mertz Taggart’s outlook, it may only be the beginning of the next phase of consolidation and innovation in this essential sector.
