The COVID-19 pandemic created unprecedented uncertainty across nearly every industry, and merger and acquisition (M&A) activity was no exception. With markets volatile and businesses facing operational disruptions, investors were forced to rethink strategies and adapt quickly. Despite this, the behavioral health sector has remained a relative bright spot.
Kevin Taggart, managing partner at the M&A advisory firm Mertz Taggart, recently shared his perspective with Behavioral Health Business, explaining why he remains bullish on the long-term prospects of behavioral health transactions, even as deal activity temporarily slows. His insights reveal why behavioral health continues to attract attention from investors, providers, and private equity groups, despite the challenges of COVID-19.
The Pandemic’s Immediate Impact on M&A
When COVID-19 first disrupted the economy in early 2020, nearly every industry experienced a slowdown in deal-making. Uncertainty around consumer demand, workforce stability, and government regulations caused investors to hit pause on many pending transactions.
“Longer term, as the economy begins to recover, and the banks regain some of their footing, it’s probably not surprising that we remain very optimistic about behavioral health M&A,” Taggart explained. “From an investment perspective, the demand for behavioral health services is only expected to grow.”
This long-term optimism stands in contrast to the immediate environment, where transaction activity inevitably slowed. Taggart noted that deals were still closing in the early weeks of the pandemic, but he expected mid-term activity to taper off as both buyers and sellers adopted a wait-and-see approach.
Why Behavioral Health Stands Out
Even in a crisis, behavioral health remains an essential service. Conditions such as substance use disorder, depression, and anxiety do not pause during a pandemic — in fact, they often worsen. This dynamic has allowed providers to maintain strong demand for services, making them more resilient than businesses in many other industries.
Taggart explained that his firm had spoken with providers across the country — from California and Texas to Florida and national networks — and the feedback was consistent: demand was holding steady, and in some cases, growing. One national provider even reported hitting an all-time high for patient census during the pandemic’s early days.
This resilience highlights why behavioral health continues to attract investor interest, even as the broader M&A market faced temporary challenges.
The Role of Private Equity and Strategic Buyers
Private equity has been a driving force behind much of the growth in behavioral health M&A over the past decade. PE firms have fueled consolidation by backing treatment centers, outpatient networks, and digital health startups. However, during COVID-19, Taggart observed a difference in how private equity groups and strategic buyers responded.
Generally, strategic buyers — companies already operating within the health care sector — were more optimistic. They had firsthand knowledge of the demand for behavioral health services and recognized the sector’s resilience. Private equity groups, on the other hand, were more cautious.
The difference came down to portfolio exposure. PE firms often invest across multiple industries, many of which were hit harder by COVID-19. Retail, hospitality, and energy — all common PE sectors — experienced steep declines, pulling attention and resources away from behavioral health opportunities. Additionally, logistical challenges such as conducting due diligence during lockdowns created hurdles for investors accustomed to in-person assessments.
Essential Services Provide Stability
One of the strongest factors working in behavioral health’s favor is its classification as an essential service. While restaurants, gyms, and entertainment venues faced closures, behavioral health centers continued to operate — often adapting quickly by embracing telehealth solutions.
The need for mental health and addiction services only intensified during the pandemic. Rising unemployment, isolation, and stress created what some experts called a second pandemic of behavioral health challenges. For investors, this translated into a strong long-term growth outlook, even if short-term transactions slowed.
Health care in general has a unique insulation from economic downturns. Unlike discretionary spending, behavioral health services are a necessity. This makes the sector less vulnerable to the cyclical ups and downs of the economy, a fact that continues to make it attractive to both strategic acquirers and financial investors.
Mid-Term Slowdown: How Much and How Long?
While optimism prevails in the long term, Taggart acknowledged that the mid-term outlook would involve a slowdown in deal-making. “In the mid-term, I expect we’ll still see transaction activity, but it will be slower,” he said. “How much slower will depend on how soon we can get the economic engine moving back in the right direction, or at least how quickly we can slow the halt.”
This uncertainty reflects broader market conditions. Banks, for example, became more cautious with lending as they assessed risk exposure. Similarly, providers who might have otherwise considered selling their organizations may have chosen to delay until financial performance stabilized.
Despite these hurdles, the behavioral health sector has consistently rebounded faster than many others, a trend likely to continue as investors regain confidence.
Opportunities on the Horizon
For both buyers and sellers, the disruption of COVID-19 may ultimately create opportunities. Providers who adapt effectively — whether by expanding telehealth offerings, maintaining high occupancy, or demonstrating strong patient outcomes — will likely be well positioned to attract investment.
Additionally, the increased national awareness of mental health and substance use challenges could spark even greater demand. Policymakers, insurers, and employers are increasingly recognizing the importance of accessible behavioral health care, further strengthening the case for long-term investment.
Private equity groups, once they stabilize other parts of their portfolios, are expected to re-engage with behavioral health aggressively. Strategic buyers may also use the period of uncertainty to expand market share, acquiring organizations that demonstrate resilience.
Looking Ahead
The COVID-19 crisis created unprecedented challenges for global markets, but it also underscored the importance of health care, especially behavioral health. While M&A activity slowed in the short term, the essential nature of behavioral health services, coupled with growing demand, positions the sector for continued strength.
Kevin Taggart’s optimism reflects a broader recognition among investors and providers: behavioral health is not only resilient but also increasingly vital to the health care landscape. As the economy recovers and financial systems stabilize, the pace of transactions is expected to pick back up, potentially even accelerating as demand surges.
For providers, the key takeaway is clear: those who can adapt, innovate, and demonstrate value will remain highly attractive in the eyes of investors. And for the broader health care industry, behavioral health remains one of the most promising areas for growth, regardless of short-term disruptions.
