As the Federal Reserve continues to raise interest rates, many behavioral health stakeholders are tightening their belts on mergers and acquisitions (M&A). Rising borrowing costs and market uncertainty have slowed some deals, but for providers with cash reserves, this period presents a unique opportunity to pursue mental health acquisitions and expand their footprint strategically.
David White, CEO of BayMark Health Services, shared his perspective during a panel at Behavioral Health Business’ INVEST: “What we’re seeing when we are out talking about acquisitions is that people are dropping out quicker and they don’t want to pay up as much. We’re sitting there with some dry powder, and we can wait it out. That’s been really helpful from an acquisition perspective; we’re able to acquire now and we’re seeing some folks who were acquisitive, who aren’t now.”
BayMark Health Services is a nationally recognized behavioral health provider focused on treating substance use disorder (SUD). With more than 400 treatment facilities across 37 states, the organization has been actively pursuing mental health acquisitions to strengthen its local markets and integrate complementary services.
Leading Behavioral Health Providers Are Still Bullish
Despite the broader market slowdown, leading behavioral health providers remain optimistic about mental health acquisitions. Mindpath Health CEO Christopher Brengard is moving full steam ahead with acquisitions, including virtual mental health provider Acacia Counseling and Wellness and Psychiatric Centers at San Diego. Mindpath operates more than 100 locations with 650 mental health clinicians and has expanded its network since being acquired by Community Psychiatry in 2021.
Steve Gold, CEO of Refresh Health, expressed a similar outlook: “M&A is still a large part of what we do at Refresh. We’re still interested in partnering with great clinicians, psychiatrists, practice owners, who want to take their practice to the next level.” Refresh Health operates over 300 outpatient locations in 37 states and offers treatment for SUD, mental health conditions, eating disorders, couples therapy, and psychiatry. This continued focus on mental health acquisitions positions Refresh to expand both geographically and in service depth.
Deal Flow and Market Conditions
While behavioral health M&A activity is down compared to past peak years, the sector still has a healthy pipeline of deals. Mertz Taggart reports that there were 158 behavioral health deals in 2021, followed by 70 deals in the first half of 2022. Providers with available capital now have an advantage, as competition for strategic mental health acquisitions has decreased.
Brengard explained, “There’s some people getting a little out over their skis trying to grow too quickly and really don’t understand the challenges in productivity, utilization, and dealing with the insurance companies. This is a great industry, and I think if you’re just patient, I think all of it is very workable.”
Strategic Acquisitions vs. Opportunistic Growth
For experienced operators, the key to successful mental health acquisitions is strategy rather than opportunism. BayMark Health is emphasizing acquisitions that integrate services within specific markets, such as combining medication-assisted treatment, residential inventory, and detox programs. White noted, “That becomes a real cost-effective way of delivering care.”
Mindpath Health follows a similarly selective approach. Brengard shared, “We remain bullish, the pipeline is full, we’re being extremely selective. We focus on very specific markets that fit our needs, and then we open density in the markets that we’re in. And then we complement that with a pretty robust organic growth.”
The Role of Digital Behavioral Health
While geographic expansion remains a core focus, many providers are turning to virtual solutions as part of their growth strategy. Digital behavioral health raised more than $5.5 billion in 2021, but as funding cools, traditional providers are acquiring virtual care assets at lower valuations.
White explained, “We bought a tech-enabled company called Kaden Health. Our goal is to have about 30% virtual, where people can get virtual treatment in a rural area or come in to meet with our psychiatrists or mid-level providers if needed. I think that’s important for behavioral health.” This type of mental health acquisition allows providers to expand access while diversifying service delivery models.
However, virtual care carries risks. Legislative and regulatory uncertainty can impact providers that rely heavily on digital services. White noted, “We’re starting to see some people stumble, going into a state with a fully virtual model, and then the state mandates at least one in-person visit per year.”
Gold also highlighted the challenges of over-reliance on venture capital: “There will be winners and losers among VC- and PE-backed companies. Funding has fueled a lot of advertising, recruiting, and overpaying in particular fields. I think that’s coming down because there isn’t an unlimited amount of capital.”
Clinical Due Diligence Is Essential
Thorough due diligence is a critical component of any successful mental health acquisition. Gold emphasized, “Whatever clinical practice you’re acquiring, make sure to diligence the heck out of it. Make sure the clinician is actually an expert in the field, don’t just buy the group because it has 100 clinicians.”
Proven clinical outcomes remain key to scaling services. Brengard explained, “We literally close on 5% of the deals that we do a lot of work on. It really comes down to clinical leadership and outcomes, whether we believe the programs fit into our spectrum of services and whether they align with the type of mental health acquisitions we want to pursue.”
Opportunities in a Challenging Market
Despite rising interest rates, regulatory uncertainty, and market fluctuations, providers with capital and a patient, strategic approach can benefit from mental health acquisitions. Integrating services, embracing digital solutions, and ensuring rigorous clinical oversight positions organizations to grow efficiently while improving patient care.
For established players, patience and selectivity remain key. By targeting acquisitions that align with strategic goals, expanding in key geographic and digital markets, and focusing on measurable clinical outcomes, behavioral health organizations can capitalize on the current market conditions and emerge stronger in the long term.
