Dexter Braff, founder of The Braff Group, attributes much of his success in behavioral health mergers and acquisitions (M&A) to his entrepreneurial background. “In forming The Braff Group, we played the long game and ran the business with patience, which was foundational in shaping the organization as it stands today,” Braff explains. This long-term approach has allowed the firm to build a sustainable structure, focusing not only on immediate gains but on creating an organization capable of supporting complex, high-value transactions for years to come. Developing the right infrastructure and organizational culture doesn’t happen overnight. Braff emphasizes that patience is critical, both in business operations and in M&A deals. “It’s crucial that we don’t rush things,” he says. “That patience enables us to surface the best transactions available to our clients.” His experiences as an entrepreneur shaped traits such as strategic thinking, long-term planning, and the ability to nurture relationships over time—all essential qualities when evaluating deals in the behavioral health sector. This mindset forms the core of his behavioral health business strategy.
Behavioral Health M&A Today: A Snapshot
At the recent Behavioral Health Business INVEST Conference in Chicago, Braff shared a detailed overview of trends in behavioral health M&A. Since 2013, the sector has grown steadily, with the trendline showing a nearly 45-degree angle of expansion. However, 2021 was an extraordinary year. The sheer volume of deals that closed that year, not only in behavioral health but across the broader healthcare services landscape, was unprecedented.
Comparing 2022 to 2021 can be misleading because 2021 set such a high bar. Through the third quarter of 2022, deal volume was about 24% lower than the record levels seen in 2021, but it was still 5% higher than 2020, another strong year for behavioral health transactions. “You have to zoom out to get the complete picture,” Braff says. “The numbers aren’t bad—they’re just low compared to the exceptionally strong year we had in 2021. Overall, the space continues to perform well, and opportunities remain plentiful.”
The Braff Group’s analysis draws from a proprietary database built over 20 years. Unlike other datasets that rely primarily on publicly announced transactions, their database includes both public and non-public deals, as well as extensive literature searches to capture transactions reported in local news or industry sources. “It’s a lengthy and expensive process, but it’s an investment we feel strongly about,” Braff notes. This data not only helps the firm market its services but also allows it to identify trends and opportunities before competitors. This ability to anticipate changes is a key element of a strong behavioral health business strategy.
Shifts in Acquisition Interests
In the past two years, certain segments of behavioral health have experienced notable changes in acquisition interest. Mental health services, particularly multi-site clinics and psychiatric hospitals, are seeing tremendous growth. This trend is largely a result of the pandemic’s impact on mental health demand.
“Investors were able to read the tea leaves during the pandemic and recognize the increasing need for mental health services,” Braff explains. Even as pandemic stressors subside, the effects linger, with heightened awareness of mental health needs driving continued investor interest. As a result, mental health is currently the fastest-growing segment from an M&A perspective.
Conversely, high-end residential substance use disorder (SUD) treatment has seen slower acquisition activity. Boutique residential programs, once hot commodities in addiction treatment M&A, have cooled. Braff attributes this slowdown to the fact that these programs were among the first areas to consolidate and that the expensive, boutique model is less favorable in today’s market. “Deal flow in this space has slowed to a trickle, which aligns with trends we predicted five years ago,” he says.
The Impact of Rising Interest Rates
Rising interest rates present challenges for valuations and deal structuring in behavioral health. Over 50% of transactions in this sector are funded by private equity sponsors, typically using a combination of debt and equity at a 50/50 ratio. As borrowing costs rise, the amount of debt private equity groups can deploy while still achieving target returns decreases. This can put downward pressure on valuations unless additional equity is added to transactions.
However, demand for high-quality behavioral health providers remains robust. While some deals may see fewer competitive bids due to financing constraints, top-tier assets continue to attract premium valuations. Braff emphasizes that maintaining a patient, data-driven approach is critical, and doing so effectively requires a clear behavioral health business strategy.
Economic Pressures and Deal Flow
Economic pressures—including inflation, staffing challenges, and wage increases—can also influence valuations and deal activity. Higher labor costs can reduce net income for providers, which in turn may impact the perceived value of a business. Sellers may choose to delay transactions until financials improve, leading to a temporary leveling-off of deal flow.
Despite these pressures, overall demand in the behavioral health sector remains strong. While economic uncertainty may slow activity slightly, it is unlikely to deter long-term interest or growth. Braff emphasizes that the sector is poised for continued expansion, particularly in areas where patient demand is high and care delivery is evolving. Developing a thoughtful behavioral health business strategy can help providers navigate these economic challenges and position themselves for sustained success.
Evolving Consolidation Strategies
One of the most significant developments in behavioral health is the rise of home-based care models. Over the past two years, companies offering home-based addiction and mental health treatment have grown dramatically. Previously, few such programs existed, but today there are roughly 50 companies providing care directly in patients’ homes.
This shift is driven by advances in technology, telehealth, and changing patient preferences. Home-based care allows providers to deliver a broader spectrum of services, integrating behavioral health, physician visits, and even home medical equipment into a holistic care model. For investors, this emerging segment is particularly attractive due to its growth potential and flexibility in meeting patient needs.
Organizations are now leveraging consolidation strategies that include partnerships with home health agencies, behavioral health providers, and other service providers to deliver comprehensive care in the home setting. This model not only addresses patient convenience but also aligns with broader healthcare trends emphasizing integrated and patient-centered care. Forward-thinking providers are incorporating these insights into their behavioral health business strategy to capture new growth opportunities.
Preparing for 2023: Strategic Recommendations
Looking ahead, Braff recommends that care providers focus on value-based payment strategies to position themselves for long-term success. “The top strategy that care providers should employ in 2022 to best prepare for 2023 is piloting or participating in a global payment, capitated payment, or value-based purchasing approach,” he says. By aligning financial incentives with patient outcomes, organizations can navigate changing reimbursement landscapes and strengthen their long-term sustainability. Incorporating this approach into an overall behavioral health business strategy can help providers stay competitive in a rapidly evolving market.
Conclusion
Dexter Braff’s insights provide a comprehensive view of behavioral health M&A, highlighting the importance of patience, strategic foresight, and adaptability. From leveraging proprietary data to identifying high-growth segments and adopting innovative home-based care models, these approaches are shaping the future of the industry. Despite economic pressures and rising interest rates, demand for high-quality behavioral health services remains strong, presenting opportunities for investors and providers alike.
For care providers and investors looking to navigate the evolving behavioral health landscape, Braff’s advice underscores the value of thoughtful planning, data-driven decision-making, and an unwavering focus on long-term growth. A well-executed behavioral health business strategy can make all the difference in capturing emerging opportunities, staying resilient amid economic pressures, and positioning for sustained success in the years ahead.
