After a turbulent year marked by economic uncertainty, slowed growth, and a cautious investment climate, the behavioral health sector is showing signs of recovery — and possibly resurgence. Following a sharp dip in behavioral health M&A 2024 activity in 2023, industry experts anticipate that the coming year could bring a return of platform deals to the market. While not at the feverish pace of 2021, these deals signal renewed investor confidence in behavioral health, albeit with more conservative expectations and sharper due diligence.
A Year of Retrenchment: 2023 in Review
In 2023, behavioral health M&A 2024 saw a slowdown with dealmaking down by approximately 30% compared to the previous year. This drop was not necessarily a reflection of diminished demand for behavioral health services, which continues to grow, but rather a result of broader macroeconomic trends that created a risk-averse environment for investors. High inflation, aggressive interest rate hikes by the Federal Reserve, and geopolitical instability contributed to investor hesitation.
Most of the M&A activity that did occur consisted of smaller “tuck-in” acquisitions — incremental deals designed to strengthen existing platforms rather than launch new ones. These deals are typically more manageable during periods of uncertainty, as they carry lower financial risk. Still, the absence of large-scale platform transactions signaled a market-wide cooling off.
“In some ways, behavioral health has fared better than other specialties or other areas of healthcare services just given the reimbursement dynamics have largely been more favorable,” said Christian Chauvet, a partner at middle-market private equity firm Lee Equity, during a recent Behavioral Health Business webinar. “But in a backdrop of high inflation and rising interest rates, the larger strategic [investors] are less acquisitive. That’s certainly affected the smaller end of the M&A market. From a large platform transaction perspective, the performance just hasn’t been there.”
A Market Reawakening: What’s Different in 2024
Despite the downturn in 2023, conditions are aligning in behavioral health M&A 2024 to support a potential comeback. Several trends are converging to create a more optimistic investment environment: a slowdown in interest rate hikes, improving debt markets, a tighter labor force stabilizing, and a sector that continues to show long-term promise thanks to strong demand and favorable reimbursement models.
More importantly, many platform companies that spent the past year focusing on internal operations and organic growth may now be ready to go to market. These companies have had time to recalibrate, strengthen operations, and improve profitability — all critical metrics in today’s more cautious M&A climate.
“I think the strong operators had a relatively solid 2023,” Chauvet said. “On the back of a good performance year and a productive debt capital market, I think you’ll see those sponsor exits materialize.”
Sponsor exits — where private equity investors sell mature portfolio companies at a profit — are essential for fueling the next generation of platform development. They return capital to investors, reward management teams, and most importantly, put capital back into circulation to build or scale new behavioral health ventures.
“Those sponsor exits are great things for the industry,” Chauvet continued. “They bring investors back looking to partner with entrepreneurs and build new platforms, putting more capital behind the great quality businesses that we know exist in this field.”
Valuations Come Back to Earth
One key difference in behavioral health M&A 2024 is the more realistic valuation of companies. During the boom years of 2020 through 2022, valuations were often based on aggressive forward-looking earnings assumptions. Investors regularly included run-rate and maturity adjustments in their projections, creating inflated valuations that didn’t always reflect current performance or sustainable growth.
Many of the distressed assets and bankruptcies in behavioral health can be traced back to deals made during this era. Notable examples include The Center for Autism and Related Disorders (CARD) and Delphi Behavioral Health Group, both of which filed for bankruptcy after struggling to meet the expectations baked into their high valuations.
“Many investors got themselves into trouble around that,” Chauvet noted. “When you look at some of the high-profile bankruptcies or distressed assets in behavioral health, a lot of those deals were done in that 2020, 2021 vintage, where the leverage was taken on a forward earnings profile that never really materialized.”
In 2024, investors are likely to pursue deals in the 6x to 8x EBITDA range — a notable drop from the 10x+ multiples that were common during the M&A frenzy. While this might seem like a step back, many experts see it as a healthy correction. According to Dexter Braff, founder and president of The Braff Group, “Even if we see a pullback in valuation… that is an extremely healthy valuation, relative to what we would typically expect to see over the long term for businesses with this type of a pedigree. The market is extremely attractive.”
What Buyers Want in a Platform
Today’s investors are not just looking for scale — they are seeking sustainability. Scale alone no longer guarantees interest from buyers. Instead, investors are focused on businesses that demonstrate operational excellence, strong clinical outcomes, and differentiated approaches to service delivery.
Chauvet emphasized the importance of organic growth, platform integration, and clinical differentiation: “The onus has shifted toward that focus on organic growth platform integration and really demonstrating the value of the business is not just scale, but as differentiated operations, differentiated recruiting, differentiated clinical quality.”
Being able to show measurable outcomes is also a key advantage. As value-based care becomes more prevalent, payers are demanding data that proves effectiveness, and investors are prioritizing companies that can negotiate better rates based on those outcomes.
Where the Opportunities Lie: Outpatient SUD Treatment Leads the Pack
While the overall M&A volume declined last year, one sector stood out for its surprising growth: outpatient substance use disorder (SUD) treatment. This area saw a record number of deals in 2023 — a trend that could continue well into behavioral health M&A 2024.
“Last year, despite the fact that we saw very few segments record any uptick, we did see one area of uptick, and it was substantial,” said Braff. “That was in non-residential substance use disorder treatment.”
Outpatient SUD treatment offers a compelling value proposition. It is more cost-effective than residential programs and allows patients to maintain their daily responsibilities while receiving care. According to the National Center for Drug Abuse Statistics, the cost of a three-month outpatient program averages $5,000 — significantly less than a single month of inpatient treatment, which can run up to $6,000 or more.
With the rise of telehealth and hybrid care models, outpatient care is increasingly accessible, scalable, and appealing to investors looking for innovative delivery models that reduce overhead while maintaining clinical impact.
The Curious Case of Psychedelics
Another sector drawing attention — though not yet widespread M&A activity — is psychedelics. With increasing clinical evidence supporting the therapeutic potential of substances like psilocybin and MDMA, interest in psychedelic-assisted therapy has surged. However, Braff and other experts caution that the space isn’t yet mature enough for acquisition-driven growth.
“From what we’ve read clinically, there is extraordinary evidence that psychedelics, in many situations, can be highly effective therapeutic interventions,” Braff said. “From an M&A perspective, there are not enough providers, there’s not enough reimbursement, there’s not enough global acceptance… I think you’re looking at much more of an organic development strategy.”
In other words, while the future of psychedelics in behavioral health may be promising, it’s still in its infancy from an investment standpoint.
Final Thoughts: 2024 as a Turning Point
As the behavioral health industry moves deeper into 2024, there’s cautious optimism that the behavioral health M&A 2024 landscape is turning a corner. While the exuberance of 2021 may never fully return, the industry is evolving in a more sustainable direction. Lowered valuations, a focus on operational strength, and renewed interest in quality platform investments suggest that investors are back — but with clearer eyes and tighter filters.
This shift could ultimately be a good thing for the industry. It encourages behavioral health providers to double down on what really matters: clinical excellence, measurable outcomes, efficient operations, and patient-centered care. Providers who rise to the challenge may find themselves well-positioned not just for a deal, but for long-term success in an increasingly vital segment of the healthcare economy.
