The behavioral health sector experienced a noticeable slowdown in behavioral health dealmaking 2023, with transaction activity reaching its lowest point since 2020 during the fourth quarter. However, despite this cautious year overall, seed and venture capital deals emerged as a bright spot, signaling a possible resurgence in 2024.
This analysis draws on insights from Mertz Taggart’s Q4 2023 dealmaking report, which provides a comprehensive look at behavioral health dealmaking 2023, highlighting trends, subsector activity, and the evolving role of venture capital.
A Year Marked by Fewer Deals and Lower Volume
In total, 2023 closed with 136 behavioral health deals, marking a significant decline in behavioral health dealmaking 2023 compared to 188 deals in 2022. The slowdown was especially pronounced in the fourth quarter, which saw just 31 deals—the lowest quarterly total in over three years.
This decline in behavioral health dealmaking 2023 can be attributed to several factors, including tightening capital markets, economic uncertainty, and a more cautious approach from both strategic and financial buyers. The environment was less favorable for large-scale mergers and acquisitions, leading many players to delay or downsize deal activity.
Venture Capital and Seed Deals Gain Share Amid Overall Slump
Despite the overall decline in deal volume, seed and venture deals accounted for a larger share of behavioral health dealmaking 2023. Venture capital-backed transactions comprised 12 of the 31 deals in Q4 2023, collectively raising $257.9 million. This shift highlights growing investor interest in early-stage behavioral health companies with innovative and technology-driven solutions.
Notable Venture Deals in Q4 2023:
- Sunnyside, an alcohol reduction platform, raised $11.5 million.
- Hero Journey Club, a video game-based mental health company, secured $14.6 million.
- Headway Health, a patient-matching platform, closed a massive $125 million Series C round.
Kevin Taggart, managing partner at Mertz Taggart, cautions on venture outcomes: “Some of these venture-backed firms will end up being major players in the industry, but I also think that many of them won’t make it for a variety of reasons.” This caution reflects the high-risk nature of early-stage startups in the behavioral health field.
Mental Health Leads Behavioral Health Dealmaking in 2023
Mental health remained the most active subsector for behavioral health dealmaking 2023, accounting for 19 of the 31 deals in Q4. Private equity investment dominated the space, with companies like ARC Health—backed by Thurston Group—actively acquiring firms such as Exult Healthcare Solutions, Advanced Psychiatric Group, and Mindsoother Therapy Center during the quarter.
Addiction Treatment Sees Increased Quarterly Deal Activity
Addiction treatment was the second most active subsector in behavioral health dealmaking 2023, with 11 transactions in Q4—the highest quarterly total in that space for the year. Despite this, the total annual deal count fell sharply, with 28 addiction treatment deals compared to 51 in 2022.
Autism and IDD Services Experience Continued Slowdown
The autism and intellectual/developmental disabilities (IDD) sector faced continued challenges in behavioral health dealmaking 2023, with only three deals in Q4 and 17 for the full year, down from 24 deals in 2022. However, venture-backed companies like Cortica raised $40 million, and KKR-backed BlueSprig Pediatrics acquired Trumpet Behavioral Health, showing some ongoing activity.
Promisingly, the autism space could see renewed momentum in 2024. Forta, a startup that pays parents to become registered behavior technicians (RBTs), recently raised $55 million, highlighting innovative approaches attracting investor interest.
Outlook: Optimism for Behavioral Health Dealmaking 2024
Despite a slow year for behavioral health dealmaking 2023, industry insiders are optimistic about growth in 2024. Kevin Taggart noted: “The consensus today is that we’ll have increased activity across the sector. Improved capital markets and quality deal flow will drive the activity, especially in the 2nd half of 2024.”
With venture capital playing an increasingly important role and private equity focused on consolidation, behavioral health dealmaking may well be remembered as a transitional year before a renewed wave of growth and innovation.
If you want to stay informed about the latest trends in behavioral health dealmaking and beyond, keep a close eye on quarterly reports like those from Mertz Taggart and emerging news from venture and private equity markets. The behavioral health sector’s transformation story is far from over.
