The behavioral health industry is experiencing a surge in activity, marked by a record number of transactions and sustained high valuations. As companies compete fiercely for best-in-class providers, understanding the landscape of Behavioral Health M&A Growth is essential for strategic success.
A Record Year for Behavioral Health M&A Growth
Data from The Braff Group shows that the behavioral health sector completed 251 deals in 2021, a 33% increase from the previous year. This sharp rise in transactions highlights the rapid expansion of Behavioral Health M&A Growth compared to other healthcare segments like home health, hospice, and pharmacy services.
Dexter Braff, president of The Braff Group, points out that over the past five years, behavioral health has seen faster growth and more deal activity than any other health care segment they track. This level of activity underscores the growing importance and investor confidence in behavioral health, as well as the increasing recognition of mental health and substance use disorder treatment as vital components of overall healthcare.
Mental Health and Substance Use Disorder Drive Behavioral Health M&A Growth
Two key segments fueling this growth are mental health and substance use disorder (SUD) treatment. In 2021 alone, the mental health segment accounted for 81 deals, while the SUD segment saw 82 deals. Although SUD has historically led in total deals, mental health is rapidly growing, becoming a major contributor to Behavioral Health M&A Growth.
This increase reflects broader societal changes, including a greater public awareness of mental health issues, reduced stigma, and increased access to care. Additionally, the COVID-19 pandemic highlighted the critical need for mental health services, pushing both demand and investment higher. Meanwhile, the persistent opioid crisis and other substance-related challenges continue to drive the need for SUD treatment programs.
Slower Growth in Autism Services
In contrast, the autism services segment has experienced a slowdown after a significant jump in 2018. According to Kathleen Stengel, CEO of NeurAbilities Healthcare, some market segments, like autism, have fewer large platforms and are expected to show stagnant growth, impacting overall Behavioral Health M&A Growth in those niches.
This deceleration may be due to a variety of factors, including market saturation, funding limitations, or a lack of scalable service models. Providers and investors in autism services face unique challenges compared to mental health and SUD segments, such as navigating complex care coordination and differing reimbursement landscapes.
Opportunities in Medication-Assisted Treatment and Mental Health
On the other hand, medication-assisted treatment (MAT) and mental health programs are expanding rapidly, supported by legislation and ongoing funding. Stengel notes that demand for these services is expected to grow exponentially, a major driver of future Behavioral Health M&A Growth.
Legislative initiatives, including expanded Medicaid coverage and federal grants, have provided a financial foundation that supports the scaling of MAT programs. This has made medication-assisted treatment more accessible to patients suffering from opioid and other substance use disorders. Similarly, mental health programs benefit from increasing insurance reimbursement and policy shifts that prioritize integrated care models.
Braff concurs that the mental health market remains the most “open,” with many new investors and providers tapping into this promising area. This openness reflects an early-stage market with plenty of room for growth, innovation, and consolidation.
Growth Through De Novo and Tuck-In Deals
With fewer large platforms available, many companies are pursuing smaller deals or organic growth strategies. Tuck-in acquisitions help diversify services or expand geographic reach, while de novo growth involves building new operations. These approaches are shaping the next phase of Behavioral Health M&A Growth.
Matt Pettit of Seven Hills Capital points to multiple deals in intellectual and developmental disabilities and ABA services as examples of this trend, anticipating a wave of buy-and-build strategies as investors hold assets longer. This longer investment horizon allows firms to strategically add smaller entities over time, building scale and expanding capabilities without the pressures of rapid exits.
Meanwhile, Stengel described a more regionally focused approach driven by valuation dynamics and business strategy. “I’m not looking for anything with a large presence,” she said. “I want to stay in the region we want, so de novo is the name of our game.” This strategy emphasizes depth over breadth, focusing on building strong local networks and specialized expertise.
Valuations Remain Strong Amid High Multiples
Behavioral health companies, particularly in mental health, are commanding strong valuations. EBITDA multiples generally range from 4x to 6x, but companies with robust growth or EBITDA around $4–5 million can fetch double-digit multiples, sometimes exceeding 13x. This trend underscores the competitive landscape of Behavioral Health M&A Growth.
Investors are attracted by strong cash flow visibility, recurring revenue models, and the essential nature of behavioral health services. However, Braff notes that while initial deals may command high multiples, investors are more cautious with add-on acquisitions to protect overall returns. This cautious approach may slow the pace of dealmaking but supports sustainable growth.
Risks to Continued Growth
Panelists warn that financial setbacks by large consolidators could cool investor enthusiasm, posing risks to Behavioral Health M&A Growth. However, past episodes in the SUD space show the market’s resilience once issues are addressed.
For example, some large SUD consolidators faced financial distress a few years ago, which initially caused investor hesitation. Pettit notes, however, that these setbacks were short-lived, and capital quickly returned as market fundamentals remained strong.
Braff cautions that a stumble by a leading company—such as Lifestance Health or Refresh Mental Health—could cause a “big chill” among investors, causing them to pause and reassess valuations and growth prospects. In a market heavily driven by confidence and momentum, leadership performance has an outsized impact.
The Bottom Line: Quality Teams Drive Behavioral Health M&A Growth
Ultimately, companies with strong leadership and fundamentals continue to attract investment in this crowded market. Pettit emphasizes that “the assets with the best teams and the best stories” will continue to find capital, fueling ongoing Behavioral Health M&A Growth.
Successful companies differentiate themselves through quality clinical outcomes, innovative service delivery, and operational excellence. These factors build trust with investors and payers alike, creating a virtuous cycle that supports growth and higher valuations.
Conclusion
Behavioral Health M&A Growth is at an all-time high, driven by strong demand in mental health and substance use disorder segments, innovative smaller deals, and robust valuations. While some sectors like autism services experience slower growth, opportunities abound in medication-assisted treatment and mental health.
Companies are navigating a complex market by embracing de novo growth and tuck-in acquisitions to build scale and diversify offerings. Despite the risks posed by financial missteps of large consolidators, the overall outlook remains optimistic.
For providers and investors, the keys to success lie in assembling strong teams, maintaining solid fundamentals, and executing smart growth strategies. Those who do will thrive in this dynamic, rapidly evolving sector that is critical to the future of healthcare.
