Private equity activity in the behavioral health sector has surged in recent years, with a series of high-profile acquisitions illustrating how PE firms are increasingly shaping the industry. In October, Lee Equity Partners acquired substance use disorder provider Bradford Health. A few months earlier, Charlesbank Capital Partners purchased autism services provider Action Behavior Centers. And in July, Revelstoke Capital Partners acquired eating disorder treatment giant Monte Nido & Associates. These transactions, along with numerous other healthcare private equity deals, highlight the growing influence of private equity in a space that has historically been fragmented and underserved.
Over the past decade, private equity investors have funneled billions into behavioral health. The COVID-19 pandemic dramatically amplified demand for mental health, substance use, and developmental disorder services, creating fertile ground for investors seeking growth opportunities. Dexter Braff, president of M&A advisory firm The Braff Group, described the post-pandemic market surge at the Behavioral Health Business INVEST conference: “COVID made us all insane. The expectations of the investment community, when COVID really put its hooks into the market, made them say, ‘We really need to get into this market; we knew it was good before.’”
Why Private Equity Is Attracted to Behavioral Health
The appeal of behavioral health for PE investors stems from several factors. First, the sector is highly fragmented, consisting largely of small, regional providers. This creates opportunities for consolidation and scaling of services. Second, rising awareness of mental health issues and substance use disorders has led to sustained demand for care. Finally, behavioral health companies often operate in high-margin, fee-for-service models, which can be attractive for investors seeking profitable, scalable businesses.
Proponents argue that private equity investments provide necessary capital, enabling providers to expand their reach, implement new technologies, and enhance patient care. Critics, however, worry that profit motives may supersede patient welfare. Reports of cost-cutting, staff reductions, and treatment changes in some PE-backed companies have fueled this perception. At the HLTH conference, private equity investors sought to counter this narrative, emphasizing the strategic and operational value they bring to behavioral health.
“Quite frankly it’s hard to think about innovation and expansion or growth without private capital,” said Adaeze Enekwechi, operating partner at Welsh, Carson, Anderson & Stowe (WCAS). “The government will not fund everything we want to see happen in health care.” WCAS, headquartered in New York and San Francisco, specializes in health care and technology investments, with a track record that includes selling Springstone to Medical Properties Trust in 2021.
The Scale of Healthcare Private Equity Deals
Healthcare private equity deals have become a major focus for investors. In 2021 alone, The Braff Group reported more than 200 PE transactions in behavioral health. While first-half deal flow in 2022 slowed compared to 2021, it remained on track to surpass 2020 levels. Braff noted in a mid-year update: “While down, sponsored transactions are running only 11.4% behind last year. Platform volume is down 28.6%, but follow-on deals are running only 5.6% behind 2021.”
These figures highlight the sustained appetite for healthcare private equity deals. Platform deals—where a PE firm acquires a company as a foundation for future growth—have slowed slightly, while follow-on investments in existing portfolio companies continue to rise, signaling confidence in ongoing operations and the long-term potential of these organizations.
Accountability and Responsibilities of Private Equity Firms
Despite some negative perceptions, private equity is far from a “wild west” in behavioral health. Firms face accountability to their investors, known as limited partners, who demand transparency, diligence, and prudent management. Christopher McFadden, managing director at KKR, explained during the HLTH panel: “Every industry is judged by the worst examples of that industry. Were there bad actors? The answer is there certainly are. But limited partners want to know they’re not investing with them—they want to know they’re working with people they can trust.”
KKR, a global investment firm with $692 billion in transactions, has been active in healthcare private equity deals, creating Geode Health, acquiring Therapy Brands for $1.2 billion, and leading Brightline’s $105 million Series C funding. McFadden outlined three core responsibilities for PE firms: to their investors, to the companies and leadership teams in which they invest, and to executing a successful exit strategy within three to five years. The focus is not dismantling companies but strengthening them, ensuring they are positioned for long-term success and profitable exit opportunities.
Growth, Change, and Leadership Transitions
While private equity investors may not aim to dismantle companies, growth inevitably brings change. Leadership teams that guide organizations through early-stage development may not always be the right fit for scaling the business to a multi-site, multi-million-dollar operation. Enekwechi explained, “The team that got a company from $0 to $500 million may not be the right team to get it from $500 million to $1.5 billion. That’s just a fact.” Leadership transitions are a natural part of scaling behavioral health organizations under PE ownership.
This is evident in companies like PE-backed Aware Recovery, which recently underwent a C-suite shakeup. CEO Brian Holzer attributed these changes to evolving organizational needs. Ron Williams, operating advisor at Clayton, Dubilier & Rice, added, “Some people scale all the way. Some don’t. They hit a wall. The leader’s job is to confront that and ensure people understand why changes are being made.” Clayton, Dubilier & Rice, with offices in New York and London, has invested over $35 billion, including in healthcare private equity deals like Vera Whole Health, which manages chronic and behavioral health conditions.
Balancing Growth With Mission-Driven Care
The expansion of private equity in behavioral health presents both opportunities and challenges. On one hand, the infusion of capital allows companies to expand services, improve facilities, invest in technology, and reach more patients. On the other, providers must navigate the tension between profit-driven objectives and mission-driven care. PE-backed firms face pressure to deliver results to investors while maintaining high-quality, ethical treatment standards.
Enekwechi emphasized the thoughtful approach her firm takes in evaluating investments: “There’s a thoughtfulness to how we think about any company, what it contributes to the ecosystem, the health care ecosystem. It has to be something that we think we can take from good to even better and great. So we’re not looking for a company that you need to completely tear apart and rebuild.” This philosophy guides many successful healthcare private equity deals, aiming to strengthen companies rather than dismantle them.
Looking Ahead
Healthcare private equity deals are likely to continue growing as investors seek opportunities in a sector with rising demand and room for strategic consolidation. While critics remain vigilant about patient care and ethical management, proponents argue that private equity involvement can foster innovation, operational improvements, and expanded access to services.
For behavioral health organizations, navigating PE partnerships involves balancing growth, leadership transitions, and adherence to mission-driven principles. When executed thoughtfully, healthcare private equity deals can provide the resources and expertise necessary to strengthen behavioral health services across the country, creating opportunities for improved care delivery in an evolving market.
