Private equity investors have maintained a strong appetite for behavioral health acquisitions throughout 2022. According to a recent report from The Braff Group, private equity deals accounted for more than 60% of all behavioral health transactions in the first three quarters of the year. While deal activity hasn’t reached the unprecedented levels seen in 2021, the sector continues to attract robust investment, with total transactions already expected to surpass 2020 figures. This sustained interest reflects both the sector’s resilience and the growing impact of private equity investments in healthcare.
Through the first three quarters of 2022, there were 151 behavioral health transactions. The Braff Group notes that while the market is not as explosive as it was during 2021’s outlier year, it continues a decade-long trajectory of increasing investment and consolidation in behavioral health. Compared to 2020, overall deal volumes are up roughly 5%, signaling steady growth. Certain subsectors have experienced particularly strong increases: substance use disorder (SUD) transactions are up 9%, mental health deals have increased 14%, and non-autism intellectual and developmental disorder (IDD) acquisitions have surged by 33%.
Growth in Medication-Assisted Treatment Investments
Investment in medication-assisted treatment (MAT) remains a major focus for private equity. MAT deals are on track to reach 29 transactions in 2022, tying last year’s total. This demonstrates that PE firms see value in combining behavioral health treatment with evidence-based approaches. The surge in MAT transactions is a clear example of how private equity investments in healthcare are shaping the landscape of behavioral health services.
Private Equity Entry and Follow-On Investments
Private equity activity in behavioral health isn’t limited to new acquisitions. While platform deals—where a PE firm enters a market through a new investment—remain important, follow-on investments are becoming increasingly common. Less than a quarter of PE deals in 2022 were platform entries, with the majority being follow-on investments. This reflects a strategy where investors expand and consolidate proven behavioral health providers rather than starting from scratch, highlighting the strategic nature of private equity investments in healthcare.
The IDD space, in particular, has attracted significant PE interest. The Braff Group identified 11 market-entry platform investments in 2022, already surpassing the total for all of 2021. These transactions showcase how private equity investments in healthcare target growth areas with rising demand for intellectual and developmental disability services.
A Market Adjusting After 2021’s Boom
Overall, the behavioral health M&A market has cooled compared to 2021, which saw 256 deals—a 35% year-over-year increase. Dexter Braff, president of The Braff Group, reflected on that surge: “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.’”
The shift from 2021’s record activity to 2022’s steadier pace doesn’t indicate declining interest. Instead, it shows a more strategic approach to private equity investments in healthcare, focusing on sustainable, high-growth opportunities in behavioral health.
Notable Q3 Transactions
Q3 2022 included several high-profile acquisitions. ARC Health, a PE-backed platform, acquired Focus Forward Counseling & Consulting and Sasco River Center LLC, expanding its footprint in outpatient and counseling services. In October, Lee Equity Partners acquired Bradford Health, a provider of substance use disorder treatment. These deals exemplify how private equity investments in healthcare are fueling growth across multiple behavioral health subsectors, from SUD and mental health to MAT and IDD services.
Implications for the Behavioral Health Sector
The sustained involvement of private equity has several implications for the behavioral health sector:
- Expanded access and services: PE-backed providers often have the resources to expand services, invest in technology, and open new treatment locations.
- Market consolidation: As PE firms acquire multiple providers, the sector sees more standardized care protocols, though competition may decrease.
- Focus on outcomes and profitability: Investors increasingly prioritize providers that demonstrate strong clinical outcomes and operational efficiency, reflecting the strategic influence of private equity investments in healthcare.
- Innovation and integration: PE involvement often supports the integration of innovative treatment models, such as telehealth, MAT, and integrated SUD/mental health services.
While the market is less frenzied than in 2021, PE activity remains a critical driver of growth, innovation, and consolidation in behavioral health. Providers and investors alike are leveraging private equity investments in healthcare to expand programs, enhance patient care, and meet rising demand for mental health, SUD, MAT, and IDD services.
Looking Ahead
As 2022 progresses, the behavioral health M&A landscape is expected to remain active, albeit more measured. Private equity continues to view behavioral health as a strong long-term investment opportunity. The strategic deployment of private equity investments in healthcare is shaping the future of the sector, creating opportunities for providers to grow, innovate, and deliver high-quality care while navigating a mature, evolving market.
