The behavioral health care sector has been one of the most active areas of health care investment in recent years, but the third quarter of 2019 marked a notable slowdown. According to data from HealthCareMandA.com, part of Irving Levin Associates, behavioral health care acquisitions fell 35% in Q3 2019 compared to both the prior quarter and the same period the year before. Only 17 publicly announced deals were recorded in Q3 2019, compared to 26 in Q2 2019 and 26 in Q3 2018.
This downturn raised questions about whether the dip reflected a temporary pause or a more meaningful shift in investment trends. While demand for behavioral health services continues to grow, market dynamics, deal structures, and valuations may all have influenced the reduced activity.
The Numbers Behind The Decline
The 17 deals reported in Q3 2019 represent a sharp reduction in activity for a space that had been steadily growing. Of those deals, only two disclosed financial terms, amounting to $14.2 million combined. The lack of transparency around valuations makes it difficult to calculate an overall market picture, but the lower deal volume stood out as a defining factor.
Private equity firms remained key drivers, participating in 13 of the 17 deals, or about 76% of all transactions. Despite the overall slowdown, their presence highlighted ongoing confidence in the long-term value of behavioral health assets.
Private Equity Remains A Strong Force
Even in a quarter with fewer deals, private equity and portfolio companies played a dominant role in shaping the market. Firms continued to seek opportunities to expand their regional and national footprints through acquisitions, particularly in specialized areas of behavioral health.
For example, Kadiant, backed by TPG Capital, completed two acquisitions of autism-focused providers, one in California and another in Ohio. These deals expanded Kadiant’s reach in a rapidly growing sub-sector. Similarly, The Family Treatment Network, owned by Pharos Capital Group, acquired two Florida agencies specializing in applied behavioral analysis.
These acquisitions reflect a broader strategy among private equity players: consolidating smaller, local providers into regional platforms that can scale more efficiently. This roll-up trend has been especially common in autism services, substance use disorder (SUD) programs, and outpatient behavioral health care.
Why The Slowdown Happened
While demand for behavioral health services continues to grow, several factors likely contributed to the dip in Q3 2019 deal activity.
First, market saturation in certain sub-sectors may have led to fewer attractive targets. Autism care, for example, has been a hot area for investment, but valuations have climbed, and fewer independent providers remain.
Second, uncertainty around reimbursement may have played a role. Behavioral health is heavily influenced by Medicaid and private insurance coverage. Any shifts in funding policies, state budgets, or parity enforcement could impact provider revenues and investor confidence.
Third, timing may have influenced the results. A single quarter does not necessarily define a long-term trend, and it is possible that some deals were delayed into Q4 or early 2020.
Key Areas Of Activity
Despite the overall decline, certain sub-sectors of behavioral health continued to attract investment.
- Autism services remained a top focus, as seen in the Kadiant and Family Treatment Network acquisitions. Applied behavioral analysis (ABA) therapy continues to be in high demand, particularly as awareness of autism spectrum disorder (ASD) grows and insurance coverage expands.
- Substance use disorder treatment also remained an attractive area, given the opioid epidemic and growing demand for both residential and outpatient care. Investors see opportunities to create scalable platforms that combine high-quality care with operational efficiency.
- Outpatient and community-based behavioral health services continued to generate interest, although fewer deals were announced in Q3. These models align with the industry’s broader shift toward lower-cost, accessible care settings.
Expert Perspectives On The Market
Lisa E. Phillips, editor of The Health Care M&A Report, noted that the quarter’s activity reflected a “new wave of exits” where smaller platforms are being rolled up into larger regional players. Regardless of their specific service focus, these consolidations are helping investors build scale and operational strength.
She also highlighted the continued demand for autism and substance abuse programs as key drivers of market activity. With behavioral health needs rising across the country, the long-term outlook remains positive despite short-term fluctuations.
Looking Ahead To 2020
The slowdown in Q3 2019 was seen as more of a pause than a long-term reversal. Many experts predicted that deal activity would pick up again heading into 2020. Several factors supported this outlook:
- Continued demand for behavioral health care – The growing prevalence of mental health conditions and substance use disorders ensures ongoing need for services across the country.
- Favorable reimbursement trends – While there are challenges, increased enforcement of parity laws and expanded coverage under Medicaid and commercial insurance support growth.
- Private equity interest – The dominance of PE-backed deals in Q3 2019 underscores ongoing investor appetite. Firms are expected to continue pursuing platform and add-on acquisitions to build scale.
- Consolidation opportunities – Many smaller, independent providers still lack the resources to compete at scale, making them attractive acquisition targets.
What The Decline Means For Providers
For providers in the behavioral health space, the Q3 2019 dip in deal volume offers both challenges and opportunities.
On one hand, fewer deals could suggest that investors are becoming more selective. Providers may need to demonstrate stronger operational performance, clinical outcomes, and scalability to attract interest. On the other hand, reduced activity could present opportunities for well-prepared organizations to stand out.
Providers considering a sale or partnership may benefit from aligning with larger platforms, particularly those backed by private equity. Meanwhile, those planning to remain independent should continue focusing on operational excellence, payer relationships, and community impact.
Conclusion
The 35% decline in behavioral health care deals during Q3 2019 marked a notable slowdown in an otherwise active market. With only 17 announced transactions, compared to 26 in the prior quarter and the same period the year before, the drop raised questions about investment trends in the sector.
However, private equity’s continued dominance, strong demand for autism and substance use services, and ongoing consolidation activity suggest the slowdown was temporary rather than permanent. Industry experts predicted renewed momentum in 2020, fueled by high demand, favorable reimbursement, and ongoing investor interest.
Ultimately, while deal activity fluctuates quarter to quarter, the long-term outlook for behavioral health care investment remains strong. As demand grows and providers adapt, opportunities for growth, consolidation, and innovation are likely to continue well into the future.
