Mar 21, 2023

Pediatric Behavioral Health Services M&A Update

Pediatric Behavioral Health Services
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Heightened Levels of Anxiety and Depression Among Adolescents Drives Demand for School-Based Pediatric Behavioral Health Services

The Pediatric Behavioral Health Services sector has experienced increased interest and a resurgence in merger and acquisition (M&A) activity driven by robust demand for school-based, outpatient, and inpatient mental health services. The sector remains highly defensible and recession resistant, as the prevalence of mental health issues such as anxiety and depression has increased markedly among children and teenagers in line with the rise of social media, ubiquitous use of smartphones, and after-effects of the Covid-19 pandemic. The most recent studies regarding child and adolescent mental health amid the pandemic have indicated that anxiety, depression, loneliness, stress, and tension are the most observed symptoms, with dramatic increases in anxiety and depression among kids ages three to 17. From 2016 through 2020, the number of children reported to have anxiety and depression increased by 29% and 27%, respectively, according to a U.S. Department of Health and Human Services (HHS) study using data collected by the National Survey of Children’s Health (NSCH).1 The study also showed a 21% increase in children with behavior or conduct problems, and a 32% increase in children with unmet healthcare needs. Additionally, there has been growing awareness of the critical role that schools can play in addressing the behavioral and mental health needs of students, as many schools have begun to integrate behavioral and mental health services into their offerings. Unfortunately, the demand for mental and behavioral health services brought on by the pandemic has far exceeded the supply of therapists and clinicians. Eighty-eight percent of U.S. public schools reported not being able to effectively provide mental health services to students in need, citing an insufficient number of mental health professionals to manage the school’s caseload, according to the National Center for Education Statistics.2

Pediatric Behavioral Health Services Remains Recession Resistant as M&A Activity has Continued at a Robust Upward Trajectory

In addition to struggling with the student mental health crisis, schools are facing pandemic-induced learning setbacks for America’s children, erasing decades of academic progress. Across the country, math scores have seen their most significant decreases ever, as nearly four in ten eighth graders failed to grasp basic math concepts, and reading scores dropped to 1992 levels. The impact of the pandemic on K-12 student learning has been significant, leaving students, on average, five months behind in mathematics and four months behind in reading by the end of the 2021 school year, according to a report published by McKinsey.3 To combat this education gap in the 2021-2022 school year, U.S. school systems have added extra resources but also face a myriad of challenges, including severe staff shortages, high rates of absenteeism and sickness, and rolling school closures forced by the pandemic’s fallout. School based third-party service providers have the potential to alleviate pandemic headwinds through integrated training solutions for teachers and administrators. Increasing access to effective mental and behavioral health programs should be viewed as a vital component to any plan for addressing the large learning deficit.

Mental and behavioral health treatment providers that tailor their services to the classroom have found significant market opportunities, gaining buyers’ attention. In January 2022, Capstone advised a leading provider of social-emotional learning (SEL) solutions, Conscious Discipline, on its acquisition by private equity firm Prairie Capital for an undisclosed sum. Conscious Discipline’s SEL solutions help educate and equip teachers, administrators, mental health professionals, and parents with the skills to build emotional competence and help reduce student behavioral issues in order to improve educational outcomes. The market for SEL Solutions has experienced rapid growth due to an increase in research on the positive effects of SEL in the classroom, coupled with 10% of adolescents reporting mental health issues serious enough to impair functions at home or in school, according to the Association for Children’s Mental Health.4

Additionally, Effective School Solutions (ESS), a provider of school-based mental illness prevention and clinical support, received a growth investment from Frazier Healthcare Partners. The company partners with school districts to help them implement culturally-inclusive mental health and behavioral support programs proven to improve care, strengthen academics, address trauma, and retain students in-district. In the 2021-2022 school year, ESS completed over 300,000 student sessions. ESS recently announced results from a nationwide poll which revealed mounting concern from parents and educators regarding the state of youth mental health. Per the national poll conducted by ESS, 90% of administrators and nearly 60% of parents believe that there is a growing youth mental health crisis and while over 80% of parents believe that schools should have a role in supporting student mental health, only 16% of parents and 40% of administrators report a high level of confidence in their school’s ability to deal with mental health challenges.5 As the demand for mental health services continues to climb across the U.S., we expect to see private equity eager to invest in the sector.

Educators and parents are in dire need of support to combat a growing youth mental health crisis. Innovative behavioral healthcare providers that can fill this largely unmet need and enhance outcomes will have a unique opportunity for accelerated growth and will be in high demand from both strategic buyers and private equity.

Eric WilliamsManaging Director, Head of Healthcare, Capstone Partners

Transaction Volume Surges Past Prior Year

M&A activity in the Pediatric Behavioral Health Services sector has continued at a robust upward trajectory, with 57 transactions announced or completed in 2022, outpacing transaction volume in 2021 by 46.2%. Strategic buyers continued to lead sector M&A activity, accounting for 54.9% of deals in 2022. Public strategic buyers comprised the lion’s share of 2022 transactions, accounting for 37.3% of deal volume, while private strategic buyers completed 17.6% of all transactions. Private equity (PE) add-on acquisitions amounted to a healthy 33.3% of sector deals in 2022, exhibiting continued PE commitment to the space based on favorable growth dynamics.

The broader Healthcare industry has also exhibited strong M&A valuations despite current economic headwinds. EBITDA and revenue purchase multiples in the Healthcare industry have outpaced the overall middle market over the past three years. The Healthcare industry has recorded an average multiple of 12.0x EV/EBITDA from 2020 to 2023, compared to 10.4x EV/EBITDA in the broader middle market during the same period, according to Capstone’s proprietary Middle Market Valuations Index. The Healthcare industry has had the third highest average EBITDA purchase multiple in the middle market over the last three years, behind Technology, Media & Telecom (TMT) and Aerospace, Defense, Government, & Security (ADGS) at 12.4x EV/EBITDA and 12.0x EV/EBITDA, respectively.

Sponsors Increasingly Target Pediatric Behavioral Health Services

Active sponsors in the Pediatric Behavioral Health Services sector increasingly targeted youth mental health services providers throughout 2022 through add-on acquisitions. Many private equity firms have seen the space as an opportunity to bring expertise in efficiencies and key performance indicators, scaling portfolios to enhance the quality of care. Several notable transactions in the space are outlined below.

  • Consonance Capital Partners Acquires Embark Behavioral Health (December 2022, undisclosed) – Consonance Capital Partners, a private equity firm that invests exclusively in middle market health care companies, has acquired youth behavioral health provider Embark Behavioral Health in December for an undisclosed amount. Founded in 1995, Embark Behavioral Health is an Arizona-based operator of behavioral health treatment centers focused on reversing the trends of anxiety, depression, and suicide. Embark’s specific services for preteens, teens, and young adults include, trauma-focused cognitive behavioral therapy, multisystemic therapy, dialectical behavior therapy, and other evidence-based treatments. The company currently operates 27 programs across 40 locations in 15 states and plans to open 60 additional outpatient clinics in the next three years, according to a press release.6

Embark Behavioral Health is a roll-up of four companies, Calo Programs, InnerChange Programs, New Vision Wilderness Programs, and Potomac Pathways. Embark was previously backed by private equity firm Housatonic Partners, which first invested in the company in 2016, and then reinvested again in 2018. Consonance Capital Partners’ acquisition will allow Embark Behavioral Health to realize an ambitious new growth strategy of increasing the number of families it serves by over 1,000 by 2023. “We have built the organization deliberately, conservatively, and sustainably, not focused on the fads of the day. We aren’t growing for the sake of growing – but instead we are focused on careful and strategic decisions with the idea of using business as a force for good to solve true societal challenges,” said Embark Behavioral Health CEO, Alex Stavros, in the press release.

  • Newport Healthcare Acquires PrairieCare (November 2022, undisclosed) – Newport Healthcare, a network of evidence-based mental health treatment programs for teens and young adults, has completed its acquisition of PrairieCare in November for an undisclosed amount. Minnesota-based PrairieCare is a premier provider of psychiatric services to youth, adolescents, and adults. The company offers assessment and intake, clinic and outpatient services, intensive outpatient programs, partial hospitalization programs, and residential services. PrairieCare currently operates nine locations throughout Minnesota – including a significant presence in the Twin Cities metro area and the southern corridor of the state – with free mental health screenings, according to a press release.7

This transaction marks the third consecutive acquisition of a mental health treatment provider by Newport Healthcare since 2018, as the company looks to actively address the nation’s mental health crisis. “Individuals and families are struggling to find appropriate, available mental health care. PrarieCare’s outstanding reputation and clinical sophistication complement our existing services. Through a combination of development and acquisition, we are expanding access to treatment with a full continuum of care, creating more opportunities to positively impact countless lives. The acquisition of PrairieCare will solidify Newport’s growing presence in Minnesota and create a hub for youth psychiatric services in the Midwest,” said Newport CEO, Joe Procopio, in the press release. “Newport’s national presence and substantial resources provide great opportunities for enhancing trainings, best practices, professional development, and outcomes measurement. Together, we will accomplish more and advance mental health treatment for youth and adults in this country,” added PrairieCare CEO, Todd Archibold.

  • Petra Capital Partners-Backed Acute Behavioral Health Acquires Hallmark Youthcare (July 2022, undisclosed) – Petra Capital Partners-backed Acute Behavioral Health, a healthcare platform of inpatient and outpatient behavioral health programs for young people, has acquired Hallmark Youthcare in July for an undisclosed amount. Hallmark Youthcare is a Virginia-based inpatient facility for youth with behavioral and mental health needs. Founded in 1976, Hallmark Youthcare works with children and their families through the use of residential psychiatric services, outpatient therapy, and community-based services. Hallmark Youthcare has opened up several new programs including its Treatment for Exploited Children Program and an American Society of Addiction Medicine approved substance abuse program.

The transaction is the first facility acquired by Acute Behavioral Health, which was founded in 2021 through initial investments from Petra Capital Partners, Harbert Credit Solutions, and Elm Creek Partners. Acute Behavioral Health expects to add 10 facilities in the next five years through acquiring unused facilities, according to a press release.8 “The acquisition of Hallmark provides a unique opportunity for Acute Behavioral Health to expand its footprint in Virginia. Hallmark’s 46-year history of providing quality care and services focused on reuniting patients with their families aligns well with Acute Behavioral Health’s vision and operating model,” said Acute Behavioral Health CEO, Mike McCulla, in the press release.

To discuss sector M&A activity, provide an update on your business, or learn about Capstone's wide range of advisory services and Pediatric Behavioral Health Services sector knowledge, please contact us.


  1. U.S. Department of Health and Human Services, “New HHS Study in JAMA Pediatrics Sows Significant Increase in Children Diagnosed with Mental Health Conditions from 2016 to 2020,”, accessed January 20, 2023.
  2. National Center for Education Statistics, “Roughly Half of Public Schools Report That They Can Effectively Provide Mental Health Services to All Students in Need,”, accessed January 23, 2023.
  3. McKinsey & Company, “COVID-19 and education: The lingering effects of unfinished learning,”, accessed December 7, 2022.
  4. Association for Children’s Mental Health, “Why Does Mental Health Matter in Schools,”, accessed February 15, 2023.
  5. Effective School Solutions, “Effective School Solutions: District Results,”, accessed December 7, 2022.
  6. Behavioral Health Business, “Consonance Capital Partners Acquires Majority Stake in Youth-Focused Embark Behavioral Health,”, accessed February 21, 2023.
  7. PRNewswire, “Newport Healthcare Acquires PrairieCare to Expand Access to Mental Health Treatments for Youth and Adults,”, accessed February 21, 2023.
  8. PRWeb, “Acute Behavioral Health Announces Acquisition of Hallmark Youthcare,”, accessed February 16, 2023.

Related Transactions

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