Behavioral Healthcare Services Market Update – October 2022

Behavioral Health Crisis Continues to Drive Merger and Acquisition Activity

Capstone Partners released its October 2022 Behavioral Healthcare Services Market Update, reporting that the rising rate of patients seeking behavioral healthcare services has outpaced the available resources in the U.S., resulting in a supply and demand imbalance and necessitating the expansion of workforces and offerings to improve patient outcomes. Pandemic-induced isolation has further strained Americans’ mental health and chronic behavioral conditions, especially in rural areas with limited access to care. Despite easing COVID-19 restrictions, the longevity and uncertainty of the pandemic have had a lingering impact on the nation’s emotional well-being. The surge in demand, coupled with clinician burnout, is expected to drive continued implementation of value-based care in the sector, which incentivizes behavioral healthcare service providers to reduce overall healthcare utilization through measured outcomes and more effective treatment methods.

Behavioral Healthcare Services M&A Volume Reached a Record High in Part Due to Pandemic-Induced Isolation

Behavioral Healthcare Services sector merger and acquisition (M&A) volume reached a record high of 127 deals announced or completed in 2021 and has continued at a strong pace through year-to-date (YTD). The heightened consolidation in the sector can largely be attributed to buyers, both strategic and private equity-backed, seeking to extend the continuum of care with bundled treatment options that adapt to patients’ needs. Private equity firms have historically been attracted to the sector and have increased their exposure in recent years through add-on acquisitions, which comprised nearly half of deals to-date. Armed with $1.2 trillion in dry powder, private equity firms have utilized sponsor-to-sponsor deals to rapidly scale platforms, increasing returns upon exit and putting capital to work. In addition, many private equity firms have embodied the mission-led approach their platform companies exhibit, professionalizing portfolio offerings to improve patient outcomes. Notable deal activity in the space includes the Capstone-advised sale of Pinnacle Family Services to Palladium-backed Health Connect America (HCA) in January. Included in the report is an exclusive interview with Kristi Shain, CEO and President of HCA, and Scott Martin, CEO of Pinnacle Family Services and COO of HCA, discussing their experience during the deal process, company mission, value-based model, and acquisition strategy.

Also included in this report:

• How the adoption of value-based care models has had a positive impact on patient outcomes.
• Data on the state of mental health in 2022, including diagnosis and treatment rates in the U.S.
• An analysis of M&A purchase multiples in the broader Healthcare industry compared to overall middle market averages.