The first quarter of 2020 brought 20 behavioral health M&A transactions, according to the latest data from M&A advisory firm Mertz Taggart. Deal volume among mental health organizations led the segment with 10 announcements—a peak not seen since the third quarter of 2017.
But the biggest question is the impact the Coronavirus will have on healthcare M&A going forward. Predictions indicate that investors will be cautious for the next couple of months.
“We know that strategic buyers in healthcare are still moving forward to close deals that were already in progress,” said Mertz Taggart Managing Partner Kevin Taggart. “And it’s certainly in their best interest to stay the course because they’re really playing the long game right now.”
Taggart also said that private equity firms have been anxious to close on outstanding transactions while lenders are still making good on their commitments. Undoubtedly, economic recovery from COVID-19 will take some time, and resources could quickly shift toward working with lenders to restructure debt in the coming months.
“We do anticipate a modest slowdown in behavioral health deal activity in the short term but the industry continues to be attractive for investment overall. We anticipate that healthcare M&A, in general, will rebound sooner than other industries, and behavioral health will be on the front edge of that,” Taggart said.
According to a recent survey by Mertz Taggart, strategic buyers forecast a slower pace of healthcare M&A transactions only for the short-term. Most have strong balance sheets and are optimistic that their momentum will hold steady. Meanwhile, buyers remain committed to building their portfolios to achieve scale.
“Disruption in the market could actually produce opportunities for buyers with cash or access to credit,” Taggart said. “Buyers that keep their eyes open could sight desirable targets that weren’t available previously.”
Providers that have been able to expand or create new telehealth capacity are delivering outpatient care virtually and maintaining at least a portion of their operations. However, some center-based programs, most notably Autism services have temporarily shut down. Taggart believes providers will slowly transition to restore access to in-person services once it makes sense in their local community. As access improves, demand will likely surge.
He also forecasts that where the delivery system has adopted telehealth, those telehealth services will only gain traction.
“The sudden, unforeseen interest in telehealth services has resulted in added reimbursement opportunities for providers,” Taggart said. “And reimbursement potential is always an attractive feature.”
The National Council for Behavioral Health and more than 40 other industry groups recently requested $38.5 billion in emergency funds from Congress to support community-based providers in their efforts to maintain services under coronavirus concerns. Without added assistance, they said, providers will be forced to close, placing greater demands on the acute care system.
“It’s likely that some not-for-profits are now using their reserves,” Taggart said. “We could easily see some rescue mergers take place among like-minded organizations before long.”
Mental health M&A deal volume has been somewhat hit-or-miss over the past few years, according to Mertz Taggart tracking data. But services remain in high demand, and there continues to be significant unmet need, marking robust growth opportunities.
Among the transaction highlights, healthcare growth equity investment firm Galen Partners acquired Evolve Treatment Centers in January. The Los Angeles-based Evolve provides adolescent behavioral health services as well as addiction treatment.
Great Lakes Bay Health Centers acquired the McLaren Bay Psychiatric Associates practice in Bay City, Michigan. The deal brings the Great Lakes Bay Health Centers portfolio to 32 sites in Michigan.
The nonprofit Center for Balanced Living in Columbus, Ohio, announced in February an agreement to transition its eating disorder treatment services to The Emily Program following process completion in March. The Emily Program provides outpatient services and residential programs at 15 locations across the country.
Salt Lake City-based private-equity firm Cimarron Healthcare Capital completed the acquisition of Ascent Behavioral Health in February, in partnership with, Monroe Capital and Veronis Suhler Stevenson (VSS). Ascent provides wilderness therapy, residential treatment and therapeutic boarding school programs for adolescents through its six residential programs in Utah. The investment will be used to support expansion of Ascent’s programs and potential acquisitions in the future.
Early this year, the city of San Francisco announced its intention to purchase two residential care facilities—Grove Street House and South Van Ness Manor—which were at risk of closing. Grove Street House is a state-licensed, nine-bed residential mental health treatment facility. The city is in negotiations to purchase the 29-bed South Van Ness Manor facility.
Bay Psychiatric Associates acquired Lenox Hill TMS Psychiatric Associates Bay Area in late February. Bay Psychiatric Associates has locations throughout California, offering office- and hospital-based services.
New Era Partners announced the development of multiple healthcare assets in Texas and Indiana. Assets include three behavioral hospitals that were acquired or developed for Oceans Healthcare, and the development of inpatient rehabilitation hospitals for Nobis Rehabilitation Partners.
Discovery Behavioral Health acquired the residential treatment center New Hope Ranch in Austin, Texas. Discovery also announced the acquisition of Associated Behavioral Health Care of Seattle in January. The transactions follow an active 2019 for the organization, a year in which it built a network of outpatient mental health, addiction and eating disorder treatment centers now spanning 11 states.
In March, MindCare Solutions Group announced a merger with PsychNow. Combined, the two telepsychiatry providers offer virtual services to more than 200 clinical care settings in the United States. MindCare is a portfolio company of WP Global Partners.
Finally, at the end of March, in what was clearly the highlight transaction of the quarter….. Cielo House sold to Refresh Mental Health. Cielo House provides eating disorder treatment with four locations throughout the San Francisco Bay area. Mertz Taggart provided exclusive behavioral health M&A advisory services in this transaction, representing the seller.
Addiction Treatment M&A
Interest has slowed a bit in addiction treatment mergers and acquisitions, according to Taggart, and the nine deals recorded for Q1 were on target with expectations. However, Mertz Taggart expects addiction treatment M&A transaction volume to pick up towards year end. Outpatient services and the ability to negotiate network contracts with commercial payers remain attractive features among deal targets.
In January, Turnbridge acquired the Clearpoint Recovery Center in Westport, Connecticut. The outpatient treatment center treats adults with substance use and co-occurring mental health disorders and will now be branded Turnbridge Westport.
Franklin, Tennessee-based Summit BHC acquired Peak View Behavioral Health in Colorado Springs, Colorado. This deal marks Summit BHC’s first facility in Colorado and its 19th facility overall. Peak View Behavioral Health opened in 2009 and offers acute psychiatric services as well as addiction treatment.
The non-profit NUWAY Alliance acquired the Gables Women’s Treatment Program in a transaction that doubles NUWAY’s residential women’s treatment capacity. Additionally, the Gables will become a subsidiary of the NUWAY Alliance, a recently established management company.
Pinnacle Treatment Centers, which offers inpatient, outpatient and medication-assisted treatment, has acquired Aegis Treatment Centers, a California-based provider of outpatient opioid treatment programs with 35 locations. With the transaction, Pinnacle now operates facilities in seven states.
I/DD & Autism Services M&A
Much of 2019 was marked with interest in the intellectual/developmental disabilities (IDD) and autism services M&A market. As payers feel pressure to provide reimbursement for more comprehensive care for individuals, the subsegment has been ripe for growth as well as consolidation.
The Stepping Stones Group in January acquired STAR of CA, a California-based provider of home, community and school-based applied behavioral analysis and mental health services. STAR of CA will operate as a subsidiary of The Stepping Stones Group. This is the group’s second acquisition of an autism services provider. Last September, it acquired New England ABA in Massachusetts.
Acorn Health acquired Autism University in Macomb, Michigan, in January. With this acquisition, Acorn now operates 11 facilities in the state under the Autism Centers of Michigan brand.
Fort Worth, Texas-based Caregiver Inc. has acquired four companies. In March, it closed on the acquisition of Indiana-based Houston Group Homes. In Q4 2019, it completed the acquisition of Cori Care and Absolute Care. Also in Q4 2019, Caregiver closed on the acquisition of Personal Care Choices in eastern Tennessee.
Houston-based Blue Sprig Pediatrics, Inc. announced a merger with the Florida Autism Center and the Fusion Autism Center, which officials called a “landmark transaction.” Blue Sprig, which was formed in 2017 with the backing of KKR, now has 110 centers in 13 states. The merger follows a deal inked in the third quarter of 2019, when Blue Sprig acquired Thrive Autism Solutions, a multi-state clinic and home-based provider of autism services.