Transactions in behavioral health remained steady in the fourth quarter of 2019, rounding out another active year, the latest data from M&A advisory firm Mertz Taggart show. Transactions among addiction treatment service providers led with a total of 10 deals for the quarter, but autism services remains the sector to watch.
Mertz Taggart tracked 21 transactions overall in the behavioral health market in Q4, including several that were not publicly announced. For the year, 2019’s total of 85 deals was somewhat slower than 2018, which saw 97 deals. This reflects a 12% reduction in volume, year-over-year.
“The market remains energetic, and we anticipate a steady pace of transactions to continue through 2020,” said Mertz Taggart Managing Partner Kevin Taggart. “There are significant opportunities for buyers who are focused on building regional and national networks of service providers as well as those looking to operationalize a continuum of care.”
Some of the surging interest in the addiction treatment sector has waned among investors, which isn’t surprising after several consecutive years of growth, said Taggart. However, autism services remains the most attractive right now, especially for new entrants.
“In 2019, there were 10 private equity platform transactions in autism services, including two in Q4 alone,” Taggart said. “This is a clear indication of the interest level from private equity, but it also signals the potential for more add-on transactions to be announced over the next 3-5 years.”
In all sectors of behavioral health, existing providers are expanding both geographically and in their clinical service offerings. The preference toward outpatient care is evident, knowing that outpatient has a more secure reimbursement potential. With such organic growth, investors will find more potential opportunities to explore.
I/DD and Autism
Taggart said investors recognize that the market providing services for individuals with intellectual/developmental disabilities and autism spectrum disorder (ASD) has untapped potential. While much of the service focus has remained on early identification of ASD in children and connecting them to appropriate interventions, there will also be considerable demand for services tailored to adults with ASD. It’s an area of opportunity for service expansion.
“Some investors are becoming more attuned to the value of positive social impact,” Taggart said. “They want a sense that their investments can make a difference in people’s lives.”
Nationwide, new facilities are opening on a regular basis, but the sector still remains fragmented, according to Taggart.
Kadiant announced two transactions in the quarter, for a total of seven on the year, which is impressive considering Kadiant is a new player in the market. Q4 deals included the acquisition of Capitol Autism Services in the greater Sacramento, California, area and the acquisition of the behavior therapy business of Personal Assistance Services of Colorado. The organization now offers autism services in Southern and Northern California, Colorado, Georgia, Ohio, Oregon and Washington.
New Mainstream Capital announced a partnership and recapitalization of the Center for Social Dynamics, Inc., which provides applied behavioral analysis and related services throughout Northern California, Oregon and Hawaii. The provider also maintains relationships with commercial insurance carriers.
Acorn Health acquired Behavior Therapy Specialists, which provides services to children and adults in Southern Illinois and Northern Missouri. With the transaction, Acorn Health gains a foothold in the Illinois market.
Thomas H. Lee Partners announced the recapitalization of Centria Healthcare, which provides services in 11 states. Prior to the sale, Centria was a portfolio company of Martis Capital.
The Speech Pathology Group, a portfolio company of Ridgemont Equity Partners, in December acquired the Comprehensive Autism Center in Southern California, which provides services for adults and children.
Hope Network, a large behavioral health nonprofit in Michigan, acquired Homes of Opportunity Inc. as part of a larger strategy to expand across the state. The organization also has two new autism centers planned in partnership with local universities.
Taggart said investors have been patient in monitoring the addiction treatment market for opportunities that fit into their broader strategic plans. However, healthcare’s emerging focus on value-based delivery of services has added some emphasis on providers that can more readily demonstrate quality of care. The addiction treatment sector is both high-demand and highly regulated, making it a more challenging value proposition for some investors.
Discovery Behavioral Health, a portfolio company of Webster Equity Partners, led the sector with four transactions announced in Q4. In October, it acquired New Life Addiction Counseling & Mental Health Services in the Baltimore area. Discovery in November acquired Authentic Recovery Center, located in West Los Angeles, which offers medical detox and a continuum of care. In December, it acquired Casa Palmera in San Diego, which offers residential and outpatient services. Also in late December, Discovery acquired Associated Behavioral Health Care and its four centers located throughout greater Seattle. Additionally, the organization announced a number of new center openings and service expansions in Q4.
Vizion Health, LLC acquired Shoreline Treatment Center in Texas, a 91-bed adolescent residential treatment center. Its portfolio now includes a total of eight centers.
In Indianapolis, Community Health Network acquired Fairbanks, a provider of inpatient, outpatient and long-term residential addiction treatment programs. The merged organization will offer access to a psychiatric inpatient care unit as well as care for severe mental illness.
Four Arkansas behavioral health providers announced a merger in October to form an integrated behavioral health system under Arisa Health. The partners include Counseling Associates, Mid-South Health Systems, Ozark Guidance, and Professional Counseling Associates. In total, the combined organization will have locations in 41 counties in the state.
Seaside Healthcare has acquired the mental health service company Strategic Interventions, Inc., in North Carolina. The combined organization offers mental health and addiction services across Louisiana, North Carolina, Georgia and Texas.
Newport Academy acquired Residence XII, a treatment program for women in the Seattle area. The acquisition complements Newport’s existing treatment centers for men and boys.
Provident Behavioral Health and Mary Ryder Home, two St. Louis nonprofits, announced a merger in October. With the transaction, Provident gains a residence providing care for senior women.