Transaction activity across behavioral healthcare in the second quarter of 2024 was marked by a pair of distinct trends: growth funding continues to flourish, while mergers and acquisitions have dipped to early COVID-19 pandemic levels.
A total of 30 deals were reported in Q2, down by nearly a third from the 44 announced in the year’s first 3 months. Investors poured more than $400 million to 11 growth funding-focused transactions—building off a first quarter in which 18 such deals accounting for more than $350 million were completed.
Meanwhile, the 19 true M&A transactions reported in Q2 were the fewest since the onset of the pandemic in Q2 2020.
The drop-off has been driven by a decline in private equity-backed portfolio company acquisitions, Mertz Taggart managing partner Kevin Taggart said. To wit: A typical quarter sees about 15 to 20 PE-back strategic deals reported. In Q2, just 5 such transactions were announced.
“Private equity has been historically aggressive when trying to get into the industry, and while building out their portfolio companies, most recently on the mental health side,” Taggart said. “As a result, they have historically been the winning bidders when companies went to market.”
Addiction Treatment M&A
A total of 10 transactions within the addiction treatment subsector were announced in Q2, holding steady with the 12 deals announced in the fourth quarter of 2023 and the first quarter of 2024.
Of the 10 transactions announced within the addiction treatment subsector, 4 fell into the category growth equity/venture capital deals:
Wayspring (formerly known as Axial Healthcare), a value-based provider of substance use disorder (SUD) treatment services, received a $45 million investment from venture capital investment platform CVS Health Ventures.
Boulder Care, a digitally based SUD treatment provider, raised $35 million in a Series C funding round led by Advance Venture Partners, along with participation from growth equity firm Strips and several existing investors.
Hope River Ranch, a Park City, Utah-based provider of treatment for co-occurring addiction and mental health conditions, raised $16.7 million in equity funding from undisclosed investors.
Marigold Health, a Boston-based virtual peer-support startup, raised $11 million in a Series A funding round led by Rock Health and Innospark Ventures.
The following transactions involving addiction treatment provider organizations were also announced in Q2:
T&R Recovery Group completed an acquisition of a portfolio of Origins Behavioral Healthcare facilities in Texas from the Hanley Foundation. The sale included 2 residential treatment centers, 2 intensive outpatient programs, and a transitional sober living facility.
Pathways Recovery Centers expanded its multi-state portfolio of programs with its acquisition of Serenity Park Recovery Center in Little Rock, Arkansas.
In May, Tulip Hill Recovery, Louisville Addiction Center and Lexington Addiction Center announced a merger to create Tulip Hill Healthcare. The aligned organizations will provide partial hospitalization program (PHP) and intensive outpatient program (IOP) services across multiple states.
FOXO Technologies entered into share exchange agreement with Rennova Health to acquire equity in Myrtle Recovery Centers, a 30-bed facility in East Tennessee.
California-based Your Behavioral Health, a Comvest Partners portfolio company, announced its acquisition of Insight Treatment Programs, expanding Your Behavioral Health’s network across Southern California to 25 sites.
Brightside Health announced an expansion into virtual intensive outpatient SUD treatment services through an acquisition of Lionrock Recovery.
Mental Health M&A
Transaction volume within the mental health subsector fell significantly quarter-over-quarter. A total of 15 deals involving mental healthcare providers were reported in Q2, half of the 30 that were announced the prior quarter. The dip largely was attributed to a decline in private equity-backed strategic deals, of which just 2 transactions were announced in Q2 (vs. 9 in Q1) and a drop in PE platform deals.
The following mental health M&A transactions were reported:
Refresh Mental Health acquired CARE Counseling Services in April, a continuation of parent organization Optum’s strategy to cut patient wait times for behavioral healthcare services, according to a media report.
Kentucky Counseling Center announced the acquisition of Flourish Psychotherapy, an Ohio-based mental health company. As part of the acquisition, Flourish was rebranded as Counseling Now.
Texas-based Mind Body Optimization, a provider of outpatient mental health services, announced in May that it has acquired Mind Body Wellness, a mental health practice with 2 locations in Tennessee.
Salveo Counseling Center sold to an undisclosed strategic buyer. Mertz Taggart provided sell-side advisory services.
The following mental healthcare provider organizations announced growth funding completed in Q2:
Talkiatry, the New York City-based provider of telepsychiatry services, secured $130 million in a funding round led by Andreesen Horowitz, along with participation by Perceptive Advisors and debt financing provided by Banc of California. Talkiatry said the funds will be used to help the company scale up its value-based care services.
Two Chairs, a San Francisco-based hybrid provider of behavioral healthcare services, completed a $72 million Series C funding round led by Amplo and Fifth Down Capital.
InStride Health, an outpatient pediatric behavioral healthcare services provider, raised $30 million in a funding round that included participation from General Catalyst, .406 Ventures, Valtruis, Mass General Brigham Ventures and Hopelab Foundation.
Telehealth-based provider Brightside Health raised $33 million in financing that the company said will be applied toward fueling growth in new markets, as well as new product offerings. Participating investors included S32 Kennedy Lewis and Time BioVentures.
Valera Health raised $9 million in equity from undisclosed investors, bringing its total raise to more than $73 million.
Grow Therapy, a mental healthcare technology startup company, announced in April that it raised $88 million in a Series C funding round that was led by Sequoia Capital, along with participation from Goldman Sachs Alternatives, PLUS Capital and 3 existing investors.
Seven Starling raised $12.63 million in a funding round led by Ulu Ventures.
Backpack Health, a pediatric mental healthcare services provider previously known as Youme Healthcare, raised $14 million a Series A funding round led by PACE Healthcare Capital, along with participation from 9 other firms.
Autism and Intellectual/Developmental Disabilities M&A
The autism and intellectual/developmental disabilities (I/DD) subsector saw a modest increase in deal volume in Q2, with 8 transactions reported, up from the 5 announced in the prior quarter.
In a massive deal reported in May, Tenex Capital Management, a New York City-based private equity firm, acquired Behavioral Innovations for about $300 million. One of the largest providers of autism services in the United States, Addison, Texas-based Behavioral Innovations had been backed by private equity firm Shore Capital Partners of Chicago since 2017.
Two additional PE platform deals involving providers of autism and I/DD services were also announced:
Private equity firm Optimal Investment Group acquired Orange, California-based autism therapy provider Spectrum Behavioral Therapies. The deal marked Optimal’s entry into the behavioral healthcare sector.
Apollo Behavior received an investment from Mirimar Equity Partners, a Dallas-based firm that invests in mid-sized businesses.
In another notable transaction, LITALICO, the largest I/DD provider in Japan with 300 locations, announced its entry into the U.S. market with its acquisition of Developmental Disability Centers of Nebraska for $50 million.
Other deal involving providers of autism and I/DD-related services included the following:
Amazing Care Home Health Services announced in April that it acquired Straka Pediatric Therapies.
Opya, a multidisciplinary early intervention autism therapy provider, acquired the Center for Autism Spectrum Therapy, an early intervention autism therapy clinic located in Los Angeles.
1Care Hospice, part of 1Care Health, expanded its presence in Nevada with its acquisition of Reset Behavior Health.
FullBloom, a youth-focused education and behavioral health platform, acquired 2 locations from Lexington Life Academy in Arizona.
“Strategic and financial buyers are still hungry for acquisitions, but there is a lack of ‘quality’ deals for them to look at,” Taggart said. “How they define quality deals is different today than it was 2 to 3 years ago. They have gotten much more discerning about which deals they will pursue and ultimately close on. This is somewhat driven by the debt markets, which have gotten tighter.”
Looking ahead to the remainder of 2024, Taggart said the firm is seeing signs of optimism in the M&A marketplace. "Recent inflation and employment data have significantly increased the likelihood that the Federal Reserve will begin cutting interest rates as soon as September. Credit markets are also poised to ease up, which will also facilitate more deal flow at higher values," Taggart said.
“Buyers will have more wiggle room to pay a premium for the right opportunity,” he said.
If you are interested, you can also download the Q2 2024 Behavioral Health M&A Report via the following link: