Deal volume across the behavioral healthcare sector continued to drop in the third quarter of 2024 to levels not seen since the onset of the COVID-19 pandemic. Analysts at Mertz Taggart, however, say all signs point to a major rebound in 2025.
Behavioral Health M&A
Even when factoring in venture capital growth deals, just 31 behavioral healthcare transactions were announced in Q3.
“It’s gotten tougher to get deals done in the second half of this year, and the numbers would certainly reflect that,” Mertz Taggart Managing Partner Kevin Taggart said. “A lot of the strategic buyers are sitting on the sidelines right now with regards to both the mental health side and the addiction side.”
In the addiction treatment space, larger strategic buyers could be counted on to complete four or five deals in a quarter. Right now, though, some of those buyers are choosing to sit out, and deals that are getting done are often taking longer to complete in 2024, Taggart said.
On the mental health side, deal volume has declined significantly from the halcyon days of 2022, when 42 transactions were reported in the third quarter alone. For comparison, just 19 such deals were announced in Q3 of 2024.
“Buyers are becoming much more discerning,” Taggart said. “some of the buyers that are still digesting some of the acquisitions they did over the last couple years are sitting on the sidelines. I'm optimistic that they'll be back in the market. It might not happen until 2025, though.”
In becoming more selective, buyers are showing a greater affinity for medical practices than counseling-only businesses. Those that provide other types of services, such as ketamine treatments, for example, mixed in with medical and counseling services are also a plus.
“As providers are thinking about what services to offer, medical businesses are getting a premium relative to the counseling-only businesses,” Taggart said.
Looking ahead, the degree to which behavioral healthcare transaction volume experiences a resurgence in 2025 could hinge on two factors, Taggart said:
Whether the Federal Reserve makes good on its pledge to move forward with a series of rate cuts. The Fed has made two rate cuts since September, and there is optimism that the cuts will continue in the new year.
Whether private equity firms finally tap into their large reserves of dry powder they’ve been waiting to put to use. “They have to do something with that money eventually,” Taggart said. “And returning it to their GP partners, uninvested, is not what anyone wants.”
Addiction Treatment M&A
Just six deals involving addiction treatment service providers were announced in Q3, a drop from the 11 reported in each of the prior two quarters.
Deals either completed or announced in the quarter include the following:
Aware Recovery Care, a provider of in-home addiction treatment services in 11 states, has raised $3.5 million of new capital in a round led by Connecticut Innovations.
Tulip Hill Healthcare announced in August that it has taken a majority ownership stake in two detox facilities: Tennessee Detox Center and Live Again Detox to expand its presence in Kentucky and Tennessee.
DisposeRx announced a sale of its Coaches vs Overdoses program to Pennant LLC. The program was developed by DisposeRx to help combat the opioid crisis by raising awareness, reducing stigma, and empowering high school coaches and athletes to become prevention and recovery advocates.
Magnificent Legacy Capital and Legacy Quest Partners acquired Windmill Wellness Ranch in a private equity platform deal.
Bradford Health Services announced it has acquired Lakeview Health, which operates four programs. The acquisition was backed by Lee Equity Partners.
In July, Ethema Health Corporation announced that it had entered into a letter of intent agreement to purchase all of the assets of Edgewater Recovery Center of Morehead, Kentucky.
Two other deals involving facilities that include addiction treatment among their services offered were also announced:
Prairie Ridge South, formerly known as Prairie Ridge Integrated Behavioral Healthcare, merged with Substance Abuse Treatment Unit of Central Iowa. The latter will now operate as Prairie Ridge South.
San Angelo, Texas-based Shannon Medical Center acquired River Crest Hospital from Universal Health Services. River Crest is an 80-bed facility that offers behavioral health and substance use disorder treatment programs for children, adolescents, adults, and military members.
Mental Health M&A
A total of 19 deals involving mental healthcare providers was announced in Q3, roughly on par with the 18 reported in the prior quarter.
Five mental healthcare-focused deals were of the growth funding variety:
Pomelo Care raised $46 million for its maternal health platform in a Series B funding round led by venture capital firms First Round Capital and Andreessen Horowitz Bio + Health.
Patient-matching platform Headway closed a $100 million funding round led by Spark Capital, bringing its valuation to $2.3 billion.
Spring Health, a New York City-based mental health solution for employers and health plans, announced that it raised $100 million in a Series E funding round led by Generation Investment Management, along with participation from existing investors Kinnevik, William K. Warren Foundation, RRE, and Northzone.
Mental health chatbot company Slingshot AI raised a $30 million funding round led by Andreessen Horowitz.
BeMe Health, a Miami, Florida-based provider of teen-focused digital mental health services, raised $12.5 million in a Series A funding round led by growth capital investor Hesperia Capital.
Other deals included the following:
Iredell Health System signed a definitive agreement to acquire Davis Regional Psychiatric Hospital from subsidiaries of Community Health Systems, Inc.
Vibrant Emotional Health, a New York-based not-for-profit mental health organization, announced its acquisition of Stars of HOPE, a program of the New York Says Thank You Foundation.
Release Recovery, a New York-based substance use and mental health recovery organization, acquired MANUAL, a personal development and wellbeing platform for young men that is currently available in more than 50 colleges and high schools.
Lightyear Capital completed a strategic investment in CuraLinc Healthcare, a provider of employee assistance, student, and workforce mental health programs.
Virtual mental healthcare services provider Uwill acquired competitor Virtual Care Group in a private equity-backed deal.
Fabric, a healthcare technology and care enablement system, acquired MeMD, a provider of virtual behavioral, urgent, and primary care benefits, from Walmart.
Beacon Behavioral Partners, a provider of support services for behavioral healthcare practices, announced its first partnership in Pennsylvania with Nexus Group, a Pittsburgh-based outpatient mental health facility.
Neuronetics and Greenbrook TMS announced in August that they have entered into an agreement for Neuronetics to acquire all outstanding common shares of Greenbrook in an all-stock transaction.
Riverside Impact Capital made an investment in Denver Mental Health Collective.
Pneuma Behavioral Health announced a partnership with Crossroads Counseling Center, a behavioral health practice in Hickory, North Carolina.
Autism and Intellectual/Developmental Disabilities M&A
Although deal volume remained modest in the subsector of autism and intellectual/developmental disabilities (I/DD), Taggart said he sees potential for a surge in demand among investors for providers of applied behavioral analysis (ABA) therapy in 2025. Factors, such as labor costs, that have created headwinds for ABA companies in recent years have started to settle, and the result could be more deals getting done next year, he said.
The following transactions involving autism and I/DD therapy providers were announced in Q3:
ABA and autism diagnosis provider Soar Autism secured $19.3 million in a funding round. Investors were not disclosed.
Autism Testing 4 Kids raised $2.5 million, with 46 unnamed investors participating in the funding round.
Beacon Specialized Living acquired Community Concepts Inc. and Community Visions LLC, marking Beacon’s first foray into Virginia.
ABA Connect announced its acquisition of ABA Therapy of Houston, giving the company two clinics in Katy, Texas, and a network of 12 clinics across Texas and Colorado overall.
Behavioral Framework of Rockville, Maryland, announced that it has acquired Behavior Consultation & Psychological Services, a provider of clinic-, home-, and school-based ABA therapy and autism diagnosis services in North Carolina.
If you are interested, you can also download the Q3 2024 Behavioral Health M&A Report via the following link:
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