How to Prepare Your Behavioral Health Business for Sale in 2026
- 2 days ago
- 8 min read
Originally presented as a live webinar by the Mertz Taggart behavioral health team: Kevin Taggart, Peter Thiessen, and Dr. Anke Stugk
If you're a behavioral health business owner thinking about selling, whether that's six months from now or three years down the road, the decisions you make today will directly impact what your business is worth when the time comes.
We recently hosted a webinar covering the full lifecycle of a behavioral health transaction: how to prepare, what buyers look for, what the process actually looks like, and where the market stands heading into 2026. This post distills the key takeaways for owners who are weighing their options.
Watch the full webinar here:
The Market Is More Active Than You Think
Let's start with the question everyone wants answered: is now a good time to sell?
The short answer is yes…with some nuance.
If you've been hearing that the M&A market is down, you're not wrong that deal volume pulled back from the highs of 2021 and 2022. Those were anomaly years, driven in part by anticipated tax changes and a wave of private equity capital entering behavioral health. Transaction volume nearly doubled compared to pre-COVID norms, and when it corrected in 2023 and 2024, it felt like a sharper decline than it actually was.
Here's the reality: 2023 and 2024 were still solid years when compared to pre-pandemic baselines of roughly 100 transactions per year. And 2025 has been our busiest year since 2021 on the behavioral health side — we've closed seven transactions with several more in the pipeline.
More importantly, private equity interest remains strong. We're seeing a high number of new platform investments, which is a leading indicator for add-on acquisition activity in 2026 and 2027. Every time a PE group makes a platform investment in behavioral health, they're planning to do multiple add-on acquisitions in subsequent years. That creates more buyers competing for well-run businesses like yours.
What's happening by subsector
Substance use disorder (SUD): The biggest shift here is that several large strategic buyers — groups that used to account for 15 to 25 transactions a year combined — have been on the sidelines. But new buyers have stepped in to fill much of that gap. Out-of-network businesses remain harder to sell, though there are exceptions for highly specialized programs.
Autism and IDD: After a rough stretch in 2022 and 2023 driven by wage inflation and the high-profile Carta bankruptcy, the ABA market has rebounded. We're seeing competitive processes again for well-run programs, and buyer interest is strong heading into 2026.
Outpatient mental health: This remains one of the most active areas. Psychiatry practices with integrated counseling services are in particularly high demand. We're still seeing double-digit multiples for businesses that check the right boxes — strong financials, good payer mix, and a scalable model.
A note on venture capital: Over the past few years, venture-backed telehealth companies entered behavioral health and were valued like software companies. That growth has slowed considerably. The distinction matters: venture capital tends to invest in pre-profitability growth stories, while private equity invests in EBITDA-positive businesses. If you're running a profitable, well-managed practice, private equity is your buyer universe, and that market is healthy.
Getting Your Financial House in Order
Buyers will scrutinize your financials going back at least two years, sometimes three. The single most impactful thing you can do to prepare is make sure your books are clean, consistent, and well-organized.
Consistency matters more than perfection. Categorize your revenue and expenses the same way every month, every year. When a buyer or their QoE firm can't easily compare one period to the next because line items keep moving around, it creates questions, and questions slow deals down.
Personal expenses are normal; just be transparent. We see it all the time: owners running personal travel, vehicles, or other expenses through the business. That's fine. We handle these through what's called EBITDA normalization — we add back personal or one-time expenses to show the true profitability of the business. The key is being upfront about them from the start.
Develop budgets and forecasts. Buyers want to see that you have a plan and that you can execute against it. If you forecasted 15% growth and delivered 12%, that's a conversation. If you forecasted 30% and delivered 2%, that's a red flag. During the transaction year especially, your performance against forecast is under a microscope.
No last-minute surprises. This cannot be overstated. If there are pending audits, legal issues, licensing concerns, or accreditation problems, disclose them early. We've seen deals fall apart 60 days before closing because a seller tried to hide an accreditation issue — and it took them another two years to find a buyer after that. These things almost always come out during due diligence. Bringing them forward early lets everyone work through solutions while the deal is still on track.
What Drives Valuation, and What Hurts It
Understanding what buyers value helps you make better decisions long before you ever go to market.
What increases your valuation
Diversified payer mix. The more insurance contracts you have (Blue Cross, Cigna, Humana, Medicaid, Medicare, and others), the less risk a buyer takes on. Heavy reliance on a single payer is one of the most common valuation discounts we see.
A strong management team. Especially if you're not planning to stay long-term, buyers want to know who's going to run the business after you leave. Having a capable number two or three in place, people with experience who are committed to staying, makes a meaningful difference in what a buyer will pay.
A scalable model. Buyers are thinking about growth from the moment they evaluate your business. Can they replicate what you've built in a new market? Do you have the back-office infrastructure (HR, IT, billing) to support expansion? And critically, have you proven it works? If you've successfully opened a second or third location, that gives buyers far more confidence than a theoretical growth plan.
Consistent growth. Steady, demonstrable growth over two to three years is one of the strongest signals you can send. It doesn't have to be dramatic, even modest growth shows a business that's healthy and trending in the right direction.
Clean clinical documentation and billing compliance. Low denial rates and well-maintained clinical notes make due diligence smoother and signal operational maturity to buyers.
What raises red flags
Declining revenue. This gets noticed immediately and makes it significantly harder to get a deal across the finish line, especially if the decline happens during the transaction year.
Low EBITDA margins. If your margins are meaningfully below your peers in the same geography and service line, buyers will ask why — and whether fixing it means cutting costs or adding headcount, both of which affect their return.
High staff turnover. This can signal that you're running too lean, which leads to burnout. Buyers know that means they'll need to hire more people post-close, adding expenses they didn't budget for.
Customer or referral concentration. If one referral source or one payer represents a disproportionate share of your revenue, that's a risk factor. Diversifying before you go to market strengthens your position.
Unresolved audits. Whether it's Medicaid, Medicare, or an individual payer audit, open issues create uncertainty. Get them resolved before you're in a transaction if at all possible.
Heavy reliance on grant revenue. Grant-funded revenue is viewed differently than contract or insurance revenue, especially if the grants are new or if the relationship with the granting entity depends entirely on you as the owner.
What the M&A Process Actually Looks Like
If you've never sold a business before, the process can feel opaque. Here's how it typically works, and why a competitive process matters.
Phase 1: Preparation (Month 1)
Before anything goes to market, we spend the first month building your Confidential Information Memorandum (SIM), essentially a detailed profile of your business that tells your story to potential buyers. This involves multiple rounds of review and editing to make sure the numbers and narrative are right.
Phase 2: Market outreach (Months 2-3)
We send a one-page teaser with no identifying information to our buyer network, which is typically around 10,000 contacts. Interested buyers sign an NDA and receive the full SIM. They review it, ask questions, and submit what's called an Indication of Interest (IOI) — their initial view of what the business is worth and how they'd structure a deal.
Phase 3: Management meetings and LOIs (Months 3-5)
From the IOI pool, which might be 20 or more, we work with you to narrow it down to five to eight groups that are the best fit. These buyers visit in person, spend a half-day to a full day with you, and then submit a formal Letter of Intent (LOI) with their final offer terms.
This is where the competitive process pays off. On a recent deal, we received 23 offers. The lowest offer was 40% of the highest. Most sellers who try to negotiate on their own or work with a single buyer would never know whether they're leaving money on the table. Competition creates pressure that benefits sellers, buyers who really want a well-run business will pay above market to win the process.
Phase 4: Due diligence and close (Months 5-9)
Once you select a buyer and sign the LOI, they begin due diligence on an exclusive basis. This is the most intensive phase, and it's where organization and responsiveness make the difference between a smooth close and a drawn-out one.
Quality of earnings (QoE): The buyer hires a third-party firm to verify your financials. They'll examine every transaction, every billing record, every adjustment. We prepare our clients for QoE questions before we ever go to market, so by the time the buyer's team digs in, there are rarely surprises.
Clinical chart review: Typically 50 to 200 charts depending on business size. This isn't about finding fault, it's about understanding what the buyer is actually purchasing and where there's room for improvement. We've seen cases where this review actually helped our clients identify and fix documentation gaps before they became compliance issues.
Legal due diligence: The legal request list is often the most intimidating part — 200-plus questions covering everything from contracts to regulatory compliance. But here's what we tell our clients: "N/A" is a perfectly valid answer. A large portion of those questions simply won't apply to your business.
Asset verification and reps & warranties insurance: Toward the end, there's typically a supplemental process to catalog assets and secure insurance that protects both parties post-close.
The key to getting through due diligence efficiently is being organized from the start. Consistent file naming, timely responses, and a team that's aligned on the process. Delays in providing information can slow the deal and, in some cases, erode buyer confidence.
The professional team around you
You're not doing this alone. In addition to your M&A advisor, you'll work with an attorney who handles the purchase agreement, reps and warranties, and legal risk protection, and an accountant who works through quality of earnings responses, working capital adjustments, and financial due diligence. Your advisor coordinates across all parties to keep things moving.
Is Now the Right Time?
There's no universal answer, but here are a few things worth considering.
If your business is growing, your financials are clean, and you have a strong team in place, you're in a position of strength. Market conditions in 2026 look favorable — buyer interest is high, new platform investments are creating more acquirers, and deal volume is trending upward.
If you're not quite ready, that's okay too. Many of the owners we work with spend a year or more getting prepared. Some we've known for years before the timing was right. The important thing is to start the conversation early enough that you're making strategic decisions about payer contracts, staffing, documentation, and growth, with an eventual exit in mind.
Whether you're ready to go to market or just starting to think about what your business might be worth, we're always happy to have a conversation.
Download this article as a guide:
Mertz Taggart is a healthcare-focused M&A advisory firm representing sellers of behavioral health and home-based care businesses. To learn more or request a confidential valuation, reach out to our behavioral health experts via email at info@mertztaggart.com
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