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Q3 2023 Behavioral Health M&A Report

Updated: 6 days ago

Headline: Behavioral Health M&A Report: Q3 2023

Relative to the rest of the world of mergers and acquisitions, behavioral healthcare transactions continued apace in the third quarter. For the 3-month period ending September 30, a total of 33 behavioral healthcare deals were announced—a figure in line with the 33 deals reported in Q1 and the 35 deals announced in Q2.

Chart: Total Behavioral Industry Transactions by Quarter
Note: Total industry transactions do not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry.

Although many behavioral healthcare organizations are beginning to shift their focus toward de novo growth, certain operators remain active buyers. Chief among them is ARC Health, the Beachwood, Ohio-based Thurston Group portfolio company, which acquired 3 more providers in the third quarter and has now made 19 acquisitions in 2023.

Two of ARCs Q3 deals involved Mertz Taggart clients: In August, the company announced its acquisition of mental healthcare provider Grow Counseling. In September, the company announced that it completed a deal to acquire Manhattan Psychology Group, PC, a provider of mental health, autism, and tutoring services in New York.

Private equity played a role in 13 transactions. Still, executives from behavioral healthcare organizations say investors are becoming more conservative in their approach. During the recent INVEST conference in Chicago, Discovery Behavioral Health CEO John Peloquin said investors are targeting operators with a solid clinical foundation for growth, according to the industry publication BH Business.

Continuing a theme observed throughout 2023, the mental health subsector continued to represent the bulk of behavioral healthcare M&A activity, accounting for 24 of the 33 deals reported overall in Q3.

“Despite the current interest rate environment, quality, cash-flow positive mental health providers continue to drive premium multiples, albeit not quite the premium that companies were commanding 12 months ago” Mertz Taggart Managing Partner Kevin Taggart said. Taggart also said, “there are providers that are still commanding multiples we were seeing a year ago, but those are the exception, not the rule”.

Taggart added that interest rates—currently at their highest level in 22 years—will continue to be a key factor for M&A activity throughout the behavioral healthcare sector heading into 2024.

Addiction Treatment

Six transactions involving addiction treatment providers were announced in Q3, roughly on par with the 4 deals announced in Q1 and 7 reported in Q2. Among the deals announced in the addiction treatment subsector, Acadia Healthcare announced in July that it had acquired Turning Point Centers from InTandem Capital Partners, a specialty provider of substance use disorder (SUD) and primary mental health treatment services in Salt Lake City, Utah, as part of a larger growth strategy for Acadia in 2023. As a side note, Mertz Taggart sold Turning Point Centers to InTandem in early 2018.

Chart: Addiction Treatment Transactions by Quarter

Other transactions involving addiction treatment providers include:

  • H.E.R. Management acquired BeWell Network in July.

  • Addiction and mental health treatment services provider Haven Health Management completed its acquisition of Recovering Champions, a Massachusetts-based drug and alcohol rehabilitation program.

  • Florida-based Praesum Healthcare expanded the number of states it serves to six with its acquisition of Beacon Point Recovery Center in Philadelphia, Pennsylvania.

  • Lower middle-market PE firm Renovus Capital Partners acquired Meridian Behavioral Health in a platform deal.

Mental Health

The 24 transactions involving mental healthcare provider organizations in Q3 matched the total from Q2 and brings the year-to-date figure to 75. While M&A activity in mental health for 2023 remains down from the record-setting 2022, it is still outpacing year-to-date volume for 2020 and 2021 through 3 quarters.

In addition to its acquisitions of Manhattan Psychology Group and Grow Counseling, ARC Health completed its acquisition of Dayspring Behavioral Health in August. Dayspring is a mental health practice with 4 locations in the Seattle metroplex.

Other private equity-backed strategic investments in mental healthcare provider organizations made during Q3 included the following:

  • FullBloom, an educational services platform for students backed by American Securities, acquired EmpowerU, a provider of programs that improve student motivation, behaviors, and mental health.

  • Health Connect America, a Palladium Equity Partners portfolio organization, acquired Specialized Youth Services of Virginia. The deal was HCA’s sixth add-on acquisition in less than two years.

  • Hightop Health announced in July that it completed its acquisition of Atlanta Psych.

  • Audax Group-backed New Story completed its acquisition of Thrive Alliance Group—one of 2 acquisitions for New Story in Q3, along with its deal for the Virginia locations of the Center for Autism & Related Disorders.

  • Sterling Partners-backed Stella Center acquired ARK Integrative Medicine and Therapeutics from TAP Health Care Management.

Other Q3 mental health transactions include:

  • Youme Healthcare acquired Hurdle Health and rebranded as Backpack Healthcare.

  • Bethany for Children & Families merged with Bridgeview Community Mental Health Center in a deal between providers serving the Quad Cities region between Iowa and Illinois.

  • Sun Life Financial (NYSE: SLF) entered into an agreement to acquire Dialogue Technologies, a virtual healthcare platform.

  • Pyx Health received a majority growth investment from TT Capital Partners for an undisclosed amount as it looks to expand its operations

  • Penuma Behavioral Health expanded in North Carolina with its acquisition of adolescent outpatient mental health treatment provider Bright Path Behavioral Health.

  • Southeast Kansas Mental Health Center announced a partnership with Ashley Clinic.

  • In August, the state of Washington purchased the recently closed Cascade Behavioral Health Hospital a reported cost of $29.95 million. Cascade was shuttered by Acadia Healthcare in July.

  • Sacramento, California-based Sutter Health added Sansum Clinic to its integrated healthcare system in a deal between not-for-profit organizations.

  • Washington state-based not-for-profit organizations Childhaven and Washington Association for Infant Mental Health announced a merger in July.

As has become the norm of late, several mental health VC transactions were reported. Though technically not M&A, these transactions are notable investments in the industry:

  • Heading Health, a tech-enabled mental healthcare organization, raised $4.5 million in a Series A extension round led by VC firm Gron Ventures.

  • Lux Capital was the lead investor on a Series B funding round completed by Daybreak Health as the virtual pediatric mental healthcare organization looks to expand into new states and add programs.

  • Youth mental health startup Cartwheel Care completed a $20 million Series A funding round led by Menlo Ventures, with participation from Reach Capital, General Catalyst, BoxGroup, and Able Partners.

  • Virtual behavioral health provider Better Life Partners raised $26.5 million in equity and options funding. Investors were not disclosed.

  • Guidelight Health, a startup offering partial hospitalization and intensive outpatient programs for adolescents and adults, raised $16.5 million in funding led by Triple Aim Partners.

Autism Services and Intellectual/Developmental Disabilities

Another 5 deals involving autism services and intellectual/developmental disabilities (I/DD) therapy provider organizations were announced in Q3, matching the number of transactions within the subsector announced in the prior quarter.

Chart: I/DD/Autism Transactions by Quarter

In addition to previously announced transactions, BrightPath Health Holdings, a provider of applied behavior analysis therapy that does business under the name ABA Connect, acquired Bright Behavior. ABA Connect is backed by MBF Healthcare Partners II.

Meanwhile, in July, Dungarvin, a Minnesota-based IDD services provider, announced its acquisition of Bridges MN, Bridges WI, and Rumi. This transaction, effective September 1, added 103 locations to the Dungarvin portfolio.


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