After Strong 2020, Behavioral M&A Could Reach ‘New Peak’ in 2021

Despite the pandemic-led economic downturn of 2020, there was still plenty of M&A activity in the behavioral health care market to end the year, and signs are pointing to a robust 2021.

The market saw 27 deals in Q4, according to the latest quarterly report from health care M&A firm Mertz Taggart. The flurry of activity helped push the total number of announced deals for 2020 to 97, the same amount Mertz Taggart recorded in the year prior and just three less than the firm noted in 2018.

Private equity was a major M&A player in 2020, fueling a number of big deals and indicating good things for 2021 and beyond.


“We know that financial mechanisms have been shifting,” Taggart said. “While loans and operating income remain the primary sources of capital, private equity investment could be the important variable that contributes to a more optimistic outlook for many behavioral health providers.”

Addiction treatment deals led the way in 2020, with 45 transactions announced as operators were putting a premium on care quality to secure better reimbursements from payers. Among the more notable operators who added to their portfolio last year included BayMark Health Services, Behavioral Health Group, Discovery Behavioral Health, Landmark Recovery and Summit BHC.

“Buyers are definitely not looking to add scale for the sake of scale,” Kevin Taggart, managing partner of Mertz Taggart, said in the report. “Proven clinical quality and the ability to increase census has to be part of the growth strategy.”


Meanwhile, M&A activity in the autism and I/DD services segment surged in Q3 2020 compared to the prior quarter, when the pandemic hit providers in the space hard. Overall, the second half of the year saw the number of autism deals increased almost 40%.

Transactions for mental health organizations also rebounded in Q4 after experiencing a major downturn in the prior two quarters. In all, 30 deals were announced in mental health in 2020, up sharply from 14 deals announced in 2019.

Taggart said he expects dealmaking activity in behavioral health to remain strong in 2021, influenced, in part, by the possibility of a rise in capital gains taxes that have been proposed by the Biden Administration.

“The second half of 2020 was as strong as we’ve seen,” he said in the report. “Combine that with the threat of a near-term capital gains tax hike, and we expect an active 2021.”

Overall, Taggart believes behavioral M&A could “reach a new peak in mid-to-late 2021,” with plenty of room left for strategic acquisitions, according to the report.

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