Private Equity to Fuel Behavioral M&A in 2021, With Outpatients Models Driving Demand

Behavioral health dealmakers have predicted that M&A could reach a new peak in 2021, but some subsectors will see more love than others. Specifically, experts predict that demand for outpatient models and autism services providers will be especially high in the year ahead, with private equity (PE) investors fueling the fire. 

“I think 2021 is going to be a big year,” Kevin Taggart, managing partner of the health care M&A firm Mertz Taggart, said during a recent 2021 outlook webinar hosted by Behavioral Health Business. “If you kind of look at who was buying last year, by far and away, private equity groups are really …. the lion’s share.”

In fact, PE players were involved in 20 of the 27 behavioral deals Mertz Taggart logged for Q4 of last year. For 2020 overall, the firm recorded 97 deals, again with PE players accounting for the majority of the activity.


Taggart expects that trend to continue into the year ahead, as does Burk Lindsey, managing director in the health care investment banking group at Raymond James & Associates. Lindsey, who was a panelist alongside Taggart on the recent BHB webinar, even theorized that PE’s interest in behavioral could pick up.

COVID-19’s impact on the overall health care industry is partially to credit. Not only did the pandemic exasperate the nation’s behavioral health problems, but it also hurt other sectors of health care that have historically been considered recession-proof, such as dentistry and dermatology. 

“As a result, companies in segments that were relatively unaffected by COIVID — like home health and hospice — and those one could argue perhaps benefitted from COVID — like the vet space and behavioral health — are attracting greater interest than they otherwise might have,” Lindsey previously told BHB. “In essence, you have the same amount of capital chasing a smaller number of opportunities.”

But not every behavioral health opportunity is created equal. PE buyers are currently most interested in pursuing capital-efficient, balance sheet-light companies, such as autism providers, outpatient mental health companies, medication-assisted treatment (MAT) organizations and opioid treatment programs (OTPs), according to Lindsey. He said that’s another trend likely to carry over from last year.

“There’s a lot more momentum and activity around models across behavioral that have more of a lower-cost outpatient setting,” he said during the webinar.  

LifeStance Health and Refresh Mental Health are two recent examples of such activity. Both national outpatient mental health providers scored huge PE investments last year, with TPG Capital putting $1.2 billion into LifeStance in April and Kelso & Company acquiring a majority stake in Refresh in December. While Kelso didn’t announce terms of the Refresh deal, Taggart said the provider sold for “crazy multiples.”

“That has somewhat created a little bit of a frenzy in the outpatient mental health sector,” he said.

Lindsey and Taggart predict 2021 could even see private equity firms start to build outpatient mental health businesses of their own from scratch if they’re unable to find attractive platform-sized companies to acquire. That’s a strategy PE firms like KKR have previously deployed in the autism space, which is also expected to remain hot in 2021. 

“If I had to kind of pick the three [areas] that I think will be the most active, [I would pick] autism, outpatient mental health and OTP,” Taggart said, noting that the autism and OTP deals of 2021 will likely be smaller given the lack of large non-PE backed-players in those spaces. 

In terms of other M&A predictions for the year ahead, dealmakers said they also anticipate the industry will see a growing number of behavioral health providers diversify their product offerings and expand their telehealth capabilities. 

Plus, Lindsey hypothesized that Acadia Healthcare (Nasdaq: ACHC) could get back in the buying game now that the behavioral health power house has divested its UK facilities.

“That cleans up Acadia’s balance sheet,” Lindsey said. “Our sense is that they will likely be dipping their toe back in the water.”

But even if big players like Acadia don’t get back in the M&A market this year, Purvi Maniar, a partner at the law firm Norton Rose Fulbright, predicts we’ll see them ink more integrated care partnerships. Maniar was a panelist alongside Lindsey and Taggart on BHB’s recent 2021 outlook webinar. 

“Even though those big players have not been engaging in a ton of M&A, they have been very busy, in our experience, partnering with hospitals and health systems to either provide turnkey behavioral health solutions or help them implement behavioral health services within their primary care settings.”

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