After Tumultuous 2020, Behavioral M&A Holds Steady with 29 Deals in Q1

Driven largely by private equity buyers, the behavioral health deal landscape remains solidly stable one year after the pandemic temporarily halted activity in Q2 2020.

The behavioral sector saw 29 transactions announced in the first quarter of 2021, according to a report released by the healthcare M&A firm Mertz Taggart. Private equity accounted for 22 of those deals.

The 29 transactions for the quarter was three fewer than the number reported in Q4 2020 — but 10 more than in Q2 2020, when the pandemic caused an economic slowdown across a variety of industries. The report noted that dealmaking activity “has settled into a pattern of roughly 30 deals per quarter dating back to the beginning of 2020.”

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Mertz Taggart managing partner Kevin Taggart described Q1 activity as “telling, but not unexpected,” with the number of deals for the quarter holding steady with Q3 2020 levels.

“It’s pretty evenly split between addiction treatment, autism treatment and mental health,” Taggart said of Q1 deals.

Addiction treatment led the way with 11 transactions, followed by mental health with 10 and intellectual and developmental disabilities and autism (I/DD/A) with nine.

Mertz Taggart also said that demand for addiction treatment services is expected to be high in the coming months, as new provisional data from the Centers for Disease Control and Prevention (CDC) shows that more than 87,000 Americans died from drug overdoses over the course of the 12-month period ending September 2020, marking a nearly 30% year-over-year increase.

Heightened demand for mental health services has also contributed to the steady deal activity.

“Mental health transaction volume has picked up significantly over the past two quarters, buoyed by the pandemic,” Taggart said.

Taggart said the Biden Administration’s stated plans to raise capital gains taxes could lead to a high number of deals in 2021, compelling providers to sell before taxes increase. He also said that it will be worth watching in the coming months to see if a provider in the space announces intentions to go public through either a traditional initial public offering (IPO) or by means of a special acquisition purpose company (SPAC).

SPACs have become an increasingly popular alternative to IPOs for many startup companies, allowing them to go public by merging with a specially-created company already listed and traded on an exchange.

In January digital provider Talkspace announced its intentions to go public by way of a $1.4 billion merger with the SPAC Hudson Executive Investment Corporation (HEIC). The provider plans to list on the Nasdaq and trade under the ticker TALK.

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