How PE Is Pushing Behavioral Health M&A to New Dealmaking Heights

Dexter Braff, the president of Pittsburgh-based health care M&A advisory firm The Braff Group, didn’t hold back when describing the red-hot behavioral health merger and acquisition market.

“COVID has made us all insane,” Braff said, speaking to attendees of Behavioral Health Business’ inaugural INVEST Conference in Chicago last week.

While he admits he can get himself in trouble with colorful language describing the state of the market, the proprietary and public data The Braff Group compiles shows that 2021 is shaping up to be a mind-boggling deal year.


Braff told attendees that the number of deals in behavioral health has steadily held at about 170 to 180 for the last three years.

But annualizing for the full year, 2021 is shaping up to see nearly 240 M&A deals in the behavioral health industry. That’s a 33% increase in the number of deals over 2020 and a 61% increase over 2012. So far in 2021, The Braff Group has tracked 119 behavioral health deals.

On the whole, the M&A market, regardless of sector, is primed for a banner 2021 in Braff’s estimation.


“The market is extraordinarily hot: Behavioral health is hot,” Braff said.

Here’s a rundown of what’s driving deal-making at such a frenetic pace and where the deals are happening.

The ‘COVID bump’

Braff maintains that there is no question that the coronavirus pandemic increased the demand for behavioral health services. But the M&A market’s enthusiasm magnifies the perceptions of where the behavioral health industry is going. While directionally correct, the magnitude gets blown out of proportion: a classic demonstration of optimism bias, according to Braff.

“We’ve been doing this now for 23 years,” Braff said. “And what we’ve seen time and time again is when something like this happens — when we’re in a period of time where some new development occurs that focuses a lot of people on a space — that the expectations of where it’s going to go are accurate, but they’re overstated.”

This sends interest in behavioral health M&A off the charts because of the good and true reasons to be interested in the market, and because the expectations aren’t necessarily bound by reality.

Deals in 2021 so far

Dealmaking in the substance use disorder industry makes up the largest share of deals made in the first six months of the year, accounting for 40%. In the past, The Braff Group typically sees fairly even splits between substance use disorder deals, mental health deals, and a combination of deals in intellectual and developmental disabilities and autism spaces.

Within substance use disorder, most of the deals have happened so far in the residential treatment space, a surprise to Braff. He expected nonresidential and medication-assisted therapy to do more in that space.

Looking forward, Braff expects that dealmaking in the mental health facility and practice space will continue its years-long ramp-up. This will also gives this segment of the market an additional three- to five-year runway. He adds that the boom in deals in the substance use disorder space can’t last.

“In mental health, there are a lot of providers out there, a lot of clinics out there, that have not been consolidated or brought into any type of critical mass,” Braff said. “And so there’s tremendous opportunity to build that sector.”

How private equity in behavioral health is changing

The number of deals by PE entities is expected to total about 140 in 2021 on an annualized basis. Platform deals, or deals where a PE buyer enters the space, reached a peak in 2018 and have remained flat since 2019. In 2021, annualized estimates predict that platform deals will inch up to just less than 40. Follow-on deals have made up an increasing amount of the deal volume and will likely reach a record-setting level in 2021.

“As you’d expect, after having six or seven years of so many new entries into the marketplace, that’s going to continue,” Braff said of the increase of follow-on deals.

After making their platform deals, PE buyers will seek out additional deals to move their behavioral health business toward larger scale through consolidation of similar companies or additional services.

PE is increasingly doing deals compared to non-PE buyers. For the last seven years, PE has made up about 60% of annual deal flows.

“That’s unusual: It’s not unusual to see 45 maybe even 50%, especially in health care services because the demand is so high and the business is so significant,” Braff said. “But that is a huge percentage of deal flow. So, what PE does runs the M&A market.”

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