Optum-Refresh Blockbuster Blazes a Consolidation Trail for the Next Mental Health Platform

Historic levels of investment in the behavioral health space in the previous two years suggest that the outpatient mental health segment could continue to see swiftly growing companies at the center of big-time exits.

Optum’s high-profile acquisition of Refresh Mental Health, in particular, demonstrates the massive interest in the mental health space, especially in scaled mental health platforms, industry observers told Behavioral Health Business.

On Thursday, Axios reported that Optum, the health services division of Minnetonka, Minnesota-based UnitedHealth Group (NYSE: UNH), had acquired Jacksonville Beach, Florida-based Refresh Mental Health for an undisclosed amount. The transaction has not been formally announced by either party, leaving the transaction details few and far between.

“Optum and Refresh Mental Health are excited to expand effective behavioral care to patients through a more coordinated health system,” an Optum spokesman previously said in an email to BHB.

But given the present investment environment around behavioral health assets, there is wide latitude for imagination.

Dexter Braff, president of M&A advisory firm The Braff Group, told BHB that Refresh Mental Health’s short investment cycles illustrate how the market has driven valuations and multiples in the space.

Refresh Mental Health was founded by Steve Gold and Dr. Mark Gold in 2017 with the backing of New York City-based Lindsay Goldberg & Co. LLC. Mark, Steve’s father, was also a Lindsay Goldberg affiliate partner while Steve was the CEO of Refresh.

Lindsay Goldberg sold its stake in Refresh Mental Health to Kelso & Co. in December 2020. During those few years, Refresh and Lindsay Goldberg grew the company to over 200 outpatient locations in 28 states plus the District of Columbia. Lindsay Goldberg’s website states the firm made more than 10 follow-on investments in Refresh’s mental health platform.

In just 15 months, Kelso & Co. and Refresh Mental Health’s leadership team grew the company to more than 300 locations in 37 states – now reportedly making an exit to one of the largest health care entities in the U.S.

“While each of the buyers did meaningful acquisitions in terms of adding on to business, valuations rose not only because they got bigger, but rose because the marketplace became, and remains so today, highly valued toward anything that’s behavioral health-oriented,” Braff said. “The investors were able to ride not only growing the business and making it bigger but multiple expansions as a function of an extraordinary wave of interest in behavioral health, largely since the pandemic.”

Still, Kelso & Co. only owning Refresh for less than 18 months is “very unusual,” he added.

Braff didn’t offer a specific estimate on the valuation of Refresh Mental Health but said Optum “probably paid a very, very handsome purchase price.”

For context, Kelso & Co. bought Refresh at a valuation of around $700 million in 2020, according to Axios.

Paths to mental health platform consolidation

Tim Epple, managing director of advisory services for Washington, D.C.-based health care consulting firm Avalere Health, told BHB that the pathway for national outpatient mental health is a bit more constrained following big moves from companies consolidating outpatient mental health providers.

In June 2021, Scottsdale, Arizona-based Lifestance Health Group Inc. (Nasdaq: LFST) went public with a $7.9 billion valuation. In August 2020, TPG Capital invested $1.2 billion to acquire a majority interest in the company, founded in 2017.

“I do think that there is room for more consolidators or more scaling platforms to come in and say, ‘Yeah, we don’t want to pay a 15x or 20x multiple on the next iteration of Community Psychiatry Management or Refresh,” said Epple. Community Psychiatry Management is now Mindpath Health. “‘But we think we can identify enough markets that have enough fragmentation where we can just go in, set our own playbook and build our own brand and network.’”

The Lifestance IPO and the Refresh Mental Health-Kelso & Co. exit mark two potential paths for other consolidators in the space, Epple said.

He also highlighted the “build-it-yourself” strategy that investment giant KKR & Co. Inc. took in founding its own growth platform — Geode Health — to nurture rather than “buying a giant scaled asset that’s going to be really expensive” as a third potential approach.

The New York City-based global investment firm announced it was going to break into the behavioral health space by building its own company in June 2021.

At the time, Geode CEO Gaurav Bhattacharyya told BHB that it was building a de novo strategy at sites that complement its M&A objectives, saying that mental health platform deals are increasingly competitive and expensive while most mental health providers in the market are single practitioners or small groups.

Epple highlighted the approach that Mindpath Health has taken as a fourth approach for consolidators. He also highlighted it as the next major consolidating mental health platform to potentially make a big move. 

In November, Sacramento, California-based Community Psychiatry Management LLC merged with Durham, North Carolina-based Mindpath Care Centers to create Mindpath Health. The merger gave the combined company a presence on both East and West coasts, while significantly increasing the companies’ footprints. 

No matter who’s next, it’s only a matter of time before the behavioral health market sees another outpatient mental health giant making a huge deal, Braff said.

In 2020 and 2021, there were 27 new private equity-backed platform acquisitions in the mental health space. From 2017 to 2019, there were nine, Braff said, citing proprietary Braff Group data.

This represents a major shift in the interest of private equity in mental health and a realization of sorts in the opportunity to consolidate and professionalize a fragmented space. Assuming a typical five-year investment cycle, or truncated ones like the one Refresh Mental Health experienced, the deals will continue, culminating in more national platforms.

“So the reality of this is the next Refresh and the next Lifestance is happening now,” Braff said. “[But] it’s not ready yet.”