7 Behavioral Health-Focused Private Equity Firms to Watch in 2023

The need for behavioral health services is at an all-time high – and private equity investors have taken note.

In the first three quarters of 2022, private equity deals made up more than 60% of behavioral health transactions, according to data from The Braff Group. Many investors see the fragmented behavioral health industry as a prime target for consolidation and growth.

And despite global economic headwinds, behavioral health deals are still at a premium. In fact, behavioral health transactions in the first 11 months of 2022 were valued at $3.3 billion, according to a recent report from PricewaterhouseCoopers (PwC).

“All you people that think you want to be investing in behavioral health, you’re in the right space,” Dexter Braff, president of the M&A advisory firm The Braff Group, said at Behavioral Health Business’ INVEST. “But you’re going to have to pay up to get into it.”

This infusion of PE capital is in turn shaping nearly every segment of behavioral health, from substance use disorder (SUD) treatment to autism services and mental health care.

Yet no one private equity group has the majority market share of any space. That’s likely because PE firms tend to diversify their investments and avoid competing portfolio companies.

“There’s a lot of private equity firms that are focused on health care services, so then they might have a couple of behavioral businesses that are in a completely different geographies, or one is completely outpatient and one is completely residential …. where it’s not directly competing,” Vasanta Pundarika, co-head of health care investment banking at capital market group Matrix, told BHB. “But then you can only have three or four of those before you start to have a lot of overlap.”

Traditionally, private equity firms are looking to invest in a business, grow that business and then exit, Pundarika said. If they are growing multiple competing businesses, this could interfere with their end goal of a good sale.

However, many firms are getting their feet wet in multiple behavioral businesses – and BHB has been closely watching.

Here are the PE companies we will be keeping an eye on in 2023:

KKR’s ground-up approach

It would be hard to talk about private equity investors getting into behavioral health without talking about KKR. Not only has KKR made big investments in existing behavioral health providers, it has even created companies.

New York-based global private equity giant KKR launched into the behavioral health space in 2018 when it formed Applied Behavioral Analysis (ABA) provider BlueSprig to address the unmet clinical need of pediatric patients with autism spectrum disorder.

Earlier this year, it doubled down on its pediatric behavioral health bet, leading Brightline’s $105 million Series C funding round. Palo Alto, California-based Brightline provides virtual behavioral health care for children, teens and families. The company is valued at roughly $705 million.

KKR has also taken an active interest in behavioral health technology. In 2021, it bought practice management and electronic health record software platform Therapy Brands for roughly $1.2 billion.

That same year, KKR announced the creation of a new mental health service company called Geode Health. The company partners with psychiatrists, psychologists and therapists to offer in-person and virtual outpatient mental health treatment to adults and children across the country. It uses digital tools to help track measurement-based care.

“We are excited to partner with [CEO Gaurav Bhattacharyya, COO Mike King] and the rest of the team at Geode on such a critical mission, and look forward to supporting them with the resources and capital needed to expand high-quality access to mental health care for many patients in need,” Ali Satvat, global head of health care strategic growth at KKR, said at the time.

We’re watching KKR’s investments, in particular, when it comes to hybrid and digital health care. Although the bulk of KKR’s investments have been in direct patient care, it is one of the only PE companies on this list that has placed a large bet on a straight-up technology platform.

KKR is positioned to help shape how the behavioral health industry implements digital tools. Its portfolio companies could be an example of how to integrate EHR information and digital tracking tools to demonstrate measurement-based outcomes in mental health care.

Behavioral health veteran Lee Equity

New York-based Lee Equity is a middle-market private equity firm that has been involved in the behavioral health space for more than a decade, making it somewhat of a veteran in the underdeveloped market.

Lee Equity made its first behavioral health transaction in 2012 when it invested in Dever-based Eating Recovery Center. The provider treats patients with eating disorders including anorexia, bulimia, binge eating disorder and other unspecified eating disorders. In 2017, Lee Equity sold the provider to CCP Capital Advisors. The terms of the deal were not disclosed.

Just months after closing the Eating Recovery Center sale, Lee Equity purchased Summit BHC. Summit is a psychiatric and SUD provider based in Franklin, Tennessee. In 2021, Lee Equity and fellow investor FFL Partners sold the provider to Patient Square Capital. The terms of the deal were not disclosed.

The company’s next investment stayed in the SUD treatment space. In October, it purchased Bradford Health. The acquisition included 40 SUD treatment and recovery centers in the Southeastern U.S.

We’re watching Lee Equity because it has been investing and reinvesting in the behavioral health space for quite some time now. It has also established a pattern of selling its behavioral health asset and then buying another shortly thereafter. We will be closely watching to see if it continues this pattern or begins to acquire more behavioral health investments in its active portfolio.

Webster Equity stays active

Palm Springs, Florida-based Webster Equity Partners made its behavioral health debut in 2011 when it invested in substance use disorder provider Discovery Behavioral Health. The provider operates more than 145 treatment centers.

Since the Webster deal, Discovery has made a number of acquisitions. These acquisitions include Brookdale Premiere Addiction Recovery, Anew Era MS & Psychiatry and Med TMS Neuro Institute.

In 2015, Webster announced the acquisition of a second addiction care provider, BayMark Health. BayMark Health Services is a behavioral health provider focused on treating SUD. It has more than 400 treatment facilities in 37 states and three Canadian provinces. BayMark claims to be the largest provider of opioid use disorder treatment in the U.S.

Similar to Discovery, BayMark has made a slew of acquisitions in recent years. These acquisitions include SUD provider Fritz Clinics, virtual SUD provider Kaden Health, outpatient SUD provider Lucina Treatment Centers, outpatient mental health provider Mahajan Therapeutics, residential treatment provider Pathfinders Recovery Centers, Emerald Isle Health and Recovery, and San Antonio Recovery Center.

Webster’s most recent behavioral health investment is mental health service provider Oceans Healthcare. The Texas-based provider has 33 locations, made up of 23 inpatient hospital campuses and 20 intensive outpatient programs.

Behavioral Health Business

It’s not merely about what Webster has already done that makes it a PE firm to watch heading into 2023. It’s also about what the firm may do next – and what it’s uniquely positioned to accomplish.

Webster, for example, has also kept its eye on the intellectual and developmental disability (IDD) space, with Webster partner Todd Rudsenske speaking about the topic at BHB’s INVEST. Specifically, Rudsenske said there will be an opportunity to help provide both behavioral health and physical health support to individuals with IDD.

“If you can begin to help drive behavior change, maybe more exercise, different diets,” Rudsenske said. “That’s not something that’s historically been the purview of the IDD sector. I think working with payers, you can begin to build those programs, or you’re going to have a healthier population. That may mean more of an opportunity for greater economic performance for these businesses.”

Discovery, Baymark and Oceans are all actively increasing their footprint and reach. This broadens Webster’s market share of the behavioral health sector. With two of the largest providers in the space, we are particularly watching how its portfolio companies will be shaping the future of addiction care.

Other interesting Webster portfolio companies include Bristol Hospice in the end-of-life care arena.

Thurston Group’s platform focus

Health care-focused private equity firm the Thurston Group made a splash in the behavioral health space when it teamed up with outpatient mental health provider Advanced Recovery Concepts to form a new mental health platform called ARC Health in 2021.

Ohio-based ARC offers virtual, inpatient and outpatient mental health. It focuses on treating patients in a holistic way and offers Transcranial Magnetic Stimulation (TMS) and Electroconvulsive Therapy (ECT) as well as traditional care.

The Thurston Group caught our attention because of the speed in which ARC is buying new companies. In 2022 alone, the company acquired mental health therapy practice Lotus Consulting, Focus Forward Counseling & Consulting Inc., Relationship Therapy Center, The Ross Center, Sasco River Center and Southeast Psych.

We will be watching the Thurston Group to see if it continues to make investments in the space. Additionally, we will be keeping an eye on portfolio company ARC to see if it continues its M&A frenzy into the new year.

Thurston’s other investments include multiple dental health companies, Options Medical Weight Loss and several other businesses.

Shore Capital’s steady behavioral health expansion

When it comes to the autism and pediatric mental health spaces, BHB is closely watching Shore Capital. The Chicago and Nashville firm has raised approximately $1.3 billion in capital for health care businesses since 2009, according to its website.

Shore invested in autism and behavioral health provider The Stepping Stones Group in 2014. Nearly four years after the purchase, Shore sold the provider to fellow private equity firm Five Arrows Capital Partners. The terms of the deal were not disclosed.

Shore has continued to make investments in the IDD and autism sector. In 2017, the company purchased Behavioral Innovations. The Dallas, Texas, provider offers ABA, speech therapy, and occupational therapy to children with autism and other developmental disabilities.

The autism and IDD space is a fairly “recession proof industry”, according to John Hennegan​, a partner at Shore Capital. The firm expects that demand for these services will remain fairly high, making them somewhat of a safe bet.

“I’d say despite all of the growth and proliferation of ABA providers, we still see a supply-demand imbalance,” Hennegan said at BHB’s INVEST. “Behavioral Innovations has 74 sites today across Texas, Oklahoma and Colorado. Almost every one of those sites has a waiting list today for people that are looking for care. … Regardless of debt markets, stock markets and so forth, I think there’s going to be high demand for the service.”

Shore has also expanded beyond autism services and currently has two active substance use disorder companies in its portfolio. In 2017, it purchased Cininnati, Ohio-based BrightView. The outpatient mental health provider treats upwards of 20,000 patients and has 97 sites across several states.

BrightView has been an active buyer in the SUD space. Last year, BrightView purchased SUD providers Right Path and Aspire, for instance.

In 2020, Shore invested in Boston-based addiction treatment provider Column Health. Since then, BrightView acquired Column Health, which gave the former 11 locations in Massachusetts and one in Connecticut.

We’re watching Shore because we’ve seen the firm slowly grow its behavioral health investments over the last decade. The firm has also begun to make bets in two key areas of behavioral health: autism and SUD. We’re particularly interested to see if BrightView will continue to grow its SUD footprint through additional M&A.

Health Enterprise Partners charting new territory

New York-based Health Enterprise Partners (HEP) has a diverse behavioral health portfolio. HEP specializes in the lower middle-market space.

In 2007, HEP jumped into the mental health arena by investing in Nashville-based Behavioral Health Centers of America (BCA). The provider offers inpatient and outpatient psychiatric care. HEP sold the company to Acadia Healthcare (Nasdaq: ACHC), one of the largest mental health providers in the U.S, in December 2012.

HEP co-led a growth capital investment in mental health provider CenterPointe Behavioral Health Systems in 2015. The operator has psychiatric hospitals, outpatient behavioral health programs and other psychiatric speciality programs.

Earlier this year, HEP announced that Acadia had also purchased the CenterPointe Behavioral Health Systems.

In 2021, HEP invested in fast-growing at-home addiction treatment company Aware Recovery. The SUD treatment operator is currently serving patients in 10 states, with plans to launch in two more states. Since the investment, Aware has been quickly looking to scale its business and has been shaking up its C-suite. Over the last year, the company has announced a new CEO, chief legal officer, chief people officer and chief information officer.

HEP moved onto its next behavioral health acquisition in April when it announced its investment in Proven Behavior Solutions, an autism treatment company. The Norwell, Massachusetts-based provider offers ABA therapy, speech-language therapy, occupation therapy and special education advocacy services.

We’re interested in HEP not only because it has been an active investor in the behavioral health sector for well over a decade, but also because it appears to be expanding its scope within the behavioral health space. Its first two investments were firmly in the mental health sector, but its most recent investments expanded into SUD treatment and autism services.

We’re also interested in its sales history with one of the largest providers in the U.S., Acadia. Proven Behavior Solutions is, perhaps, a little too outside of Acadia’s scope of care for an acquisition. However, Acadia has increasingly turned its attention to the SUD space.

Revelstoke ramping up

Denver, Colorado-based Revelstoke has taken an active approach to growing its behavioral health portfolio in the last year.

In 2014, Revelstoke invested in Crossroads Treatment Centers. The firm co-lead the recapitalization of the SUD provider in 2022. Crossroads has 115 locations in 10 states. Its services include MAT, in-person care, telehealth care, laboratory services, and intensive care coordination services.

Revelstoke expanded into eating disorder treatment with the acquisition of Monte Nido & Affiliates in August. Monte Nido is easily one of the largest eating disorder treatment providers in the U.S. It has five brands and 45 facilities in 15 states.

“The increase in demand for eating disorder services continues to accelerate along with our nation’s overall mental health care needs,” Andrew Welch, partner at Revelstoke, said in a statement at the time of the acquisition. “By providing the necessary capital, resources and expertise, Revelstoke will help accelerate the Company’s mission of providing high-quality eating disorder treatments to communities across the nation.”

We’re watching Revelstoke because of its recent investment history. We’re especially interested to see how Monte Nido’s next moves can shape the future of eating disorder treatment centers, which is still very much a developing industry.

A crowded field

These seven private equity groups aren’t the only firms active in behavioral health – far from it. Other investors to keep an eye on include Northwood Healthcare Partners, Thomas H. Lee Partners, Linden Capital, TPG Capital and so many others.

It’s too early to say whether 2023 will ultimately hold a candle to the record-setting action in 2021 and 2022, but one thing is certain: the appetite of PE investors remains robust.

“While economic and geopolitical uncertainties have created headwinds, they’re also generating opportunities,” the PwC report explained. “A reset in valuations, the availability of capital and the increased competitiveness from corporates should provide openings for dealmakers in the year ahead.”