Rising interest rates, high labor costs, and conflict in Eastern Europe have led to a shaky start to behavioral health dealmaking in 2023.
That’s according to a new report by M&A advisory firm The Braff Group, which found the annualized results for behavioral health dealmaking are down by more than 26% from 2022.
Still, compared to other health care segments, behavioral health has several wins this quarter, and the mental health space continues to see an uptick in the number of deals completed.
“Mental health, the breakout segment over the past 18 months, continues to put up impressive numbers with 17 deals in Q1 2023,” authors of the report wrote, “which, on an annualized basis, would surpass results posted in 2022.”
There was good news for the autism segment as well. Based on Q1 data, the annualized results for 2023 were 36 deals, only a sight dip from 2022’s 40 deal count.
In 2022, the autism segment saw a wave of layoffs and closures, including ABA provider The Centers for Autism and Related Disorders closing 10 state markets, along with venture-backed startup Elemy closing its care delivery business and laying off a significant portion of its workforce in a move to pivot towards becoming a tech platform for autism providers.
“With all the noise in the autism market, most notably the faltering of several high-profile consolidators over the past year or so,” authors of the report wrote, “the segment continues to demonstrate remarkable resiliency.”
The non-residential substance use disorder space also maintained a steady flow of deals in Q1, with an annualized deal flow of 12 transactions, which would tie 2022’s number.
“While still below the levels we would anticipate as more and more health care services move from costly institutional to community-based settings, non-residential substance use disorder deal flow remains steady,” authors of the report wrote.
Deal flow in behavioral health has slowed since its peak in 2021.
But on the whole, the behavioral health segment continues to have substantial interest from private equity investors.
“We are in a transitionary phase, which is code for an M&A guy [saying], ‘It’s not as good as it was last year,'” Dexter Braff, president of The Braff Group, said at Behavioral Health Business’ VALUE conference in March. “So what’s the outlook? Strong, it’s still good. The demand for behavioral health still far outweighs the supply. What we also see, though, is a more disciplined approach towards determining what’s going to be bought and how much is going to be paid.”
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