Behavioral health was not immune from the dip in dealmaking in the first half of 2023.

Deals in the behavioral health sector were down 33% in the first half of 2023, according to new data by M&A advisory firm The Braff Group. In the first half of the year, there were 75 behavioral health deals, which broke down to 40 in Q1 and 35 in Q2.

“The story of 2023 will be how macroeconomic trends have upended the M&A market across all industries,” Dexter Braff, president of The Braff Group, told Behavioral Health Business in an email. “Rising interest rates coupled with the record-breaking deal volume and pricing during 2021 and the first half of 2022 have combined to blunt activity in 2023. But with private equity still sitting on extraordinary amounts of dry powder and sellers getting more accustomed to pricing that, while still above average, is not quite at the unsustainable frenzied levels we saw in 2021/22, we will likely begin to see a ramp up in activity in Q4 and heading into 2024.”

To Braff’s point about PE sitting on large amounts of capital to deploy, the health care-focused Welsh, Carson, Anderson & Stowe (WCAS) in July announced a new fund that closed at over $5 billion – an organizational record. Shore Capital Partners, a PE firm that has been active in the behavioral health space, likewise raised more than $643 million across two new investment vehicles last month, The Wall Street Journal reported.

Mental health accounted for most of the deals in the behavioral health space, according to Braff’s data, with 30 deals in the first half of the year.

While deals in mental health are down year over year, some providers such as ARC Health have continued to double down on M&A growth. ARC Health has already announced six acquisitions this year, including Silver Lake Psychology, Denver Wellness Associates and Positive Change Counseling Center.

But ARC Health isn’t the only active acquirer this year. For example, private equity firm Patriot Capital invested in Turnwell Mental Health Network, Health Connect America purchased First Home Care and North Star Counseling of Central Florida, and LifePoint Health announced the acquisition of Springstone’s operating company, U.S. Behavioral Partners.

There were 21 deals in the substance use disorder (SUD) space in the first two quarters of the year, making it the second most popular sub-sector for dealmaking.

Some of the notable SUD deals included Recovery Centers of America’s acquisition of Adolescent & Young Adult Advocates, TPG Capital’s investment in Banyan Treatment Centers, and PE firm Harmony Health Group’s purchase of three facilities previously operated by the now-defunct Delphi Behavioral Health Group.

Autism, once the golden child of behavioral health dealmaking, came in third place in the first half of 2023 with 18 deals. The autism industry has seen several setbacks over the last year.

Notably, the private equity-backed autism provider Center for Autism and Related Disorders (CARD) filed for bankruptcy earlier this summer. At the end of July, a bankruptcy court approved the sale of CARD for $48.5 million.

The company was purchased by Pantogran, an organization led by CARD founder and former CEO Doreen Granpeesheh, and a consortium made up of PE firm Audax Group and its portfolio companies, including Proud Moments ABA and New Story.

In the M&A firm’s report, Braff noted that a private equity group purchased CARD in 2018 for a deal worth $600 million.

But CARD could be the canary for other autism deals in the future.

“Coupled with difficulties being reported by other sponsor-owned autism providers, a sector that rode a wave of PE activity to record deal flow and valuations is facing the prospects of a market ‘correction’ – M&A speak for a slowdown,” Braff said.