‘You Can’t Stay Like This Forever’: Buyers Becoming More Skittish in Behavioral Health M&A

M&A activity in the behavioral health space has slowed down significantly in recent years, dropping to pre-pandemic levels.

The behavioral health industry is not alone in this, Dexter Braff, president of M&A advisory firm The Braff Group, said at Behavioral Health Business’ INVEST conference. External factors, including inflation, staffing shortages, fear of recession and unrest in Eastern Europe, put a damper on global M&A activity across all industries.

While deal flow continues, buyers are increasingly skittish.


“In our experience at The Braff Group, once the buyer and seller agree on purchase price, there is a 90% chance [the deal] is going to close,” Braff said. “Until this year, we had very few deals that didn’t close. This year, we have had seven that have gone from confirmation of purchase price to not close. That has nothing to do with the seller and everything to do with buyers.”

Buyers’ weariness can be attributed to the Federal Reserve’s mixed signals about the current interest rate environment and sky-high evaluations in 2021, along with the first half of 2022 that resulted in overpayment.

“You add those components together, you get a skittish market,” Braff said.


Certain segments of the health care market have continued to grow. Industry-wide labor shortages have strengthened the health care staffing industry, for example. Other segments that have struggled historically continue to suffer, including home medical equipment.

“When The Braff Group started, 80% of our revenue [was from] home medical equipment companies,” Braff said. “Today, they represent less than 5%, which is essentially one or two deals a year.”

Behavioral health M&A trends represent a big shake-up in the health care market. Historically, the segment has experienced high levels of growth and M&A deals. In 2023, growth has slowed.

“It’s in very modest negative territory, so not bad,” Braff said. “But in all these other sessions that we’ve gone to, it’s always been at the top right. It’s inevitable. You can’t stay like this forever.”

Within the behavioral health segment, the mental health industry had the highest number of M&A deals with the most growth, although 2023 saw fewer deals than the year prior. The number of deals in 2023 is still 30% higher than pre-pandemic levels.

There is still a “huge” number of deals in the substance use disorder (SUD) treatment segment, Braff said, although the number has stayed relatively flat year-over-year.

Within the SUD segment, medication-assisted treatment (MAT) has experienced strong year-over-year growth and a significant number of M&A. Historically, providers subscribing to the sobriety model have opposed MAT, Braff said.

“They think [as if it’s] going from one addiction to the other,” Braff said. “MAT keeps people employed and keeps families together. The recidivism rate for people who are on medication-assisted treatment is very low. State governments want you to go there because it costs about $5,000 a year to have somebody on medication-assisted treatment, and it costs a whole lot more if it’s residential.”

Despite slowed growth within the behavioral health space, the industry remains a strong space for M&A deals.

Braff Group President Dexter Braff speaks at the BHB INVEST conference in October 2023. | BHB photo

The outlook for the industry is buoyed because of an increased number of institutional loans and $56 billion in opioid abatement funding – although only a small portion of that figure has been distributed thus far.

Additional factors that boost the forecast for the behavioral health market include the DEA’s ruling that extends telehealth flexibilities for another year and $800 billion in committed private equity funds that must be spent.

“In 2021, the number of deals closed by private equity was 56% greater than the previous record,” Braff said. “So they bought a lot, but here’s the problem. They’re not selling anything.”

The amount of private equity exits recently hit a long-time low, meaning that private equity portfolios are getting old, which could compel more M&A. 

“They don’t want to sell it right now, because the market isn’t as attractive as was,” Braff said. “As it gets older, the pressure to sell at lower valuations is going to happen. If they start exiting at lower valuations, it could pull valuations down across the board.”

Despite a less attractive market, deals can still reach a premium because fewer deals are closing. For sellers, that means now is the time to “hunker down and prepare for 2024,” Braff said.

Hibernating sellers may not have to wait for long, Braff predicted.

“The buyers have to get back in the game because if you want to achieve the growth that you’re looking for and get from $100 million to $300 million, you’re probably not doing that for startups,” Braff said. “You have to do acquisitions.”

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