‘The Era of Growth at All Costs Is Over’: Discovery, LifeStance, Summit BHC Reset M&A Strategies

Growth in the behavioral health industry may look very different in 2024 than it has over the past few boom years.

Gone are the days of growth for growth’s sake. Today, providers are prioritizing targeted de novo gains and keeping their balance sheets cash-flow positive. Industry headwinds, including high rates and ongoing labor shortages, have led to many providers pulling back from M&A and looking instead to strategic organic expansion.

“The era of growth at all costs is over,” Danish Qureshi, president and COO of LifeStance Health (Nasdaq: LFST), said at Behavioral Health Business’ INVEST event. “I know in the public market that’s over, and I’d say in the majority of the private market that’s over as well.”


LifeStance was founded in 2017. It operates in 34 states, with 600 care centers. The company offers virtual and in-person outpatient mental health care for children, youth and adults with several mental health conditions.

Danish Qureshi, president and COO of LifeStance Health, speaks at Behavioral Health Business’ INVEST. Photo credit: BHB

Instead of splashy deals, LifeStance is prioritizing financial growth by boosting its top-line EBITDA and profitability, Qureshi explained at INVEST. And other behavioral health operators may take similar approaches as investors become more conservative, he noted.

That’s true for both private equity and venture capital. On the PE side, 2023 saw hardly any platform-driven deals. Meanwhile, on the VC side, digital health investment is at a multi-year low, though behavioral health is still a relative bright spot.


The era of growth at all costs is over.

Danish Qureshi, president and COO of LifeStance Health

Instead of throwing money at companies, investors are looking for operators with a solid foundation for growth based on the delivery system’s quality, John Peloquin, president and CEO of Discovery Behavioral Health, said at INVEST.

“Now you see more and more [private equity firms] coming in requiring more and more of a positive clinical foundation – not the ‘we’re just going to spend a lot of money, we’re going to roll it up, and then we’re going to sell those’ [mentality],” Peloquin said. “Those days are all gone.” 

John Peloquin, CEO of Discovery Behavioral Health, speaks at INVEST. Photo credit: BHB

The Irvine, California-based Discovery has been in business since 1985 and has more than 150 facilities across 16 states. Backed by Webster Equity Partners, the provider offers four service lines: eating disorder, substance use, mental health and psychiatric services.

Summit BHC CEO Brent Turner echoed many of those sentiments.

“Cash flow pays the bills, and I think that’s what folks are looking for,” Turner said at INVEST. “So how do you sustain and grow organically, and generate margin?”

Founded in 2013, Franklin, Tennessee-based Summit BHC operates 35 facilities across 19 states, providing substance use disorder treatment and psychiatric services.

De novo-first approach

While the majority of providers are re-evaluating growth for growth’s sake, there has been a renewed interest in de novo expansion. And having sustainable cash-flow reserves can help providers looking to explore this route better.

“From our standpoint and our private equity sponsor’s, we’re very focused on the de novo,” said Turner, whose company is backed by Patient Square Capital. “There’s only so much capital available, and interest rates are up 600 points. So, it changes the dynamics of the opportunity for acquiring spending money. But for us, we were able to finance de novo growth from our cash flow. It’s not even a decision tree; it’s just natural.”  

Brent Turner, CEO of Summit BHC, speaks at INVEST. Photo credit: BHB

Some providers have even officially hit pause on all M&A activity. For example, LifeStance, which has historically been an active M&A player, has announced that it will pause M&A in favor of a de novo strategy.

Over the last six years, the organization has completed roughly 100 acquisitions, but it doesn’t plan on adding to this number soon.

“We think it’s the right time to focus on de novo growth to make sure that we have our foundation in a place where we feel really good,” Qureshi said. “And then, as the markets open back up, kind of reenter acquisitions at the appropriate time.”

While M&A allowed LifeStance to scale quickly, Quereshi noted that acquisitions pose unique integration challenges. Namely, integrating the work culture of 100 different companies across the country takes time.

Still, the market emphasis on de novo expansion is mainly due to external market forces creating a challenging buying environment.

“I think that a lot of the M&A is paused. Interest rates and a lot of different factors come into play. The demand cycle is still there and I think the market is as vibrant as ever,” Peloquin said. “But pulling off a deal in today’s economic climate is challenging. A big driver is the cost of capital first, then labor second, and so on.” 

Pulling off a deal in today’s economic climate is challenging.

John Peloquin, CEO Discovery Behavioral Health

Organic growth has always been the primary strategy for Discovery Behavioral Health. The provider has roughly 150 locations, and only 12 of those were opened through M&A. That said, Peloquin noted that when the company goes into a new market, it prioritizes having all four of its service lines available to patients. Sometimes, that means a tuck-in acquisition.

Even LifeStance, which has completely pulled back on M&A, may only rule out acquisitions for a while.

“We are very much heads down on organic growth,” Qureshi said. “We will continue to look at strategic acquisitions that are less than just growing the core in size and more about how do we either bring in new areas of focus or bring in new technologies to advance the overall business, but just buying groups for the sake of scale is – right now, we’re on pause there.”

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