Havencrest Capital Management is doubling down on its Texas-based behavioral health efforts, announcing a new acquisition.
Austin, Texas-based Deep Eddy Psychotherapy Management LLC acquired Dallas-based Dallas Counseling Treatment Center Management in August. The move is something of an exception to Havencrest’s de-novo-focused plan for Deep Eddy. But it fits well with the Dallas-based PE firm’s approach to behavioral health.
“We’ve been very heavily focused on the extreme access issues in mental health,” Matt Cline, senior associate for Havencrest, told Behavioral Health Business. “We feel like we have a strong conviction for and see an absolute need for various types of [behavioral health].”
Deep Eddy started out as a family-owned business whose history traces back to 1984. Charlotte Howard served as the company’s CEO from 2019 until she teamed up with Havencrest in April 2022 to expand and professionalize the business. The goal is to make Deep Eddy “the premier provider in the state of Texas,” Cline said.
Howard is still involved with the company. Adam Maurer leads the organization as CEO.
The key to success at Deep Eddy, Cline said, will be to increase access to high-quality mental health care. And Texas is arguably the best place to do that.
Forbes identified Texas as the worst state in the U.S. for mental health. The state has the highest rate of mental illness while having the fifth-lowest number of mental health centers per capita. Other data reflect the need and opportunity to provide mental health services in Texas. Ten of the 15 metros with the fewest mental health providers per capita were in Texas, according to a Trilliant Health report.
“We’re local and familiar with the area,” Cline said. “Large economies, a big patient population and a lack of access to care make [Texas] a good starting point for an investment principally focused on expanding access to high-quality care.”
Today, the company operates 12 locations in Austin, Dallas, Houston and San Antonio. It provides in-person and virtual therapy. It employs about 220 people.
Deep Eddy is Havencrest’s third investment in the behavioral health industry. The first, which was also the fund’s first portfolio company, was Summit, New Jersey-based Effective School Solutions, an in-school mental health provider. Its second was Apara Autism Centers, an outpatient applied behavior analysis (ABA) provider. Havencrest made those acquisitions in 2018 and 2021, respectively.
The value of quality
Havencrest and Deep Eddy spent much of the first year post-investment developing a growth strategy focused on care quality and sustainability to meet the needs of patients, providers and payers alike, Cline said.
The partners do this by offering an internal training program for therapists, which ensures providers are providing up-to-date, quality care.
“We think we can do that better than a clinician on their own who’s trying to figure it out,” Cline said.
The training program also helps clarify the company’s standards and what they look like in practice.
“If you don’t have the right value proposition for clinicians … they’ll be unsatisfied with their work or leave,” Cline said. “If you’re not providing concrete, quality care for patients, they’re not going to be there in the long term.”
Staffing is a perennial challenge in behavioral health. For therapists, some research shows organizations may face annual turnover rates of 25% to 60%.
How Deep Eddy will grow
Deep Eddy predominantly sees patients on commercial health plans on an in-network basis. It does not see patients on Medicaid and only has a small portion of its patients who pay cash.
The company is looking to expand the number of its commercial health insurance partnerships.
The focus on working with insurance plans is a tenet of Deep Eddy’s access strategy. About 60% of insured Americans have mental health services covered by their health plan.
In line with its focus on expanding access, Deep Eddy will primarily focus on organic growth. New locations going forward will most likely be de novo. The Dallas Counseling Treatment Center Management acquisition was unique. It helped establish Deep Eddy as the largest metro in the state in one move.
The company is seeking the right balance between in-person and telehealth services. The balance of in-person and virtual visits influences where and how many providers the company will hire. Deep Eddy conducts about 70% of its sessions via telehealth. This aligns with larger outpatient mental health providers like LifeStance Health Group (Nasdaq: LFST) and Mindpath Health.
Deep Eddy can use its success and history in Austin to expand to other parts of the state. Even before the Havencrest investment, the company provided some telehealth throughout the state.
For now, the provider is laser-focused on the Texas market.
“We’re not actively pursuing or thinking about other states at this point because we think there’s enough to work on to help the state of Texas,” Cline said.
On top of expanding the company’s reach, Deep Eddy is building a psychiatry practice to complement the core talk therapy business. Psychiatric care is requisite to building a premier mental health organization, Cline said. The company has hired its first providers and will begin that service in 2024.