The autism industry’s course correction couldn’t have come at a more opportune time.

Over the last two years the autism industry has seen a dip in M&A deal flow. After a massive infusion of capital in 2021 and 2022, the industry saw major public stumbles, including the bankruptcy of large ABA provider CARD and massive layoffs at 360 Behavioral Health and Elemy.

But the industry’s reset coincided with larger economic hurdles.

“It happened when the market was flat and going down. So the autism market did what it needed to do to correct for some of the problems causing it to be a less interesting segment [to investors],” Dexter Braff, founder and president of the Braff Group, said at Behavioral Health Business’ Autism & Addiction Treatment Forum. “They did that while everybody else was down for reasons that are strictly [to do with ] macro environment. For autism it was micro. It had to do with the space, but you couldn’t see that because it happened at the same time that everybody else was down.”

But autism’s slowdown appears to be ending in 2024. The first quarter of the year saw 12 deals in the autism sector, the highest number since 2022.

Braff noted that the autism industry used the 18-month slowdown period well.

“Now deal flow is back on the way up for autism and likely to stay that way,” Braff said. “The lull in that space will turn out to be one of the shortest lulls we’ve seen in the sector when it experiences a downturn.”

Overall, behavioral health is recovering from the frosty few years of dealmaking driven by rising interest rates, inflation, staffing shortages, fear of recession and global unrest.

Mental health continues to be the most active segment of behavioral health. In the first quarter of the year, there were 27 mental health deals. Braff noted that only one period, Q4 of 2021, exceeded that level of dealmaking in mental health.

While these numbers are promising for the mental health segment, Braff clarified that Q1 was an outlier because one buyer, Beacon Behavioral Health Partners, was involved with 10 transactions during this period.

While mental health and autism are starting to see a rise in dealmaking activity, the substance use disorder (SUD) sector is still quiet on the dealmaking front. However, the SUD segment has several subsectors in it.

Braff noted that high-end residential SUD care has plummeted in recent years. Meanwhile, outpatient SUD treatment is on “the upswing.”

The rising star in the SUD space is medication-assisted treatment providers.

“From a spending standpoint of the federal government, state governments, and even individuals an MAT program could be far, far, far cheaper than a residential,” Braff said.

While dealmaking has been a mixed bag in the beginning of 2024, macroeconomic factors may help thaw the frosty M&A environment of the last year.

While inflation has remained above the Fed’s target of 2%, Braff noted that the consumer price index has gradually improved.

Moreover, private equity is ripe to reenter the behavioral health dealmaking arena. Investors are coming to the end of their holding period with existing portfolio companies and have dry capital again that they will need to deploy.

“So what we have is a marketplace where we are clearly seeing indications of a market in transition, moving back onto the upswing,” Braff said. “And so we fully anticipate that 2025–it won’t be the same as 2021–but it will be a really good year. Why? Because private equity and all the buyers that sat in the sidelines have two years to make up for deals that weren’t done all right. If these trends hold … we’re looking forward to a really strong Q3 and Q4 and perhaps a breakout year.”