The financial market thrives on stability. However, the Trump administration’s hazy approach to Medicaid and tariffs could deny that predictability and potentially stall behavioral health dealmaking.

In 2024, the behavioral health deals outperformed the number of overall health care deals, according to Steve Garbon, managing director at Braff Group. Analysts have predicted that conditions are ripe for increased dealmaking in 2025, but uncertainty regarding the political and economic climate could lead to increased caution.

“The investment community likes certainty,” Garbon said. “And right now there’s a lot of uncertainty, especially as it relates to Medicaid. Obviously a lot of behavioral health services are funded by Medicaid. [It’s] extremely volatile right now. We’ll see where things go.”

Industry experts have suggested that 2025 could represent the uptick in dealmaking that the industry has not seen since its height in 2021. Dealmaking is still moving in the “right direction,” according to Garbon, with factors suggesting that the next two years will be better than the last two.

Still, the behavioral health industry is still a “great place to be.” While 2023 and 2024 were relatively flat years for the number of completed deals, the figures align with 2016 and 2017, and the industry is experiencing promising tailwinds.

“Regardless of your political affiliation, you [have] a pro-business administration in the office,” Garbon said. “I think everybody you know in mid-November, was like, ‘Listen, we’re really set up for a great 2025, and I think we were and we need to be still. But there has been some noise in the marketplace since then.”

The “noise” in the marketplace includes what the Trump administration will decide regarding tariffs and potential cuts to Medicaid’s budget. As Medicaid funds many behavioral health services, budget cuts could have a “crippling effect” on the industry, as previously reported by BHB.

President Donald Trump has said that he will not make significant changes to Medicare, social security or Medicaid budgets, but will attack fraud, waste and abuse.

“There are still concerns out there exactly what will fall under [fraud, waste and abuse],” Garbon said. “There’s also concerns about federal funding to the States. All states have a lot of money to go back to the ACA. There’s a lot that we’re going to know here over the upcoming months that will help us to have a better idea of where the future market holds.”

Overall, Garbon said he was “cautiously optimistic” about behavioral health dealmaking in 2025.

In 2024, the number of behavioral health deals increased by 6% compared to 2023. It is not yet clear how 2025 is shaping up thus far, as deals launched in Q1 will not close until Q2 or Q3, at which point Garbon predicts an uptick in the number of deals will become evident.

Looking back, certain sectors of the behavioral health industry performed the strongest in 2024. Mental health outperformed other categories, and dealmaking was higher in 2024 than in 2022 or 2023. The number of mental health deals would have been even higher, Garbon said, but for a lack of supply. Investors are seeking opportunities of significant enough size for the “juice to be worth the squeeze.” Buyers may choose a de novo option instead of buying a small company.

“If there were double the number of companies in the mental health space, you would see a significant increase in the number of transactions in the space,” Garbon said.

Mental health also had the largest number of transactions of any behavioral health subsector, overtaking the number of substance use disorder (SUD) deals which, historically, has had the largest number of transactions.

Autism therapy dealmaking also saw an increase in overall deals in 2024, driven by overall M&A market headwinds. Problems experienced by autism therapy providers including the Center for Autism and Related Disorders (CARD) and Hopebridge have not caused investor interest to falter, Garbon said.

In 2024, the number of intellectual and developmental disabilities (IDD) deals was consistent from the previous year, and Garbon estimates that the figure will hold steady in 2025.

SUD deals were down in 2024, but the space is still desirable according to Garbon. Private equity investors are particularly interested in outpatient treatment.

“It’s not that they won’t look at residential, but the valuations and where people want to be is on the outpatient side, but it’s difficult for them to define all the assets,” Garbon said. “Most of the outpatient programs are tied into a residential program. … But they would love to follow just purely outpatient programs.”