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Analysts: All Indications Point to Increased M&A Activity in 2024
After a relatively quiet year of merger and acquisition activity in behavioral healthcare, analysts at Mertz Taggart said a confluence of factors could deliver a significant bounce back in 2024.
“We've had the opportunity to speak with industry and financial buyers over the past few weeks,” Mertz Taggart Managing Partner Kevin Taggart said in the firm’s Q4 2023 Behavioral Health M&A Report. “The consensus today is that we'll have increased activity across the sector. Improved capital markets and quality deal flow will drive the activity, especially in the 2nd half of 2024.”
>> READ the full Mertz Taggart Q4 2023 Behavioral Health M&A Report
The fourth quarter of 2023 saw just 31 transactions announced—the lowest quarterly total for behavioral healthcare since Q2 of 2020 and the onset of the COVID-19 pandemic. Deal volume for the year was down significantly compared to 2021 and 2022, with 136 transactions reported in 2023 vs. 168 and 188 in 2021 and 2022, respectively.
Of the 31 deals announced in Q4, seed and venture funding accounted for 12, representing $257.9 million in investments. A Series C funding round for healthcare tech startup Headway alone netted $125 million from a group of investors led by Spark Capital Partners.
Investments involving seed and venture funding, as well as private equity, can signal rising behavioral healthcare organizations to watch. Yet “some of these venture back firms will end up being major players in the industry,” Taggart cautioned. “But I also think that many of them won't make it for a variety of reasons.”
Gearing Up for 2024
If behavioral healthcare is to see a rebound in mergers and acquisition activity in 2024, don’t necessarily expect an immediate flurry of deals, Taggart said. Interest rate cuts by the Federal Reserve that are widely expected by industry analysts could get the ball rolling in Q2.
Still, expect buyers to be more measured about the behavioral healthcare organizations they choose to spend on, Taggart said.
“We expect more companies to go to market in 2024, reverting to pre-pandemic levels,” Taggart said. “However, buyers will be more disciplined about the companies they choose to invest in or purchase. Much of that discipline is being imposed by higher interest rates and banks themselves.”
To that end, providers looking to make themselves more attractive to buyers and investors would be wise to conduct clinical, compliance, and quality-of-earnings audits prior to going to market, he said.
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