Report: Behavioral Health M&A Activity Maintains Record Pace

Behavioral healthcare merger and acquisition activity remained strong in the third quarter of 2021, and a confluence of factors has analysts at the advisory firm Mertz Taggart expecting the record-setting pace to continue through the remainder of the year.

A total of 25 behavioral health-related transactions were announced in the quarter, including a record 10 private equity platform transactions, according to the Mertz Taggart Q3 Behavioral Health M&A Report. That puts 2021 on track to eclipse the high watermark of 116 deals reported in 2020.

>> READ the full Mertz Taggart Q3 2021 Behavioral Health M&A Report

The continued high volume of activity is being linked to 3 factors: an influx of capital in addiction treatment, investors’ renewed confidence in behavioral health, and a potential scaling back of the capital gains tax rate increase proposed by the Biden administration earlier this year.

“Initially, I believe this was driven by the potential for a capital gains tax increase,” Mertz Taggart Managing Partner Kevin Taggart said in the report. “But I also think behavioral health has become more attractive to many investors because it has held up very well during the pandemic, especially compared to other potential investment options.”

Although the total number of deals in addiction treatment for the third quarter was lower than the previous 3 months, nearly $3 billion in capital poured into the sector. Activity was highlighted by a pair of transactions each valued at $1.3 billion: Patient Square Capital acquired Summit BHC from FFL Partners and Lee Equity Partners, and the private equity firm Onex Partners completed its acquisition of Newport Healthcare.

Transactions involving mental health organizations were punctuated by 3 platform deals:

• NorthEast Health Services, InterCare Psychiatric Services, GR&W Health and My Transformation merged to form the Transformations Care Network, a multistate outpatient behavioral health platform backed by Shore Capital.
• ARC Health was acquired by Thurston Group, a private equity firm that invests in healthcare services.
• Heritage Group made a $30 million investment in Connections Health Solutions, a crisis stabilization company.

The autism services and intellectual/development disabilities sector saw 8 deals announced, maintaining the pace of 7 set the prior quarter.

Looking ahead to the remainder of 2021, Taggart identified as bandwidth for third-party advisors, especially attorneys and accounting firms that perform quality of earnings assessments, as the biggest potential obstacle to deals getting done before the end of the year.