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Report: M&A Activity in Behavioral Health Slows to Pre-Pandemic Levels
Merger and acquisition activity within behavioral healthcare slowed to a crawl in the first 3 months of 2023, a development that analysts at M&A advisory firm Mertz Taggart said could be attributed to several factors.
In its latest quarterly behavioral health M&A report, the firm noted that just 27 deals were announced across behavioral healthcare in the first 3 months of 2023. Although that figure is roughly in line with numbers from before the onset of the COVID-19 pandemic, it is a steep decline from the 49 transactions reported in the final quarter of 2022 and the fewest in a quarter since the pandemic’s start in 2020.
>> READ the Mertz Taggart Q1 2023 Behavioral Health M&A Update
Mental health remained the most active subsector, accounting for 23 deals—down from the prior 2 quarters—but higher than the category’s historical average. Mertz Taggart noted that the pandemic allowed many mental healthcare providers to scale their operations, particularly through the use of telehealth, as demand for services surged. It is possible, however, that utilization of mental health services could start to wane.
The banking crisis has caused several transactions to be either delayed or canceled outright, the firm said. The collapse of Silicon Valley Bank (SVB) was particularly critical, as SVB is the largest banker to venture capital firms and VC has accounted for a large portion of deals in recent months, especially in mental health.
Private equity firms also scaled back their activity in Q1, with just 10 platform transactions and 10 PE-backed strategic add-ons announced. Combined, it was the lowest total number of deals involving private equity in behavioral health care since third quarter of 2020, according to Mertz Taggart.
“Although mergers and acquisitions have slowed over the last quarter, activity is still at very high levels. Deals are just taking longer to get completed,” Kevin Taggart, Mertz Taggart managing partner said in the report. “The remainder of the year will be stronger than Q1.”
Taggart added that observers should also keep an eye on the long-discussed capital gains tax increase proposal that, while not currently at the forefront, remains a possibility.
“This has been on the Biden administration’s agenda since before the election, and we wouldn’t be surprised if this gets worked into a bill before all is said and done,” Taggart said.
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