Strong 4th Quarter Caps Record-Setting Year for Behavioral Health Transactions

The behavioral healthcare sector saw a record 149 deals close in 2021, shattering the previous high set in 2020 by 34%, as demand for mental health and addiction treatment services soars, according to the latest quarterly mergers and acquisitions activity report published by Mertz Taggart.

>> READ the Mertz Taggart Q4 2021 Behavioral Health M&A Report

The year finished with a flurry of activity, with a record 49 transactions announced, with private equity accounting for 40 deals. Mertz Taggart Managing Partner Kevin Taggart attributed the end-of-year surge was driven by a significant number of sellers looking to exit the industry, due in large part to pandemic-induced burnout and the lingering threat of an increase in the capital gains tax rate, which was proposed in early 2021, but has yet to come to fruition.

In the 4th quarter alone, 30 deals in addiction treatment were announced, eclipsing the previous high of 20 set in the 2nd quarter of 2019. BayMark Health Services and Behavioral Health Group alone accounted for 9 deals during the quarter. Mental health, meanwhile, had its busiest quarter of 2021, with 16 transactions.

“The data reflects what we are seeing with our clients,” Taggart said in the report. “Demand for quality mental health and addiction treatment services remains sky-high, with the pandemic adding fuel to a marketplace that already was strong. This has resulted in record valuations for these providers.”

Activity in autism services and intellectual/developmental disabilities, meanwhile, slowed. Just 7 deals in the subsector closed in the quarter, the fewest transactions for the category in a quarter since Q2 of 2020.

Overall, however, Taggart said he expects a high volume of transactions in the behavioral health space to start 2022, as loose ends are tied up on deals intended to close in 2021. Beyond that, however, the picture around merger and acquisition activity is much less clear. Demand will remain, Taggart said, but rising interest rates, which could be announced as soon as the 2nd quarter, could stifle valuations.

Reference

Q4 2021 behavioral health M&A report. Mertz Taggart. https://www.mertztaggart.com/post/q4-2021-behavioral-health-m-a-report. Published January 17, 2022. Accessed January 18, 2022.