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Venture Capital Firms Driving Transactions in Behavioral Health
After a slowdown largely attributed to the collapse of Silicon Valley Bank in the first quarter of the year, venture capital (VC) firms have resumed making investments in behavioral healthcare. VC was cited as the largest driver of activity in the latest behavioral healthcare mergers and acquisitions activity report published this week by the M&A advisory firm Mertz Taggart.
The report, which lists a total of 34 behavioral healthcare transactions announced in the 3-month period ending July 30, includes 13 VC-backed deals representing nearly $400 million in new investment in the industry.
“The prevailing theme for the deals, most of which involved mental healthcare organizations, was a familiar refrain: Enable access for more patients who need services while saving the healthcare system and payers money,” Mertz Taggart Managing Partner Kevin Taggart said. “If you can show a path to do that at scale, you’ll likely generate investor interest.”
Mertz Taggart analysts pointed to an investment made by Optum Ventures, the venture capital arm of UnitedHealthcare subsidiary Optum, as a notable example of payer investments in service providers. Optum Ventures was the lead investor in a Series D funding round announced by Cortica earlier this year that enabled the autism care provider to make 2 acquisitions. Meanwhile, Cigna made a splash of its own as one of the lead investors in a $52 million Series C funding round for Octave, a behavioral healthcare provider operating in multiple states.
“We’re seeing more payer investment in service providers across healthcare,” Taggart said. “If a provider fits well into the value-based continuum, the payers want to have some influence.”
Private equity (PE) firms continue to show interest in behavioral health, as well, specifically within the addiction treatment subsector. PE firms have been involved in several deals for addiction treatment providers organizations this year, including Pinnacle Treatment Centers’ acquisition of 4 outpatient programs from Recovery Centers of America.
While deals involving mental healthcare providers saw a modest dip from 29 deals in the first quarter of the year to 23 in Q2, ARC Health, the Beachwood, Ohio-based Thurston Group portfolio organization, closed deals to acquire 4 providers.
Looking ahead to the remainder of the year and early 2024, Mertz Taggart analysts said that while the market for quality providers remains strong, the extent and duration of interest rate increases will remain a key driver of M&A activity.
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