Long-term behavioral health trends are creating a greater need for care and driving steady investor activity in the space. Senior professionals in our Healthcare & Life Sciences Group recently saw these dynamics on display at the 2023 Behavioral Health Business INVEST Conference.

Here, they share the key tailwinds creating M&A opportunities in behavioral health and which traits are differentiating in leading companies.

Destigmatization and Rising Awareness

Behavioral health conditions are increasingly common across age groups—a trend further exacerbated by the COVID-19 pandemic, which caused greater isolation, anxiety, and health problems. Although more people require behavioral health services, a growing number of would-be patients are living without treatment.

“The availability of care for behavioral health is inadequate to meet this unmet need,” says managing director Whit Knier. “There is a growing opportunity to better support an underserved patient population through more accessible, higher-quality behavioral health services.”

At the same time, the destigmatization of behavioral health challenges is further boosting demand for a wider range of services, from treatment for anxiety and depression to more acute issues like addiction.

“As widely known public figures cope with these challenges, others tend to seek treatment too,” notes Knier. “Rising awareness of treatment options has also led to a boom in telehealth and other low acuity treatment modalities.”

Due to an expanding need for care and low availability for patients, behavioral health services continue to be strongly supported by both government and commercial payors. Managing director James Clark says that this means stable reimbursement rates and many payors going in-network for these services. “Favorable shifts in reimbursement, coupled with the rise of telehealth, are making treatment easier to get,” he explains.

For M&A investors, these tailwinds are complemented by high fragmentation in the segment. “The landscape gives investors plentiful opportunities to build scaled, professionalized platforms able to deliver better patient care to more people,” says Knier.

Better Serving Patients

Across behavioral health, businesses that provide superior, more accessible treatment are fertile ground for M&A investors looking to build leading platforms in the segment. Professionalization and scale can help such businesses attract and retain the best talent while cultivating strong and lasting patient relationships, both of which are differentiating to M&A investors.

“Professionalizing businesses that are thriving and growing in the space can help them achieve even better patient outcomes, while saving money for the healthcare system,” says Knier.

Director Taylor Will adds that in a tight labor market with rising wages, the ability to hire top talent is a sought-after trait. “By developing a high-performing staff, best-in-class behavioral health providers can capture excess demand for care and generate higher growth,” he explains.

Behavioral health companies that extend their services into virtual care to better serve patients are also highly appealing to investors. “Telehealth capabilities aid behavioral health providers in solving a wider range of problems, serving more patients in more areas, and boosting staff productivity and flexibility,” notes Clark. “All these benefits can make it easier to build scale and differentiation.”

“Recovery is a lifetime journey—it’s not something you can solve in a certain period,” points out Knier. “Ongoing treatment via telehealth is a great way to stay in touch with and support patients. The post-COVID-19 surge of financing for telehealth companies demonstrates that potential. We think telehealth will persist as part of the overall solution to behavioral health challenges, specifically as a part of the continuum of care,” he continues.

Bridging the Gap

Within behavioral health, the gap between those who require care and those able to get it continues to widen. The companies best positioned to support this underserved patient population will offer an extensive suite of inpatient and outpatient treatment services and have the capacity to meet unmet demand across a wider geographic footprint.

“We expect next year to be more active than 2023,” says Knier. “We’re seeing improvement in the labor market, which has been a constraint this year, and that should unlock more growth and drive renewed M&A activity going forward.”

To learn more about M&A opportunities within behavioral health, please contact our senior professionals.