Behavioral health care has never been a particularly active sector, but deal volume has increased year-over-year between 2010 and 2016, growing 412% in that time. And there’s a good chance that 2017 will continue this trend. Through August 30, 32 behavioral health care deals have been announced, up 7% compared with the same period last year. So what else is going on this year?
So far, we haven’t seen anything close to a mega-deal. The largest price tag this year was Care Capital Properties’ (NYSE: CCP) $380 million acquisition of the real estate assets of six behavioral health hospitals from Signature Healthcare Services LLC, dba Aurora Behavioral Health. This was the second REIT deal in this sector in 2017.
Since most behavioral health care deals are done by private buyers who don’t disclose terms, only three of the 32 deals disclosed a price. Five acquirers were private equity firms, and 17 of the 22 behavioral health acquirers were backed by PE firms. Altogether, REITs, PE firms, and PE-backed behavioral health companies accounted for 91% of deals.
One subsegment in this space, eating disorders, is attracting financial buyers this year. In 2016, a single deal for an eating disorder center was made public. In the first eight months of 2017, four such targets have been acquired. In January, The Riverside Company acquired Castlewood Treatment Centers; in February, Walden Behavioral Care LLC, a portfolio company of Seacoast Capital since July 2014, acquired Atlanta Center for Eating Disorders; in June, Pyramid Healthcare, a portfolio company of Clearview Capital, acquired Tapestry Eating Disorder Services of Western North Carolina; and in August, CCMP Capital Advisors, LP purchased Eating Recovery Center from Lee Equity Partners.
Although deal volume has been on the up and up, dollar volume has been less consistent. The sector experienced a record year in 2010, with a total of $3.5 billion spent that year. The bulk of that total came from the single largest behavioral health care deal on record, Universal Health Service’s (NYSE: UHS) $3.1 billion takeover of Psychiatric Solutions, Inc. That transaction brought Universal Health into the behavioral health care market, and much of the former management at Psych Solutions moved on to for what is now Acadia Healthcare Company (NASDAQ: ACHC), the largest pure-play acquirer in the sector.
Dollar volume didn’t notably spike again until last year, when $3.4 billion was spent. Again, most of that total is attributable to a single deal, Acadia Healthcare’s $2.23 billion takeover of UK-based Priory Group. This year, only $555.0 million has been spent, but oftentimes the difference between a sluggish year and a record year is just one deal, and there’s still plenty of time.