It’s been a wild ride in recent years. Merger and acquisition activity in the Behavioral Health Care sector soared to a record 91 transactions in 2018, an increase of 264% over 2014 (25 deals) and up 60% compared with 2017 (57 deals).

The majority of the 2018 deals—63%, in fact—were made by private equity firms or their portfolio companies. For the record, PE firms accounted for 46% of all acquisitions and 24% of the spending in the nine healthcare services sectors last year.

M&A in this sector hasn’t been as robust in 2019. With 50 deals reported through the first week in September, the sector isn’t likely to see another 40 announced by the end of the year. One reason for the slowing pace is that buyers are now working to integrate all their acquisitions from 2018. Others are turning to de novo projects and joint ventures.

But you never know. There have been a few big exits and a few new platforms announced by large private equity firms, and that’s what’s driving the action this year.

On the exit side, Bain Capital Private Equity and Diamond Castle Holdings sold Beacon Health Options to managed care giant Anthem (NYSE: ANTM) for an undisclosed amount. Beacon certainly had the scale for the sale to a major corporation. The company provides clinical mental health and substance use disorder management, a comprehensive employee assistance program, work/life support, specialty programs for autism and depression, and analytics to more than 36 million individuals nationwide.

Scale is the name of the game in this sector, whether firms are building statewide, regional or national platforms. The very large players such as Acadia Healthcare (NASDAQ: ACHC) and Universal Health Services (NYSE: UHS) are somewhat preoccupied and largely out of the market for the moment. Both have experienced executive turnover in recent months, with the ouster of Acadia CEO Joey Jacobs, who was replaced by Debra Osteen, former head of behavioral health care at Universal Health Services.

That leaves the field to private equity sponsors, new and long-term players. Looking at the list of acquirers in 2019, two relatively new companies have been the busiest. Blue Sprig Pediatrics was formed by KKR & Co. (NYSE: KKR) in January 2018. It is the largest autism services provider in Texas with locations in Ohio, Oklahoma, Oregon, South Carolina and Washington state. This year it added four more autism-services companies in Texas (2), Kentucky (1) and Missouri (1).

Another entrant in the autism-services space has been even busier. Oakland, California-based Kadiant was established in February 2019 by TPG Capital and Vida Ventures. It’s made six deals public so far in 2019, four in California, one in Georgia and one in Ohio.

What Our Sources Say

The autism space is still very hot, as is the outpatient medical assistance treatment (MAT) segment, while the traditional substance abuse market has cooled considerably over the past 12 to 18 months, according to Kevin Taggart, co-founder of Mertz Taggart. Eating disorder treatment is still attractive to the right buyers, though there’s been a lessening in demand this year.

Valuations are still holding up, with platforms of scale bringing more than 10x EBITDA and add-on targets bringing about 8x, on average, according to Nathaniel “Tani” Weiner, shareholder at Polsinelli. Buyers are becoming more disciplined, he said, and want a proprietary deal process that won’t be pre-empted by other bidders.

Chris Rogers, managing director at Ziegler, agrees. “A lot of companies are sick of coming in second in the auction process.” He says there’s a lot of demand from private equity-sponsored buyers, but they’re now beginning to look beyond the services side of the sector to the technology side, where telepsychiatry and behavioral-focused electronic health records are attracting attention. “Private equity has spent so much money on the services model that they now feel comfortable with the technology side,” he said.

Join us for more insight on the state of M&A in this sector when we host an interactive webinar, “Investing in Behavioral Health Care: Acquiring and Selling,” on September 19. Follow the link above or visit to sign up today.