M&A spotlight: Behavioral health

Industry overview

The behavioral health industry consists of a number of providers of care including, but not limited to, mental health and substance abuse centers, drug and alcohol rehabilitation clinics, intellectual/developmental disability providers and eating disorder clinics. The sector has seen growing consolidation as strategic and financial buyers seek to capitalize on significant industry fragmentation and demand that currently outstrips supply.

Selected trends and observations

  • The industry generates annual revenues of approximately $21 billion, and is forecast to grow 4 percent per annum over the next five years.
    • One in five Americans suffer from some form of behavioral health condition, but 56 percent did not receive treatment in the last year.
    • Thirty-eight percent of adults in the U.S. live in communities with shortages of behavioral health professionals.
  • Demand in the behavioral health industry has grown significantly, as awareness has increased and care becomes a more integrated aspect of overall healthcare services.
    • More than 65 percent of adults with a mental health disorder exhibit comorbidity with at least one medical condition.
    • Integrated care models using multidisciplinary teams have been shown to provide effective treatment for persons with comorbid physical and mental conditions.
  • The sector is poised for continued M&A activity as providers look to achieve efficiencies through economies of scale.
    • Smaller organizations will have difficulty keeping up with cost savings needed for new reimbursement models, outcomes based solutions and other innovations.
    • Private equity firms have been lured by the market’s fragmentation, attractive industry growth rates and eased reimbursement risk.
  • The Affordable Care Act (ACA) provided one of the largest expansions of mental health and substance use.

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