The want for behavioral well being companies is at an all-time excessive – and personal fairness traders have taken observe.

In the primary three quarters of 2022, non-public fairness offers made up greater than 60% of behavioral well being transactions, in line with information from The Braff Group. Many traders see the fragmented behavioral well being trade as a main goal for consolidation and development.

And regardless of international financial headwinds, behavioral well being offers are nonetheless at a premium. In truth, behavioral well being transactions within the first 11 months of 2022 have been valued at $3.3 billion, in line with a current report from PricewaterhouseCoopers (PwC).

“All you people that think you want to be investing in behavioral health, you’re in the right space,” Dexter Braff, president of the M&A advisory agency The Braff Group, mentioned at Behavioral Health Business’ INVEST. “But you’re going to have to pay up to get into it.”

This infusion of PE capital is in flip shaping almost each phase of behavioral well being, from substance use dysfunction (SUD) remedy to autism companies and psychological well being care.

Yet nobody non-public fairness group has the bulk market share of any house. That’s doubtless as a result of PE corporations are inclined to diversify their investments and keep away from competing portfolio corporations.

“There’s a lot of private equity firms that are focused on health care services, so then they might have a couple of behavioral businesses that are in a completely different geographies, or one is completely outpatient and one is completely residential …. where it’s not directly competing,” Vasanta Pundarika, co-head of well being care funding banking at capital market group Matrix, informed BHB. “But then you can only have three or four of those before you start to have a lot of overlap.”

Traditionally, non-public fairness corporations need to spend money on a enterprise, develop that enterprise after which exit, Pundarika mentioned. If they’re rising a number of competing companies, this might intervene with their finish objective of an excellent sale.

However, many corporations are getting their ft moist in a number of behavioral companies – and BHB has been carefully watching.

Here are the PE corporations we might be maintaining a tally of in 2023:

KKR’s ground-up strategy

It could be arduous to speak about non-public fairness traders stepping into behavioral well being with out speaking about KKR. Not solely has KKR made large investments in present behavioral well being suppliers, it has even created corporations.

New York-based international non-public fairness big KKR launched into the behavioral well being house in 2018 when it shaped Applied Behavioral Analysis (ABA) supplier BlueSprig to handle the unmet scientific want of pediatric sufferers with autism spectrum dysfunction.

Earlier this yr, it doubled down on its pediatric behavioral well being wager, main Brightline’s $105 million Series C funding spherical. Palo Alto, California-based Brightline gives digital behavioral well being care for kids, teenagers and households. The firm is valued at roughly $705 million.

KKR has additionally taken an energetic curiosity in behavioral well being expertise. In 2021, it purchased follow administration and digital well being report software program platform Therapy Brands for roughly $1.2 billion.

That identical yr, KKR introduced the creation of a brand new psychological well being service firm known as Geode Health. The firm companions with psychiatrists, psychologists and therapists to supply in-person and digital outpatient psychological well being remedy to adults and kids throughout the nation. It makes use of digital instruments to assist monitor measurement-based care.

“We are excited to partner with [CEO Gaurav Bhattacharyya, COO Mike King] and the rest of the team at Geode on such a critical mission, and look forward to supporting them with the resources and capital needed to expand high-quality access to mental health care for many patients in need,” Ali Satvat, international head of well being care strategic development at KKR, mentioned on the time.

We’re watching KKR’s investments, specifically, relating to hybrid and digital well being care. Although the majority of KKR’s investments have been in direct affected person care, it is among the solely PE corporations on this checklist that has positioned a big wager on a straight-up expertise platform.

KKR is positioned to assist form how the behavioral well being trade implements digital instruments. Its portfolio corporations could possibly be an instance of the right way to combine EHR data and digital monitoring instruments to exhibit measurement-based outcomes in psychological well being care.

Behavioral well being veteran Lee Equity

New York-based Lee Equity is a middle-market non-public fairness agency that has been concerned within the behavioral well being house for greater than a decade, making it considerably of a veteran within the underdeveloped market.

Lee Equity made its first behavioral well being transaction in 2012 when it invested in Dever-based Eating Recovery Center. The supplier treats sufferers with consuming issues together with anorexia, bulimia, binge consuming dysfunction and different unspecified consuming issues. In 2017, Lee Equity sold the provider to CCP Capital Advisors. The phrases of the deal weren’t disclosed.

Just months after closing the Eating Recovery Center sale, Lee Equity bought Summit BHC. Summit is a psychiatric and SUD supplier based mostly in Franklin, Tennessee. In 2021, Lee Equity and fellow investor FFL Partners bought the supplier to Patient Square Capital. The phrases of the deal weren’t disclosed.

The firm’s subsequent funding stayed within the SUD remedy house. In October, it bought Bradford Health. The acquisition included 40 SUD remedy and restoration facilities within the Southeastern U.S.

We’re watching Lee Equity as a result of it has been investing and reinvesting within the behavioral well being house for fairly a while now. It has additionally established a sample of promoting its behavioral well being asset after which shopping for one other shortly thereafter. We might be carefully watching to see if it continues this sample or begins to accumulate extra behavioral well being investments in its energetic portfolio.

Webster Equity stays energetic

Palm Springs, Florida-based Webster Equity Partners made its behavioral well being debut in 2011 when it invested in substance use dysfunction supplier Discovery Behavioral Health. The supplier operates greater than 145 remedy facilities.

Since the Webster deal, Discovery has made a lot of acquisitions. These acquisitions embrace Brookdale Premiere Addiction Recovery, Anew Era MS & Psychiatry and Med TMS Neuro Institute.

In 2015, Webster introduced the acquisition of a second habit care supplier, BayMark Health. BayMark Health Services is a behavioral well being supplier targeted on treating SUD. It has greater than 400 remedy amenities in 37 states and three Canadian provinces. BayMark claims to be the most important supplier of opioid use dysfunction remedy within the U.S.

Similar to Discovery, BayMark has made a slew of acquisitions lately. These acquisitions embrace SUD supplier Fritz Clinics, digital SUD supplier Kaden Health, outpatient SUD supplier Lucina Treatment Centers, outpatient psychological well being supplier Mahajan Therapeutics, residential remedy supplier Pathfinders Recovery Centers, Emerald Isle Health and Recovery, and San Antonio Recovery Center.

Webster’s most up-to-date behavioral well being funding is psychological well being service supplier Oceans Healthcare. The Texas-based supplier has 33 places, made up of 23 inpatient hospital campuses and 20 intensive outpatient packages.

Behavioral Health Business

It’s not merely about what Webster has already finished that makes it a PE agency to observe heading into 2023. It’s additionally about what the agency might do subsequent – and what it’s uniquely positioned to perform.

Webster, for instance, has additionally saved its eye on the mental and developmental incapacity (IDD) house, with Webster accomplice Todd Rudsenske talking in regards to the subject at BHB’s INVEST. Specifically, Rudsenske mentioned there might be a possibility to assist present each behavioral well being and bodily well being help to people with IDD.

“If you can begin to help drive behavior change, maybe more exercise, different diets,” Rudsenske mentioned. “That’s not something that’s historically been the purview of the IDD sector. I think working with payers, you can begin to build those programs, or you’re going to have a healthier population. That may mean more of an opportunity for greater economic performance for these businesses.”

Discovery, Baymark and Oceans are all actively rising their footprint and attain. This broadens Webster’s market share of the behavioral well being sector. With two of the most important suppliers within the house, we’re significantly watching how its portfolio corporations might be shaping the way forward for habit care.

Other attention-grabbing Webster portfolio corporations embrace Bristol Hospice within the end-of-life care area.

Thurston Group’s platform focus

Health care-focused non-public fairness agency the Thurston Group made a splash within the behavioral well being house when it teamed up with outpatient psychological well being supplier Advanced Recovery Concepts to type a brand new psychological well being platform known as ARC Health in 2021.

Ohio-based ARC gives digital, inpatient and outpatient psychological well being. It focuses on treating sufferers in a holistic means and gives Transcranial Magnetic Stimulation (TMS) and Electroconvulsive Therapy (ECT) in addition to conventional care.

The Thurston Group caught our consideration due to the pace by which ARC is shopping for new corporations. In 2022 alone, the corporate acquired psychological well being remedy follow Lotus Consulting, Focus Forward Counseling & Consulting Inc., Relationship Therapy Center, The Ross Center, Sasco River Center and Southeast Psych.

We might be watching the Thurston Group to see if it continues to make investments within the house. Additionally, we might be maintaining a tally of portfolio firm ARC to see if it continues its M&A frenzy into the brand new yr.

Thurston’s different investments embrace a number of dental well being corporations, Options Medical Weight Loss and several other different companies.

Shore Capital’s regular behavioral well being enlargement

When it involves the autism and pediatric psychological well being areas, BHB is carefully watching Shore Capital. The Chicago and Nashville agency has raised roughly $1.3 billion in capital for well being care companies since 2009, in line with its web site.

Shore invested in autism and behavioral well being supplier The Stepping Stones Group in 2014. Nearly 4 years after the acquisition, Shore bought the supplier to fellow non-public fairness agency Five Arrows Capital Partners. The phrases of the deal weren’t disclosed.

Shore has continued to make investments within the IDD and autism sector. In 2017, the corporate bought Behavioral Innovations. The Dallas, Texas, supplier gives ABA, speech remedy, and occupational remedy to kids with autism and different developmental disabilities.

The autism and IDD house is a reasonably “recession proof industry”, in line with John Hennegan​, a accomplice at Shore Capital. The agency expects that demand for these companies will stay pretty excessive, making them considerably of a secure wager.

“I’d say despite all of the growth and proliferation of ABA providers, we still see a supply-demand imbalance,” Hennegan mentioned at BHB’s INVEST. “Behavioral Innovations has 74 sites today across Texas, Oklahoma and Colorado. Almost every one of those sites has a waiting list today for people that are looking for care. … Regardless of debt markets, stock markets and so forth, I think there’s going to be high demand for the service.”

Shore has additionally expanded past autism companies and presently has two energetic substance use dysfunction corporations in its portfolio. In 2017, it bought Cininnati, Ohio-based BrightView. The outpatient psychological well being supplier treats upwards of 20,000 sufferers and has 97 websites throughout a number of states.

BrightView has been an energetic purchaser within the SUD house. Last yr, BrightView bought SUD suppliers Right Path and Aspire, for example.

In 2020, Shore invested in Boston-based habit remedy supplier Column Health. Since then, BrightView acquired Column Health, which gave the previous 11 places in Massachusetts and one in Connecticut.

We’re watching Shore as a result of we’ve seen the agency slowly develop its behavioral well being investments during the last decade. The agency has additionally begun to make bets in two key areas of behavioral well being: autism and SUD. We’re significantly to see if BrightView will proceed to develop its SUD footprint via further M&A.

Health Enterprise Partners charting new territory

New York-based Health Enterprise Partners (HEP) has a various behavioral well being portfolio. HEP specializes within the decrease middle-market house.

In 2007, HEP jumped into the psychological well being area by investing in Nashville-based Behavioral Health Centers of America (BCA). The supplier gives inpatient and outpatient psychiatric care. HEP sold the company to Acadia Healthcare (Nasdaq: ACHC), one of many largest psychological well being suppliers within the U.S, in December 2012.

HEP co-led a development capital funding in psychological well being supplier CenterPointe Behavioral Health Systems in 2015. The operator has psychiatric hospitals, outpatient behavioral well being packages and different psychiatric speciality packages.

Earlier this yr, HEP introduced that Acadia had additionally bought the CenterPointe Behavioral Health Systems.

In 2021, HEP invested in fast-growing at-home habit remedy firm Aware Recovery. The SUD remedy operator is presently serving sufferers in 10 states, with plans to launch in two extra states. Since the funding, Aware has been shortly trying to scale its enterprise and has been shaking up its C-suite. Over the final yr, the corporate has introduced a brand new CEO, chief authorized officer, chief individuals officer and chief data officer.

HEP moved onto its subsequent behavioral well being acquisition in April when it introduced its funding in Proven Behavior Solutions, an autism remedy firm. The Norwell, Massachusetts-based supplier gives ABA remedy, speech-language remedy, occupation remedy and particular schooling advocacy companies.

We’re thinking about HEP not solely as a result of it has been an energetic investor within the behavioral well being sector for nicely over a decade, but additionally as a result of it seems to be increasing its scope inside the behavioral well being house. Its first two investments have been firmly within the psychological well being sector, however its most up-to-date investments expanded into SUD remedy and autism companies.

We’re additionally thinking about its gross sales historical past with one of many largest suppliers within the U.S., Acadia. Proven Behavior Solutions is, maybe, slightly too exterior of Acadia’s scope of take care of an acquisition. However, Acadia has more and more turned its consideration to the SUD house.

Revelstoke ramping up

Denver, Colorado-based Revelstoke has taken an energetic strategy to rising its behavioral well being portfolio within the final yr.

In 2014, Revelstoke invested in Crossroads Treatment Centers. The agency co-lead the recapitalization of the SUD supplier in 2022. Crossroads has 115 places in 10 states. Its companies embrace MAT, in-person care, telehealth care, laboratory companies, and intensive care coordination companies.

Revelstoke expanded into consuming dysfunction remedy with the acquisition of Monte Nido & Affiliates in August. Monte Nido is definitely one of many largest consuming dysfunction remedy suppliers within the U.S. It has 5 manufacturers and 45 amenities in 15 states.

“The increase in demand for eating disorder services continues to accelerate along with our nation’s overall mental health care needs,” Andrew Welch, accomplice at Revelstoke, mentioned in an announcement on the time of the acquisition. “By providing the necessary capital, resources and expertise, Revelstoke will help accelerate the Company’s mission of providing high-quality eating disorder treatments to communities across the nation.”

We’re watching Revelstoke due to its current funding historical past. We’re particularly to see how Monte Nido’s subsequent strikes can form the way forward for consuming dysfunction remedy facilities, which remains to be very a lot a growing trade.

A crowded subject

These seven non-public fairness teams aren’t the one corporations energetic in behavioral well being – removed from it. Other traders to control embrace Northwood Healthcare Partners, Thomas H. Lee Partners, Linden Capital, TPG Capital and so many others.

It’s too early to say whether or not 2023 will finally maintain a candle to the record-setting motion in 2021 and 2022, however one factor is for certain: the urge for food of PE traders stays sturdy.

“While economic and geopolitical uncertainties have created headwinds, they’re also generating opportunities,” the PwC report defined. “A reset in valuations, the availability of capital and the increased competitiveness from corporates should provide openings for dealmakers in the year ahead.”