Behavioral Health Private Equity | PGP

Private Equity Investment in Behavioral Health Practices

Overview

Driven by regulatory efforts, market forces, and continuing structural changes, growth and consolidation has dominated U.S. health care for more than a decade. 

All sectors of the health care market are experiencing investment and consolidation to some degree, with many large superregional and national investment platforms being established. However, behavioral health has only very recently begun to see significant private equity investment interest.

Because the behavioral health sector is incredibly diverse in services and delivery models, prior to 2019 there was only a tentative focus on building up the kind of platforms that have become the norm in medical specialties from eye care to dermatology. However, the national changes wrought by the pandemic increased the need for behavioral health services while reducing stigma and popularizing new delivery models online. 

The scope of care in this specialty is exceptionally broad, covering mental health, addiction and autism treatment, care for developmental disabilities, and inpatient psychiatry. There are several addiction and autism treatment platforms operating as of Fall 2022. By contrast, fewer mental health and counseling platforms have been created. All told, more than 40 private equity-backed platforms have been created to focus investment and consolidate operations. 

Private equity firms are looking to create value through revenue and cost efficiencies driven by increased scale, expansion of services, operational efficiencies and negotiating enhanced reimbursement rates with commercial payors. In July and August of 2022 alone there were 14 different transactions completed in the behavioral health space. Physician Growth Partners handled two of these. Business owners in the behavioral health space are uniquely positioned to capitalize on this increased activity to achieve an attractive partnership with a strategic acquirer or by forming a new platform with a private equity partner.

Michael Kroin and Ezra Simons founded Physician Growth Partners (PGP) in 2017 to proactively advise and advocate for medical practice groups exploring a sale to PE investors. Behavioral health practices that partner with private equity can scale their operations to better compete with larger competitors while unlocking new growth opportunities, maintaining clinical excellence, and ensuring that providers retain ownership, which is the key to autonomy.

Our team has successfully guided several behavioral health practices through the private equity process. There are several steps that we take to ensure successful outcomes for our clients, these include:

  • Develop the appropriate financial modeling to position maximized cash flow and “credit” for ongoing initiatives that are driving growth
  • Determine the right mix of potential buyers (including both strategic acquirers and private equity groups) and implement a strategy to reach them
  • Managing buyer marketing, bid solicitation, and negotiation
  • Position the client to meet relevant potential buyers with strong offers that address cultural fit, strategy, and alignment
  • Manage the transaction process to maximize leverage with potential buyers
  • Negotiate key economic and structural deal terms, leveraging PGP experience within the behavioral health specialties
  • Facilitate all due-diligence pre-closing to ensure a seamless process that does not take away from the day-to-day business while ensuring the highest probability for a successful close
  • Maximize financial results for shareholders while maintaining clinical autonomy

Recent Relevant Transactions

Client Testimonial

We were lucky to find Ezra Simons and the PGP team. The value they added to our process was significant and we would not have been able to achieve this without them. PGP managed a complicated process with strong attention to detail and focus on timeliness. They helped us achieve our goals to partner with a like-minded organization that would both suit our current needs and bring us to the next level.

Dr. Greta Hirsch

The Ross Center

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