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July 8, 2020

Private Equity’s Emerging Interest in Psychology & Psychiatry Practices

MHT Partners  | Healthcare Investment Bank

Private equity investment in psychology and psychiatry practices has accelerated in recent years. Investors with a track record for partnering with behavioral healthcare companies, as well as generalist funds, have ramped interest up quickly in psych specialties. Numerous attributes of psychology and psychiatry practices align with private equity’s interests and experience, and recent M&A in the space suggests that market opportunities exist for the first-movers who can build large platforms for providing care nationwide. Furthermore, the ability to deliver care via telemedicine (telepsych) means psychology and psychiatry practices have been impacted far less than most specialties, and by some measures have even improved, during the COVID-19 pandemic.

Investors have long been active acquirers of behavioral health companies and service providers, but financial sponsors have accelerated the pace of investment in psychology and psychiatry due to a number of converging factors:

  1. Private equity’s access to financial capital enables consolidation of the fragmented industry as it exists today. Many independent psychology and psychiatry companies are small, composed of fewer than a dozen professionals. Investors looking to acquire or “roll up” a number of small practices stand to benefit from significant increases in efficiencies that accompany greater scale, as well as lower costs. For providers, that often means more time focused on patient care and less time addressing the administrative minutiae of running an independent practice.
  2. There is an enormous market, as well as an unmet need, for mental health treatment in the U.S. Nearly every adult stands to benefit from some form of psychology or psychiatry treatment at some point in his/her life, and the industry has grown at a rate of more than 5% annually in recent years to over $18.9 billion in 2019. Significant growth in demand for services has outstripped supply, and in 2019 there was approximately only one licensed psychologist or board-certified psychiatrist for every 3,300 people in the U.S. Many psych professionals expect the COVID-19 pandemic to exacerbate this trend, as adverse effects on individuals’ social, economic, and physical wellbeing portend additional mental health diagnoses. (American Psychiatric Association, WHO.)
  3. Technological and regulatory improvements are rapidly expanding access to care. The ability to deliver care via telemedicine and fewer regulatory hurdles imposed by CMS and private insurers means that psychology and psychiatry services are available like never before to individuals that cannot travel to a provider’s office for medical or logistical reasons.

TPG Capital’s acquisition of LifeStance Health (joining existing investors’ Summit Partners and Silversmith Capital Partners) is illustrative of recent transaction activity in the sector, and Refresh Mental Health, backed by Lindsay Goldberg, has announced that it will be exploring transaction options as well. In the vast middle market, platforms such as New Harbor Capital’s Community Psychiatry Management represent regional platforms with significant opportunities for growth.

MHT Partners’ healthcare investment banking services represent founders, owners, and entrepreneurs undergoing M&A transactions. If you would like to learn more about MHT’s experience, please e-mail Taylor Curtis (tcurtis@mhtpartners.com) or Alex Sauter (asauter@mhtpartners.com).

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