Expert Insights in M&A: Behavioral Health Practice

Volume 10, Issue 25, December 5, 2023

We recently co-hosted a webinar with Behavioral Health Business during which we discussed exit planning and opportunities for owners and executives in the behavioral health space who may be thinking of or starting to plan an exit strategy from their business (i.e., sell their business). The webinar aimed to provide strategic insights into the behavioral health industry's acquisition landscape, covering diverse topics such as private equity models, positive aspects of behavioral health businesses, and building successful partnerships. The program featured Aly Champsi, managing director at DW Healthcare Partners, and Jenna Whigham, president of Abound Health. Jack Turgeon, senior consultant with VERTESS, served as moderator for the webinar.

The webinar recording can be accessed here.

Key topics covered during the program included the following: 

• Buyer profiles and deal structures. We discussed the opportunities that exist for sellers from private equity, strategic buyers, and search funds along with the different deal structures and support models for each buyer type.  
• Successful buyer partnerships. We explained the importance of building successful partnerships between investors and business owners which allow existing management to continue running and growing the business while leveraging support from the investor.  
• Attractive acquisition targets and red flags. We answered common questions, such as the following: What are buyers looking for in an attractive business they are willing to consider purchasing? Why are buyers increasingly investing in behavioral health companies? What are some areas of concern or red flags they look for in businesses they are targeting? How can a seller get the maximum value on the sale of their business? 
• Trends in the industry. Among the trends we discussed were the growing demand for services related to autism and developmental disabilities, and opportunities in eating disorder and addiction treatment clinics.  
• Industry challenges. Challenges covered include those with insurance companies, preauthorization, and efficient billing and revenue collection.

Champsi kicked off the program, emphasizing the importance of understanding the private equity model and the role of existing management in business growth. He highlighted the need for DW Healthcare Partners to acquaint itself with acquired companies and enable the current management to sustain and develop the business. Champsi also addressed concerns from healthcare business owners, discussing perceptions of private equity in the industry. 

In the second segment, Whigham shared insights into her company's history, mission, and strategic growth through acquisitions. She discussed Abound's focus on acquiring provider agencies, leveraging software for operational efficiency, and navigating billing challenges. Whigham elaborated on Abound's expectations for acquired businesses, criteria for potential targets, and flexibility in deal structuring. 

Throughout the webinar, the panelists underscored the importance to their organizations of identifying high-quality businesses in the behavioral health sector for possible investment and acquisition. Emphasis was placed on the necessity for businesses to commit to compliance and deliver high-quality services. The speakers advocated for thorough due diligence, including background checks on partners, regulatory compliance assessment, and careful evaluation of stability in group home settings. 

Regarding business valuation, potential red flags like compliance issues and client churn were highlighted as critical considerations in the acquisition evaluation process, as was the common challenge of maintaining a full complement of staff while managing overhead.  

In summary, the webinar delivered valuable insights into the behavioral health industry's acquisition landscape, covering private equity, positive aspects of the business, industry trends, challenges with insurance, and specific areas of interest like eating disorder and addiction treatment clinics. The practical advice offered is particularly beneficial for business owners contemplating the eventual exit of their businesses.

How to Value Your Behavioral Health Business? 

A question attendees may be asking themselves after watching the webinar is: "What is my behavioral health business worth?" It's a complicated question, with a unique answer for every business VERTESS works with. 

As a healthcare-focused M+A firm, we at VERTESS help owners understand the expected value of their business if they are to bring their company to market. A great way to gain a better understanding of your business's value is to reach out to us directly using our contact information below. We look forward to hearing from you. rs to increase spending on new systems, new technology and upgrades to existing IT systems.

What This Means for Healthcare IT Firms

A rapidly growing market, obviously, means opportunity for growth. However, history shows that such markets often outpace the ability of companies to grow their business organically. Because of this there will be a flurry of mergers and acquisitions in the IT healthcare segment in 2017 and beyond.

Indeed, some of that activity has already manifested itself as forward-looking healthcare IT firms position for the oncoming changes. Notable Healthcare IT transactions in 2016 include:

IBM Watson Health’s acquisition of Truven Health Analytics, GI Partners’ acquisition of Netsmart Technologies, Veritas Capital Partners’ announced acquisition of Verisk Health, and ResMed’s announced acquisition of Brightree—transactions that, in total, comprise over $1 billion each. Many of these firms will be on full display in Orlando, Florida, during the upcoming HIMSS conference - www.himssconference.org

What this means to you is that there’s never been a better time to sell your healthcare IT firm because the feeding frenzy is already starting. However, if you want to get the best price for your firm, you’ll still need expert advice to maximize your offers.

Similarly, and a bit ironically, there’s never been a better time to expand by acquisition. Yes, it’s a seller’s market, but there is so much potential growth in the IT segment that it will be almost impossible to grow organically and keep up with the market.

Thus, if you want to maintain market share, you’ll need to think M&A. In that case, it’s EVEN MORE crucial to get expert advice during negotiations because otherwise you’ll end up spending more than necessary to acquire a new asset. You need somebody in your corner who “knows all the tricks” as they say.

Whichever strategy you’re pursuing, I can promise you this: hang onto your hats people, because it’s going to be one hell of an exciting ride.