Private investment in behavioral health has become a topic of skepticism and concern due to a number of scandals and failures over the years. This growing distrust has had a significant impact on behavioral health transactions, leading to a need for strategies to counteract investor bias during the sale process.
Tommy Spiegel, vice president at investment bank Provident Healthcare Partners, acknowledges the existence of anti-private equity bias in the industry. He emphasizes that while there are good and bad players in any business, most of the groups they work with are reputable. Spiegel also notes that independent groups, regardless of their tax or ownership status, can face challenges and have issues.
Despite the need for organizations to be profitable in order to sustain their mission, profit-bashing sentiment often overlooks the personal and intimate nature of behavioral health. Maintaining clinical quality is crucial for the success of behavioral health organizations, as poor quality care can have detrimental effects on both patients and the organization’s reputation.
One example of a successful behavioral health provider is Sweester, which generated $55 million in 2024 while providing essential behavioral health services to adults and families. CEO Jayne Van Bramer emphasizes the importance of balancing financial sustainability with the organization’s mission.
Patrick Maynard, CEO of I Am Boundless, highlights the necessity of financial resources for fulfilling the mission of a behavioral health organization. He stresses that quality care is essential for long-term success in the industry.
ARC Health, a provider of outpatient mental health services backed by The Thurston Group, focuses on quality care and acquiring practices to drive growth. CEO Vince Morra emphasizes the importance of maintaining high standards of care to attract new providers and partners.
The loss of charismatic founders
One challenge faced by behavioral health organizations during transitions is the departure of key leaders, such as founders or popular managers. This can lead to disruptions in patient care, changes in culture, and uncertainty among staff. To mitigate these challenges, it’s essential to get a commitment from selling founders to remain involved post-close.
ARC Health focuses on working with clinician entrepreneurs and establishing infrastructure to help acquired practices scale up. The company retains acquired firms’ brands and offers founder equity rollovers to ensure continuity and autonomy at the local level.
The power of providers
Private investment in behavioral health has been driven by both clinicians and business-minded founders seeking growth opportunities. Providers play a crucial role in shaping the future of behavioral health organizations and have the power to drive positive change in the industry.
Investors looking to make deals in the behavioral health sector face a unique challenge – convincing founders and owners to give up their stake in their enterprises. This task requires a compelling case to be made, as many organizations may not be interested in merging or selling, unless they find the right investor.
According to industry experts like Morra and Spiegel, the motives and capabilities of investors play a crucial role in determining the success of such deals. Just being a good firm with the right intentions in behavioral health investment does not guarantee success. The ability to run a business effectively and understand its unique challenges is equally important.
Behavioral health organizations vary in scale and specialty, and the same applies to investors. Smaller private equity firms with $500 million in assets under management are often more flexible and specialized in their approach. They have actual partners making decisions, which may not be the case with larger firms.
One key consideration for sellers is ensuring that providers feel valued and motivated to continue working post-close. Ultimately, the quality of the provider and the patient experience are what drive perceptions of quality in behavioral health services. The culture and approach of the private equity group can also play a significant role in shaping the overall patient experience.
In conclusion, successful deals in the behavioral health sector require a careful balance of financial considerations, operational expertise, and a focus on patient care. Investors must understand the unique challenges of the sector and be able to work collaboratively with founders and owners to create a successful partnership that benefits all stakeholders involved.
