Private equity investors are gearing up for a potential resurgence in the behavioral health dealmaking landscape in 2025. After a sluggish period over the past two years, driven by rising interest rates and market uncertainties, private equity firms are now eyeing opportunities to jump back into the game.
According to Dexter Braff, president of M&A advisory firm The Braff Group, 2025 is poised to be a strong year for dealmaking in the behavioral health sector. While it may not reach the record-breaking levels of 2021, it is expected to be the second-best year in the last decade. The optimism stems from a combination of factors, including lower interest rates and limited partners looking to capitalize on their investments.
In 2021, private equity investors took advantage of cheap money, leading to a surge in deal volume. Valuations skyrocketed, with starting lines reaching approximately 10 times EBITDA earnings. However, the market took a hit in 2022 as inflation peaked and the Federal Reserve began to increase interest rates sharply, causing private equity to retreat.
As a result, PE’s unspent capital began to accumulate, with platform deals sliding and a significant portion of dry powder aging beyond four years. This trend has frustrated limited partners who have been waiting for returns for the past few years.
To meet the expectations of their limited partners, private equity firms are now under pressure to re-enter the market and make strategic investments. The urgency to buy quickly is driven by the need to generate returns and avoid further delays in building value.
Private equity plays a significant role in the behavioral health industry, accounting for a substantial percentage of deals in recent years. While most segments within behavioral health have begun to rebound from the 2023 slump, the substance use disorder industry continues to lag behind.
Overall, 2025 is shaping up to be a pivotal year for behavioral health dealmaking, with private equity investors poised to make a significant impact on the market. The rush to capitalize on opportunities and drive growth in the sector is expected to result in a flurry of activity and strategic acquisitions throughout the year.
