Pediatric Behavioral Health Services M&A Update – January 2024

Demand Surplus For Sector Services Bolsters Pediatric Behavioral Health M&A

Capstone’s latest Pediatric Behavioral Health Services M&A Update reports that merger and acquisition (M&A) activity in the sector moderated slightly year-over-year (YOY), outpacing the broader M&A market. The increased need for special education-related and mental health services has coincided with acute shortages of clinicians such as speech language pathologists (SLPs) and board certified behavior analysts (BCBAs).

As the pediatric mental health crisis worsens, parents and school administrators have recognized the importance of delivering mental health services in school-based settings. However, schools lack the needed expertise and access to clinicians to develop effective programs. School districts struggling to provide the necessary support to students under the Individuals with Disabilities Education Act (IDEA) have increasingly turned to outsourced providers to deliver allied health, behavioral health, and now mental health services. The shortage of SLPs and BCBAs in the U.S. has largely been due to the limited number of openings in graduate programs, and the increased need for licensed professionals as the scope of practice widens and the autism rate grows. Employment for SLPs in particular is projected to grow 19% between 2022 and 2032, according to the U.S. Bureau of Labor Statistics. Additionally, demand for BCBAs has been outpacing supply. Currently, there are 66,339 BCBA certifications in the U.S. as of 2023, while at the same time there were 57,569 BCBA job postings in 2022 alone, according to the Behavior Analysts Certification Board.

Deal volume softened in the Pediatric Behavioral Health Services sector with 49 transactions announced or completed through 2023, following a more robust M&A environment in 2022. This marks a 14% decrease over the prior year, which compared favorably to the 25.2% YOY decline in the broader M&A market, according to Capstone Partners’ Q3 2023 Capital Markets Update. Deal volume was primarily driven by private equity add-on acquisitions, accounting for 65.3% of total transactions for 2023. However, platform investments from sponsors fell to 4.1% of deal volume through full-year 2023, compared to 17.5% of deal volume through full-year 2022. Private equity transaction activity in general slowed in 2023, as a weaker valuation environment forced firms to hold onto portfolio companies while more expensive debt limited sponsors’ appetite for new platform acquisitions.

Buyers showed a strong appetite for sector players that maintained financial performance through 2023, many of which were focused on offering school-based and mental health related services. For clinic and home-based autism service providers, labor challenges and stagnant payor rates forced sponsors to prioritize operational improvements alongside organic growth. In some cases, market participants have prioritized school-based services over clinic and home-based care models.

Also included in this report:

• A breakdown of notable pediatric mental and behavioral health M&A transactions from 2023.
• Statistics highlighting the increased demand for school-based services from parents, and the rising rate of students who require them.
• Capstone’s network of relationships and buyer universe for the Pediatric Behavioral Health Services sector.