Behavioral Health Care M&A Deals Decline Amid Construction-Related Inflation, Fed Rate Increases


Market conditions that include rising borrowing costs and increasing construction-related expenses have led those engaged in behavioral healthcare M&A deals to employ various growth and expansion strategies.

Shane Harmon, senior director, behavioral health at Blueprint – Healthcare Real Estate Advisors, is a broker who has had to go well beyond reliance on the typical M&A approach to business.

“I would say since Blueprint started their behavioral division, in July of last year, we’ve done 12 transactions [worth] $80 million,” Harmon said.


The deals include eight real estate conversions, three sale leasebacks and one business sale. The firm is also working on three other sales.

“I’ve got a business, I’ve got contracts for all the insurance payers, I have clinical staff that is well trained, and they have protocols that have been developed, and so I could just take that model and put it in a different location and try and do it there,” Harmon said. “So, the growth really becomes strategic on where the holes need to be filled in. To the extent that somebody is not doing a business transaction, but they are growing organically, there are ways of doing that without debt, especially if you own the property. You could do it with the sale leaseback.”

Cornerstone Companies, Inc. is a real estate developer, advisor and investor working with healthcare providers considering options that include ground-up development, redevelopment of existing assets and leasing from third parties.

“A new ground-up development can allow for a higher-quality, newer, vintage building with optimal design for the groups’ needs,” said Ted Baker, senior vice president of investments at Cornerstone Companies. “Redevelopment of an existing asset can create speed to market while maintaining control of the asset. Redevelopment does have its limitations from a design standpoint, and in many cases can be equally as costly as ground-up development. Leasing from a third-party landlord produces the least risk from an execution standpoint but can leave the tenant with less control in the future, depending on the terms of the lease. With many of our clients investing in the properties themselves, the decision is a balance of risk, investment opportunity and how the projected rents will impact margins.”

The Federal Reserve’s impact on Behavioral HealthCare M&A deals

Economists at Wall Street banks estimated that steep losses in the stock and bond markets during recent months will have a depressive effect on the economy equal to the impact of three or four quarter-point rate hikes by the Federal Reserve, according to the Associated Press.

Though the Fed has raised its benchmark rate to a 22-year high, it hasn’t boosted borrowing costs since July and left the rate unchanged on Nov. 1. The yield on the 10-year Treasury note rose to 5% in late October, a level not reached in 16 years. The surge in Treasury yields has raised the cost of many types of business capital.

Tax-related considerations may be an element of the decision-making process and can be part of moving industry professionals away from the buy vs. build option.

“Leasing is often an attractive option for behavioral health operators since so many are for-profit and lack tax-exempt options common to general healthcare, which is heavily weighted to non-profits,” said Jay Johnson, U.S. practice leader, healthcare markets at JLL. “Costs for new construction are high and above replacement costs in most cases, which is driving interest in leasing.”

Since March 2022, the Federal Reserve has raised its key rate from near zero to roughly 5.4% while fighting inflation, which reached a four-decade high as the economy moved out of the COVID-19 recession in 2020. Annual inflation, as measured by the government’s consumer price index, has sunk from a 9.1% peak in June of last year to 3.7%.

“Recent volumes are off due largely to the rise in interest rates,” Johnson said. “Underlying patient demand for behavioral health and reimbursement rates have both been increasing and the costs to build new are currently considerably higher than the costs to convert other facility types.”

All of this is taking place against the backdrop of a severe crash in deal volume this year throughout the behavioral healthcare sector, based on transactions reported in the LevinPro HC database.

There were 64 behavioral healthcare deals in 2023 through Oct. 29. This compares with 94 deals in the sector through the same day in 2022 for a drop of 32%.

The 64 transactions this year represent a 50% decline compared with the 128 deals in the sector during the full year of 2021, and are 43% below the 112 transactions in all of 2022.

The ‘Office’ Category

“I would attribute the decline in deal volume to what we are seeing in the medical office market,” Baker said. “The velocity of interest-rate increases created a large spread between what buyers can model and seller expectations. Additionally, lenders have significantly slowed new originations, and terms for new deals are much tighter than before. It is difficult to align terms that hit a strike price for a seller and allow for the buyer to provide appropriate risk-adjusted returns to investors.

“Lenders and interest rates have had a meaningful impact on the market over the last 18 months. We will likely continue to see less availability for the next six to 12 months. Lenders seem to be carefully monitoring deployment of capital into real estate, with medical real estate often getting lumped into the ‘office’ category, making it even harder to secure attractive debt.”

The deal falloff this year in the medical office segment is not as severe as the drop in the behavioral healthcare sector.

There were 174 Medical Office Building deals in 2023 through Oct. 29. This compares with 179 deals in the sector through the same day in 2022 for a drop of 3%. The 174 transactions this year represent an 18% decline compared with the 213 deals during the full year of 2022.

Total M&A deal volume in all segments this year reached 1,793 transactions through Oct. 29. The total reached 2,074 through the same day in 2022, representing a 14% decline. The deal total for all of 2022 was 2,442.

The top six behavioral healthcare M&A deals in 2022 were larger than the No. 1 deal posted thus far in 2023.

It was the $44 million acquisition by an undisclosed buyer of a 176-bed inpatient behavioral health hospital in New York state on March 6, 2023. Meridian Capital Group brokered the sale of the facility.

Other notable behavioral healthcare deals so far this year have included:

  • The $29.9 million purchase by the Washington State Department of Social and Health Services of the Cascade Behavioral Health Hospital, a 118-bed facility in Tacoma, Washington, that closed in July citing “Covid and other complexities” that made operating unsustainable. To boost its supply of beds and relieve stress at other state facilities, the state was set to take possession of the building on Aug. 15 with plans to bring civilly committed patients from state hospitals there in the near future, following upgrades and renovations.
  • The purchase of a 150-bed inpatient behavioral health hospital in California by an undisclosed buyer on March 6, 2023, for $9.6 million. Meridian Capital Group arranged $9.6 million in acquisition financing.
  • Real estate investment firm Sanders Capital Partners’ purchase on Oct. 9, 2023, of the Pima Transitional Living Facility in Tucson, Arizona, for $8.4 million. The 14,506-square-foot inpatient behavioral health facility is operated by America’s Rehab Campuses (ARC), an Arizona-based behavioral healthcare provider. ARC provides clinicians and therapists who specialize in addiction treatment services, such as medical detox and inpatient residential rehab.
  • Emyria Ltd.’s $1,152,515 purchase on July 3, 2023, of The Pax Centre, an Australian multidisciplinary psychological trauma care service that serves more than 4,000 clients. Emyria Ltd. is a clinical-stage biotech company that engages in the development of treatments for unmet medical needs. Both organizations are based in West Leederville, Australia.

Nine-Figure Transactions

Five of the top six behavioral healthcare M&A deals transactions in 2022 were nine-figure deals. They included:



  • Boston-based Charlesbank Capital Partners’ $840 million purchase of Action Behavior Centers, which provides applied behavior analysis (ABA) therapy services for children on the autism spectrum through its numerous clinics across Texas. The company has more than $60 million in projected annual adjusted earnings. NexPhase Capital was the seller. Charlesbank Capital Partners is a middle-market private investment firm managing more than $7 billion of capital. The deal was announced on Aug. 17, 2022.
  • Denver-based Revelstoke Capital Partners’ $725 million purchase of Miami-based Monte Nido & Affiliates, which specializes in the treatment of eating disorders and includes five clinical programs: Monte Nido; Walden Behavioral Care; Clementine; Oliver-Pyatt Centers; and Rosewood Centers for Eating Disorders. Levine Leichtman Capital Partners was the seller. Revelstoke Capital Partners is a private equity firm specializing in the healthcare and business services sectors. Revelstoke has approximately $4.8 billion of assets under management. The transaction was announced on July 26, 2022.
  • Ei.Ventures Inc.’s acquisition of Mycotopia Therapies Inc. on May 20, 2022, for $383 million. Miami-based Mycotopia Therapies is focused on the research, development and commercialization of novel therapeutics based on naturally derived psilocybin. The company offers psychedelic-enhanced psychotherapy, integrated with a professional team of mental wellness practitioners and cutting-edge technology. Ei.Ventures is an early-stage tech company empowering mental wellness through psychoactive compounds, nutraceuticals and technology.
  • Numinus Wellness Inc.’s purchase of Novamind Inc. on April 12, 2022, for approximately $CAD 26.2 million, or $19.4 million USD. Toronto-based Novamind is a provider of psychedelic medicine. It practices holistic psychiatry, conducting diagnostic investigations while offering clients personalized treatment plans that leverage a range of innovative treatment modalities. Numinus has a dealer’s license that allows the company to test, possess, buy and sell MDMA, psilocybin, psilocin, DMT and mescaline, as well as produce and extract psilocybin from mushrooms. The combined company will operate 13 wellness clinics.
  • Acadia Healthcare Company, Inc.’s acquisition of CenterPointe Behavioral Health System for $139 million on Jan. 3, 2022. Acadia is a provider of behavioral healthcare services across the U.S. It operates a network of 242 behavioral healthcare facilities with approximately 10,800 beds in 40 states and Puerto Rico. The acquired assets consist of four inpatient hospitals with 260 acute care beds, 46 specialty beds for substance use and 10 outpatient locations.
  • Kelly Services, Inc.’s purchase of Conshohocken, Pennsylvania-based Pediatric Therapeutic Services on May 3, 2022, for $82.1 million. Pediatric Therapeutic Services provides state and federally mandated in-school therapy services including occupational therapy, physical therapy, speech-language pathology as well as mental and behavioral health services. Kelly Services is an office staffing company that operates globally.

The Substance Use Disorder sub-sector has been leading behavioral healthcare M&A deals since 2020. Substance Use Disorder transactions have outnumbered Counseling deals 17-15 so far this year. The margin was 45-17 in 2022. Substance Use Disorder was No. 1 in 2021 with 50 deals, followed by Autism (19), Intellectual/Developmental Disability (17), Counseling (15) and Psychiatric/Clinical Care (10). Substance Use Disorder beat Autism in the transaction total 26-14 in 2020.

Despite the downward deal trend taking place in 2023, there is no shortage of optimism regarding the future of behavioral healthcare M&A deals. “More people are recognizing the importance of mental health and seeking the help they need,” Johnson said. “Insurance plans are catching up, as more and more of them are starting to cover mental health and behavioral health services. It’s clear that the demand for behavioral health services is soaring, and the systems in place to support this demand are growing.”

Glenn Kalinoski is a health care analyst at Levin Associates.


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