The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in the behavioral health sector. It is authored by our colleagues Cindy Lu and Anna Timmerman.


Behavioral Health Investments: 5 Key Points

By Cindy Lu and Anna Timmerman

An increase in the diagnosis of autism and intellectual/developmental disabilities, paired with public awareness and a growing willingness of those affected to seek treatment, has created many opportunities for investment and growth in the behavioral health sector, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22, 2018.

Experts on the panel included C. Russell Bryan, Managing Director and Partner at Brookwood Associates; Mitchell A. Davidson, Managing Director at Post Capital Partners LLC; Steven Goldsmith, Managing Director at Sterling National Bank; and Tom Schramski, PhD, CMAA, President and Managing Partner at Vertess Advisors LLC.

Five of the key topics discussed were as follows:

1. Seller Motivation. Currently, the autism and intellectual/developmental disabilities sector is fragmented with few large platforms. Many sellers began their business motivated by a passion for the industry—to help family members or a desire to take care of children—not to deal with administrative burdens or to necessarily capitalize on affected individuals by building a business with sale in mind. These operators generally have low EBITDA and do not necessarily have the investment capital needed to sustain themselves or grow with respect to technology, labor, administration, etc. As such, these sellers may need help building value and could benefit from an investor’s experience.

2. Organic Growth. The infrastructure for organic growth of an autism business starts with recruiting and retaining talented board certified behavioral analysts (BCBAs). Other ways to promote organic growth include providing adequate support to BCBAs, obtaining good contracts for the provision of services (e.g., with school districts, etc.), and diversifying funding sources, including by reaching out to the advocacy community which is well informed about autism treatment and in a position to recommend particular treatment providers to those seeking assistance. Businesses should also look to contain turnover within the paraprofessional segment. Most paraprofessionals are younger workers who are performing a demanding job, which often leads to high turnover. Businesses may look to manage such turnover by providing training opportunities and trying to develop the job into a career for individuals.

3. Inorganic Growth. As noted, this is a highly fragmented space with few providers of scale, and inorganic growth by add-ons may require acquiring many individual providers. Many providers have lower revenues are comprised mostly of BCBAs or other clinician owners, and are not capitalized or structured for scale.

4. Technology. Technology is a considerable opportunity for investors. There is very little technology in this market that is provider and consumer facing, but the demand is significant.

5. Additional Opportunities. An opportunity exists to build long-term, sustainable businesses based on clinical quality, and growth in this industry could improve access for affected individuals as well as create standard processes across providers within a business. Also, because reimbursement varies by state and insurance reform positions, investors should investigate and consider the reimbursement climate of each state prior to entry and, in general, consider any guidance with respect to federal reimbursement and trends. Finally, investors should focus on the infrastructure of any potential target. Higher performing providers require a good workforce, IT and information systems for measuring outcomes and performing other data collection.