This is an exclusive BHB+ article.
Despite some major deals in the behavioral health sector in 2026, the year’s dealmaking outlook is still somewhat muted compared to many industry expectations.
“I would say the year started off on a slightly slower footing than I think many would have expected coming into 2026,” Christian Chauvet, partner at Lee Equity Partners, told me yesterday during a Behavioral Health Business webinar. “The regulatory backdrop is complicated here in 2026 I think many providers are dealing with impacts, the exchange subsidies expiring, and those populations tightening up as well as the significant noise around Medicaid as a consequence of the One Big Beautiful Bill Act.”
Lee Equity has made a number of investments in the behavioral health space, including Bradford Health, Summit BHC and Eating Recovery Center.
Still, a number of large deals have emerged. For example, in January mental health benefits platform Spring Health announced its plans to enter into an agreement to acquire therapist enablement platform Alma. And in April, MKH Capital Partners announced that it acquired Florida-based Haven Health Management.
And many investors and buyers alike still see the behavioral health industry as largely fragmented, making it ripe for consolidation.
Yesterday, I sat down with an investor, buyer, seller and adviser in a BHB webinar to talk about key trends to watch for the rest of the year.
In this BHB+ Update, I will explore:
–Why we shouldn’t write off the SUD market just yet
–How investors expect leaders to stay in place after a deal
–Why behavioral health is still prime for consolidation
SUD may be the most undervalued subsector on the market
Let’s face it the substance use disorder treatment industry has taken a hit over the last few years. Last year deal flow in the SUD sector reached a six-year low. A total of 33 addiction treatment deals closed last year, with just seven in the last quarter, according to data by M&A advisory firm Mertz Taggart.
Medicaid uncertainties and reimbursement challenges could further impact the industry for the remainder of the year. Still, some see this as a ripe space for investment opportunities.
“I’d name the SUD industry, if I had to pick an industry that was under valued right now. I think there’s a lot of well-run SUD businesses that are somewhat just a function of the market. A lot of the larger buyers have left the space,” Kevin Taggart, Managing Partner
Mertz Taggart, said. “So, I’d say that’s a market that’s probably a good buying opportunity right now.”
Chauvet noted that businesses, particularly in the SUD and autism market, that are clinically sound could be set to weather Medicaid and regulatory pressures.
“There are some industries that are more heavily indexed to the government [payers]; those would be ABA therapy and certain SUD providers who play more in the Medicaid market,” Chauvet said. “We think those businesses can be great businesses, when they’re clinically oriented and operating in a down the fairway operating model, where you’ve seen investors and companies get into trouble is investing in companies that lose that clinical guiding light that potentially pursue billing practices that are not aligned with the payers that would like to see, and those are where the trouble spots are, and it does weigh down valuations broadly in the sector.”
Still, it’s worth it for investors that understand the behavioral health industry well to take a closer look at the sector.
“That doesn’t mean there aren’t great companies in ABA, there aren’t great companies serving the Medicaid population in SUD,” Chauvet said. “We’re spending a lot of time with those providers, because there are some of those that are really credible businesses, where we think the market’s missing out on an opportunity, and we’re leaning in.”
Investors interested in leadership staying in place
Gone are the days of clinical leaders selling their business and retiring to a beach front property. Investors are now looking for leaders to stay involved with the business after an acquisition and keep a stake in the company.
“These days… they generally want the owners to roll some equity and be committed to the business for the next three or five years to help grow or partner with them,” Taggart said. “Certainly [it] makes you much more attractive versus the owner that wants to just sell and hit the road.”
Investors are interested in teaming up with practice leaders that are seeking capital for a specific purpose, generally with growth in mind.
“Ultimately, we’re looking to partner as entrepreneurs who build great businesses… and they’re looking for a capital partner, typically not to go to the beach, but to grow and scale and invest in business to continue driving towards the mission, double down on the mission,” Chauvet said.
Harry Ritter, CEO of therapist enablement platform Alma said entrepreneurs shouldn’t frame a sale as an exit, instead they should be looking at the deal as a means to an end for the company.
“The question, as an entrepreneur, is what do I believe is true about the market, and what investments do I need to make to best position my business to be successful in that market,” he said.
Fragmentation still an issue
It would be hard to ignore that behavioral health has been a hot spot for investors looking to consolidate the market for the past decade.
And with hundreds of deals taking place in the industry over the last few years, it would be easy to believe that the space is somewhat consolidated. But industry insiders say the behavioral health market is still largely fragmented–which creates opportunities for buyers.
“The vast majority of our deals right now are being looked at as a platform for some sort of financial buyer, whether it’s family office, private equity group,” Taggart said. “The last studies I’ve seen is that the behavioral health space as a whole is still 90 plus percent owned by independent operators or not for profits, so I still think there’s a lot of, a lot of work to be done from a consolidation perspective.”
This trend is especially true in the outpatient mental health sector. Many consolidators such as Beacon and ARC Health see this as a space for opportunity.
“Our whole thesis in this space is that behavioral healthcare is in its infancy relative to physical health care,” Todd Mudd, Senior Vice President of Business Development
Beacon Behavioral Partners, said.
Beacon Behavioral Partners is a provider that has partnered with dozens of psychiatrist owners in deals that compensate the owners with cash and roll over equity in the larger enterprise.
“The advent of insurance mandates in most specialties and most segments of behavioral health is really only a 20 or 30 year sort of phenomenon versus American hospital systems that have been around for 100 plus years, and so by nature of how young the insurance mandates are in many of the sectors we deal with, and by nature of how quickly it’s become more acceptable to seek help for behavioral health care conditions,” Mudd said.