Why Behavioral Health Owners Are Getting Premium Valuations Right Now

Behavioral health is one of the most active sectors in healthcare M&A today — but most owners don’t fully understand why, or how to take advantage of it.

In this episode of The Founder’s Journey to Exit, brought to you by Evergreen M&A, Managing Director Roy Yewah sits down with Managing Director and behavioral health deal expert Hannah Huke to unpack what’s really happening in the market across psychiatry, counseling, autism services, and related specialties.

Hannah explains why behavioral health has become such an attractive space for private equity — and why it’s currently a seller’s market for many practice owners. She also walks through what buyers are actually looking for, how practices are being valued today, and the key steps owners can take now to make their business more marketable, more valuable, and easier to sell.

Whether you’re thinking about selling in the near term or just want to understand what drives value in your practice, this conversation offers a clear, practical look at how to prepare for a successful exit.

Real founders. Real exits. Real lessons from the journey. Brought to you by Evergreen M&A: Advisory for Founders. 

Transcript

(0:02) Welcome back to Founders Journey to Exit, the show where we bring founders, operators (0:09) and experts together to unpack what really happens when you sell your business. (0:13) This podcast is brought to you by Evergreen M&A Advisory for Founders. (0:18) Today's episode is for owners in the behavioral health space, whether you run a counseling (0:23) practice, a therapy group, a psychiatric practice and autism services organization, a substance (0:29) use treatment center, or a blended behavioral health clinic. (0:34) 

There's been unmatched consolidation in behavioral health over the past five years, but also (0:40) a lot of confusions, mixed messages from buyers and founders who aren't sure what's real. (0:46) We're joined today by senior advisor, Hannah Huke from Evergreen M&A, an expert in healthcare (0:54) and behavioral health transactions, and someone who's helped founders navigate everything (1:00) from early evaluation conversations to multimillion dollar exits. (1:05) Hannah, great to have you here.(1:07) Thank you. (1:08) 

Roy is taking over my podcast hosting and interviewing for today. (1:13) I could talk about a space that is near and dear to my heart, behavioral health.(1:20) This space is one of the fastest growing and really most misunderstood in healthcare right now. (1:31) And I've worked with a lot of founders in the space. (1:35) I'm very passionate about this space.(1:37) She is very. (1:38) Yes. (1:38) And owners really deserve clarity around what's happening.(1:43) Today, we're also going to be talking about what buyers want and how to prepare for a (1:48) strong exit. (1:48) Awesome. (1:49) Awesome.(1:50) 

So let's start big picture, right? (1:51) So behavioral health feels like it's undergoing a transformation. (1:57) There's huge demand, tons of investment, new platforms forming every month. (2:02) Why is behavioral health such an attractive sector for buyers today? (2:07) Yeah.(2:08) So a lot of reasons. (2:11) 

First, you have demand exploding. (2:14) So, you know, post pandemic, we've really hit a point where mental health care is normalized.(2:22) It's de-stigmatized. (2:24) It's very integrated with primary care. (2:29) It's a bipartisan issue.(2:31) It's got bipartisan support. (2:34) You know, you have veteran issues. (2:36) And employers, insurers, and health care systems really all see mental health as mission critical (2:44) right now.(2:45) It's very important. (2:49) Also making it attractive is that it's considered recession resistant. (2:54) So utilization doesn't drop when the economy softens.(2:58) In fact, it often increases. (3:01) 

Third, the industry is very fragmented. (3:06) You have thousands, tens of thousands of independent practices, many built by exceptional clinicians (3:14) and owners.(3:15) And quite frankly, they did not see this coming. (3:19) They did not expect for private equity to enter the space. (3:23) They didn't expect for some of these big buyers in the space.(3:27) And this fragmentation really creates a massive opportunity for roll ups and sophisticated (3:35) operators. (3:38) 

Lastly, payer trends have really shifted. (3:42) So reimbursement has improved in many markets.(3:46) And buyers really believe that they can add operational support, revenue cycle expertise, (3:52) a lot of talent infrastructure, recruiting support. (3:57) And then lastly, technology to really take a good or great practice and scale it. (4:06) Yeah, yeah.(4:07) 

That's great stuff, Hannah. (4:09) Thank you. (4:09) I mean, so I'm sure you're getting a lot of calls, emails asking about, you know, what's (4:17) my business worth, right? (4:18) Yep.(4:18) Let's get into valuation. (4:20) Yes. (4:20) When buyers look at behavioral health practices, and what are some of the key metrics and indicators (4:28) they focus on? (4:29) 

Would you be surprised if I said EBITDA? (4:33) I would not be surprised.(4:35) So yes, EBITDA is super important, right? (4:39) And we've talked about, you can go back to our podcast episode on EBITDA, and we explain (4:45) what that means. (4:47) Can you just explain real quickly? (4:48) Yeah. (4:49) So EBITDA, it's your profit, right? (4:51) So kind of like your net income, but you're adjusting for various expenses.(5:00) You're taking out owner expenses, personal items. (5:06) And what it means is earnings before interest, taxes, depreciation, amortization. (5:11) So it's really, at the end of the day, your profitability.(5:16) 

So, you know, not only EBITDA, but they look at a number of other things. (5:25) So your payer mix, you know, do you have payer concentration? (5:30) Are you in network with, you know, major providers? (5:35) What do your visit volumes look like? (5:37) Are they consistent? (5:39) Are they up and down? (5:40) Are they growing? (5:43) Are they stagnant? (5:45) Your clinician retention, not only, you know, how can you recruit clinicians, but how you (5:53) retain them, your reimbursement trends. (5:57) And, you know, just talking about clinicians, it's not just about how many clinicians you (6:04) have, how quickly can they ramp? (6:08) How full their caseloads are.(6:11) It's really important that we see all the time, are they W-2? (6:15) Are they 1099? (6:17) You know, usually 1099s or a large mix of that can be seen as risky. (6:23) So you really want either a good balance or giving the buyer confidence that that transition (6:31) to W-2 can happen. (6:36) Buyers really look at recruiting and retention systems.(6:40) And I will tell you, clinician turnover is the number one threat to scaling a behavioral (6:44) health organization. (6:48) And then, you know, when you look at operations, so, you know, we've addressed the numbers. (6:55) We've looked at some of the insurance complexities, some of the clinician items.(7:02) 

You really want to make sure you have clean documentation. (7:07) You know, are you outsourcing your billing? (7:10) Is it in-house? (7:11) Can your billing teams keep up with, you know, how you've been growing recently? (7:18) Are collections consistent? (7:21) And Roy and I, you and I have talked about this on a previous podcast, is owner dependency. (7:27) So if you're the top producer, if you're the only one who can recruit, if you're the person (7:34) who fixes everything, buyers will know that the transition may be risky.(7:40) So you've got to have strong clinical directors, practice managers. (7:44) How is the practice being operated? (7:47) And how can it run, you know, if you were to step away? (7:52) Yeah, no, that all makes sense. (7:54) And I hope it, for the listeners, paints a good picture on what buyers look at, right, (8:01) as they're assessing your business.(8:03) 

Now, I was told this analogy of assessing a business, right? (8:09) It's similar to a horse race, right, when you have the rider, right? (8:16) The rider is the business owner. (8:18) Okay. (8:19) The horse is the business itself.(8:22) Okay. (8:23) And then the course is the industry, right? (8:25) Yeah. (8:25) And so understanding those three things really helps you understand whether or not a business (8:31) is a good opportunity or not, right? (8:33) Yeah.(8:34) So now thinking about the track and the industry, right, what are some trends that are currently (8:41) helping founders get higher valuations in this space? (8:46) I'm thinking about horse races now. (8:48) All right. (8:50) So higher valuations, you know, payer behavior is improving.(8:59) So, for example, commercial payers now recognize that mental health services is actually a (9:06) cost saver. (9:09) Multiples are really rising where that reimbursement is stable and where payer relationships are (9:16) really established and look good and are good. (9:22) Workforce shortages.(9:25) So the practices that are really setting themselves apart are the ones that are able to recruit, (9:33) onboard, so they have really great onboarding and ramping systems in place. (9:39) They have it well documented and they have their training systems on point. (9:44) And then how are they developing their clinicians on an ongoing basis? (9:49) And these are really the practices that are getting the premium multiples because sometimes (9:58) the system is more valued than the brand.(10:03) You know, the brand is obviously important, but the clinicians that are working for you (10:10) and how you support them and grow them is very important as well. (10:15) 

Private equity momentum has not slowed. (10:19) So mental health, autism services, ABA, psychiatry, counseling, they're still really favored (10:30) verticals for private equity.(10:33) There's a lot of platforms out there. (10:35) There are a lot of newer platforms that are starting. (10:40) You know, just at Evergreen, we have about 30 active buyers that we talk with on a regular basis.(10:49) So then you have things like technology, again, separating operators. (10:56) As long as you, you know, not only have a good EHR system, but you're actually using it, (11:01) where you're tracking your referrals, tracking where patients are coming from, (11:08) you're tracking your scheduling efficiency. (11:11) There are some practices that have gotten really good at patient kind of patient mapping.(11:20) So when a patient comes to them and needs a particular type of support, (11:24) they've been able to match them with a clinician very effectively. (11:29) So that helps with patient retention as well. (11:35) As I said before, having more W-2 staff helps.(11:42) And that recruiting and retention piece, I can't stress it enough. (11:47) It's very important. (11:48) And then, you know, you have to have the growth in the practice as well.(11:53) Nice. Yeah. All good trends to focus on for sure.(12:01) 

And then I guess in terms of founders who are out there, you know, (12:06) looking 12 to 24 months down the road and thinking about whether or not it's time to sell, (12:12) if a behavioral health owner is thinking about selling, right, where should they start? (12:18) Yep. (12:20) Well, we've talked about this before. (12:22) Start when you're in a good place.(12:25) Start when you are not overwhelmed, not burnt out. (12:32) Start when you're feeling really good about the business. (12:35) When you're growing, you have a lot of confidence, you're not stressed out every single day.(12:43) And then starting to prepare. (12:45) So cleaning up your financials is a really good idea. (12:49) So make sure your reporting is doing well.(12:54) You know, if you have a CPA that is doing the financials in, like, PDFs or Word, (13:02) probably time to get a new CPA. (13:07) You know, QuickBooks is certainly adequate. (13:10) You want to make sure that the dependency, again, is minimized, any dependency on you.(13:20) So, you know, building those strong leaders around you and managers. (13:27) Making sure your recruiting pipeline is looking good. (13:30) You have clear onboarding, retention strategy.(13:35) You know, it's – and then just documenting things. (13:41) So what does your scheduling look like? (13:44) What is your intake process? (13:46) Who's doing your billing? (13:49) Who's doing the hiring? (13:52) Really these – you want to put these processes into place so a buyer can see that, you know, (13:59) they can come in and things are stable and repeatable. (14:04) 

And then, of course, hiring Evergreen, bringing on Evergreen.(14:09) That's key. (14:11) Yes. (14:12) You know, Roy, you know that we're working with a founder who's, you know, (14:19) wants a particular valuation and, you know, now might not be the best time to go to market.(14:26) And they're on a trajectory where they can get that. (14:30) And so, you know, starting to work with us, having us get the financials in a good place, (14:36) getting the model in a good place, setting those expectations, (14:38) and then, you know, looking down the line three, six months to go to market, (14:45) that's a really great idea. (14:48) And you, you know, you can have confidence in the process (14:52) and confidence in that we're handling everything for you so you can continue to grow the business.(14:59) Yep, yep. 

Wow. (15:01) Yeah, so.(15:04) That's awesome. (15:05) Yeah. (15:05) A lot of good gems.(15:07) Thank you. (15:08) I hope the listeners are, you know, taking notes. (15:11) Thank you.(15:11) And making sure that they capture everything here. (15:15) But Hannah, any final takeaways for behavioral health founders listening? (15:22) 

Yeah, so it is just, it's, the industry is seeing its strongest demand. (15:31) Consolidation is rapidly occurring.(15:35) I would say it's still in the early stages. (15:41) And I think those premium valuations will go to the founders who act and who, you know, prepare early. (15:51) If you want to sell in 12 months or five years, really, I mean, we've talked about this before, (15:59) it's knowing what your valuation is, understanding your valuation, knowing your options, having a plan, (16:09) thinking about what you want to do next after the sale.(16:13) But I would say now is a great time to start exploring those options. (16:19) So whether you need help with valuation, timing, I am happy to help. (16:24) I really do.(16:25) I've worked with a lot of psychiatrists, a lot of counseling practice owners, ABA, autism services owners. (16:35) And I really do love the space. (16:38) I think the founders are incredibly passionate about what they're doing.(16:44) And there's certainly a lot of options, a lot of really high quality options for founders looking to exit.

 (16:54) Yeah, perfectly said. (16:56) Hannah.(16:56) Thank you. (16:57) Thanks for taking over. (16:59) You did a great job.(17:00) Of course, I tried. (17:01) Thanks so much for joining us. (17:03) You're welcome.(17:04) 

And to our listeners, if you're a behavioral health founder and you want the real story behind valuation or your exit options, (17:12) please get in touch with the Evergreen team. (17:15) Email us or just call Hannah directly or visit our website at evergreenforfounders.com. (17:23) This has been Founders Journey to Exit. (17:27) Thanks for listening.