Investing in the behavioral health industry is both thematically compelling and operationally complex. This report focuses on partial hospitalization and intensive outpatient programs, outpatient mental health, and interventional psychiatry.
The category saw a wave of activity in 2021 and 2022, when sponsors believed that care volumes would continue to grow based on the surge in patient demand and care-seeking during and immediately after the COVID-19 pandemic. There were approximately 74 deals in behavioral health in 2021–70% more than the 2017-2019 average–and most of these established new sponsor-backed platforms. However, patient visit volumes during that period were driven primarily by increased access to care rather than a surge in underlying demand; the prevalence of mental illness was flat in 2025 compared to 2021. Said another way, sponsors who bought behavioral health platforms in 2021 and 2022 underwrote a demand curve that did not materialize. As a result, many sponsor-backed assets acquired in the post-COVID era did not see expected growth materialize and have struggled to live up to their platform transaction valuations and the high multiples at which they were acquired. The gap between entry valuation and current performance is now the central question for sponsors weighing an exit.
Despite this market correction, we believe the behavioral health investment thesis remains attractive. Significant unmet need remains; nearly 49% of adults with any mental illness went untreated in 2025.2 However, addressing this unmet need means finding patients, delivering care, and receiving adequate payment for that care, which requires real operational muscle. Stagnant demand has bifurcated the fortunes of behavioral health companies since 2021, revealing operational immaturity in some platforms while creating opportunities for outperforming management teams to take market share. We think investors who will succeed in the behavioral health market will back strong management teams and exhibit a hands-on operational approach–thoughtfully progressing toward measurable value and outcomes-based care, navigating challenging labor and payer dynamics, and achieving growth despite flattening patient demand.
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Stephen Scott
Managing Director
James Castro
Co-Head of Healthcare Services & Managing Director
Bailey & Company is a Nashville-based merchant banking platform focused on middle market healthcare companies in the healthcare services, healthcare technology, payer services and pharma services/medtech/life sciences sectors. As one of the largest independent, sector-focused investment banking and investing platforms in the country, Bailey & Company supports strong management teams that have built scalable platforms by providing strategic insights, world-class advice and access to one of the most diverse networks of industry experts. For more information see: www.bnco.com
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