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Expect Deals for Behavioral Health Properties to Keep Flowing for Now

March 20, 2020

Observers should expect merger and acquisition activity in the behavioral healthcare space to continue mostly uninterrupted in the near future, but the coronavirus (COVID-19) pandemic could slow momentum a couple months down the road, says Kevin Taggart, CM&AP, managing partner of the healthcare M&A firm Mertz Taggart.

“Deals that were already pretty far along in the process, most buyers are trying to get those done,” Taggart tells BHE. “There are others in the pipeline, too, where buyers are still pressing forward and optimistic they can get them done. But I think where we see a little bit of a pause will be with things that aren’t quite as far along. I’ve had a couple buyers tell us they will slow roll some things. I do think this is going to delay some deals two to four months, hopefully not longer than that.”

In the meantime, Taggart says, lenders are honoring commitments and private equity firms have “cash that they need to put to work” along with mandates to grow their businesses. On the other hand, looking at two to four months from now, Taggart expects banks will start to tighten their lending requirements as they write off debt, and current events could cause resources typically dedicated to transactions to be diverted to other causes.

After speaking with a board member from a large provider of autism services, Taggart says he is in agreement that center-based programs could see short-term hits. Taggart adds that another provider has told him that its aggressively working to set up home-based services. Similarly, a large substance use and mental health services provider is accelerating its efforts to set up telehealth options as an alternative to the services offered at its outpatient locations.

“With that, they’re scrambling to get telehealth working, and I think they’ll have that going within a few days so that the impact is hopefully minimal,” Taggart says. “Their big concern is that they’re trying to work with insurance companies—they’re mostly in-network—to make sure they get paid for it. But yes, this will drive telehealth implementation a little sooner than it would have otherwise.”

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