I had a meeting recently with a behavioral/mental health owner who plans to sell within the next 3-4 years. He’s growing and starting to think more intentionally about what acquirers will actually care about. He said there is too much information out there and wanted me to break it down to simple action items based on actual acquirer feedback.
After spending a lot of time talking to acquirers in this space recently, there are three things acquirers are digging into and valuing right now. This other article talks more immersively about what acquirer diligence looks like recently.
The first thing we talked about was his payor mix.
He had a meaningful amount of revenue coming from federal payors like Medicare, Medicaid, and similar programs and he asked whether that was an issue. I told him directly: currently, acquirers in behavioral health are seeing risk there.
Once you start getting into that 50%+ range of federal pay, acquirers start to get uncomfortable. It’s not that they won’t look at the business, but they immediately see more risk from reimbursement pressure, regulatory exposure, and potential margin compression. Even if you’re performing well, they’re going to discount that revenue in today’s market.
I told him that if he wants to position the business for a stronger valuation, he should work toward getting that exposure closer to 35% or below over time. That usually means pushing into commercial payors and in some cases, building out a cash-pay component where it makes sense.
Then we shifted to growth. Specifically, investing in telehealth versus multi-location.
He asked whether it would be more valuable to go all-in on telehealth across multiple states or to build out additional physical locations.
I told him the answer isn’t as binary as people think. It depends on how well you can execute, but there are clear signals acquirers look for.
If you can build a profitable telehealth model, it’s incredibly compelling. Not because telehealth is new or exciting, but because it’s easy to tell a scalability story. An acquirer can look at it and immediately see how it expands into new markets without the same friction as opening physical locations.
At the same time, multi-location businesses carry their own kind of weight. If you’ve successfully opened and operated multiple sites, you’ve already proven something most businesses haven’t: that your model is repeatable. That you have infrastructure. That you’re not dependent on a single market.
I also made a point to tell him that being single location isn’t a death sentence for valuation. If that one location has multiple service lines, strong demand, and room to expand, it can still be very attractive. What matters is whether the business feels concentrated or expandable.
Put simply: acquirers are looking for evidence that your business can scale and that it won’t break when it does.
The last thing we talked about was timing.
He asked if he should wait to sell until after he had fully executed his expansion plans. It’s the instinct almost everyone has: build everything first, then go to market.
I told him that, in many cases and across healthcare industries, that’s actually the wrong move.
Acquirers don’t pay the highest multiples for businesses that are done growing. They pay for businesses that have clear, credible growth still ahead of them.
I gave him an example of another behavioral health owner we worked with recently. Single location, but they had just started rolling out new services and could clearly show how revenue was going to ramp. The growth wasn’t fully realized yet, but it was visible, believable, and near-term.
That’s what buyers want.
That business ended up getting some of the strongest initial valuations we’ve seen this year. Not because of where it was, but because of where it was going.
In summary, it is all about reducing risk in the revenue, building a model that can scale, and making sure there’s still meaningful upside left when he eventually decides to sell.
That’s the game right now.
Not just building a bigger business, but building one that an acquirer can underwrite with confidence and get excited about.