Was writing an email to a mental/behavioral health owner on what drives higher valuations in the space – decided to beef it up looking at past deal data and share.

  1. Acquirers look into payer mix. If one payer is more than 40% of revenue, you likely have a concentration issue that’ll decrease valuation. Unless this payer gives you a competitive advantage/high reimbursement others don’t have.
  2. A specific, repeatable growth mechanism you can explain quickly. Facility expansion, new service lines, new locations, it doesn’t matter which, but you need to know how you’ll keep growing from your current state.
  3. A clinical niche a generalist competitor can’t easily copy attracts nice valuations in behavioral health. An example of this – having tracked outcomes others cannot match.

P.S: 1. Something that’s come up in a few recent mental health transactions is Accounts Receivable (AR) tracking. Since it can be difficult to estimate the collection rate on charges billed across different payers, it’s helpful to start tracking this early. That way, you can better estimate expected collections from your current charges. It’s not a deal breaker if you aren’t doing this today, but having the data can make diligence much smoother.

P.S: 2. You don’t have to be ready to step away from the business to sell. We’ve worked with owners whose businesses grew so quickly that they decided to bring in a partner to help professionalize management and operations and support the next stage of growth. If you’re open to retaining some equity and the business has the qualities above, you can still receive a premium valuation while continuing to participate in the future upside.

This info comes from a full analysis on what drives higher valuations in behavioral health using our internal data. If you’d like the full analysis, contact us below.