Behavioral Health, Infusion, and Staffing firms top the list in BRG’s survey
Many lower middle market private equity groups have revisited their investment priorities as we enter 2025, making room for new opportunities across healthcare verticals.
Physician Practice Management (PPM), which yielded the largest deal volumes outside of dental services for the past several years, remains promising as it enters a more mature stage. We expect transactions in PPM to continue, especially in specialties with many independent provider groups and an established private equity presence (e.g., ophthalmology and ENT).
However, we expect fewer new platform formations in PPM. Instead, the market will reflect continued and often competitive add-on activity by existing platforms. Many of those organizations are nearing their own recapitalization events and will seek add-ons to increase their valuations.
At the same time, lower middle market private equity groups have a tremendous amount of “dry powder” or capital that needs to be invested. A few themes have emerged suggesting where these groups will focus their attention in 2025. These have been reflected in our own conversations with investors and were recently quantified in a survey of 127 private equity investors by Berkely Research Group (BRG).
Survey results showed that nearly 75% of the investors surveyed plan to focus on three sectors: infusion pharmacy, behavioral health, and services focused on care in the home.
Infusion Pharmacy
Pharmaceutical innovations have produced an increasing number of highly specialized drug products and treatment programs, which may be customized even to the patient level. These drugs are also increasingly delivered via infusion, and investors are taking notice. According to BRG, 60% of drugs in the development pipeline are delivered in IV form. Combined with an aging population, this will yield a massive increase in demand for infusions.
The current infusion space is underdeveloped, and historically, most infusions have been delivered at hospitals. We have been seeing a shift to lower cost, more convenient sites for some time, and many predict a similar trend around infusions.
There are a handful of scaled providers offering infusion therapy at high-quality outpatient centers, which are more convenient and comfortable for patients (e.g., IVX Health), but the industry is still in its infancy.
Multi-site infusion providers that are profitable (especially with EBITDA exceeding $2 million) and independent owned will be highly attractive to PE investors in 2025. These companies can serve as platforms for private equity—an entry point to the industry with established operations that they can refine and replicate.
Unlike PPM, which is primarily driven by inorganic growth via add-on transactions, we believe the infusion space will see a lot of expansion plays where PE groups open many new locations. This makes a high-quality initial platform investment even more important.
Behavioral Health
Demand for behavioral health services continues to expand due to lower stigma, increasing access, and unfortunately, persistent growth in conditions requiring treatment. Investors see an opportunity to build and refine organizations to meet that increasing demand, while offering the benefits of sophistication and scale in an increasingly complex operating environment.
We expect increased activity in three core areas in 2025:
- Mental Health
Investors are highly interested in companies offering mental health services, particularly in an outpatient setting. These organizations tend to be more retail-focused and provide services to a large patient base (relative to more intensive treatment in ABA therapy or substance use disorder, for example).
Many investors are looking for platforms in mental health, which should have sophisticated operations, and generally, EBITDA above $2 million. Both large and smaller mental health organizations are candidates for add-on transactions with existing mental health companies, many of which are private equity backed and looking to grow.
We believe companies that show consistent growth, especially in patient and provider acquisition and retention, will enjoy the most competitive sale processes.
- Substance Use Disorder
Investors are interested in organizations focused on substance use disorders, including those utilizing behavioral therapy, medication assisted treatment, or both. We are seeing transactions across residential and outpatient providers and have observed some investors looking to enter a new delivery model. For example, some in-patient groups are looking to add more robust outpatient programs to capture more of the care continuum. This ability to cover a longer episode of care, especially offering “step-down” services, is of interest to payors. PE investors also recognize it as a component of future value-based payment models.
Like mental health, we see opportunities for larger organizations to form new platforms with private equity, while many add-on opportunities exist for companies of all sizes.
- ABA Therapy
Demand for autism treatment through ABA therapy continues to grow, and many provider organizations are working diligently to meet that need. Staffing is a primary challenge, since scaling these organizations requires a large headcount of board-certified behavior analysts (BCBAs) and registered behavior technicians (RBT), both of which are in short supply relative to patent demand. More than anything, this is due to recent growth in the industry and the time it requires to train new providers.
Another challenge is building durable business and clinical systems that work effectively in growing organizations. Since investing in ABA, the investor community is learning more about how to balance growth with operational and clinical considerations. We are encouraged by recent news in the industry, like Advanced Behavior Centers’ hiring Dr. Greg Hanley, a clinical thought leader and proponent of the “New ABA.” This is a child-led model that many practitioners feel is most effective.
The marketplace for independent ABA therapy providers is very competitive. Larger companies that are already investor-backed are generally looking to expand via acquisition, especially into new states where an independent organization can serve as a “mini-platform.” Creating new platforms in behavioral health is a priority for a lot of investors, many of whom are interested in ABA therapy. Strong independent organizations will enjoy competitive sale processes and have their pick among these transaction types.
Care in the Home
We also see a renewed interest from private equity investors around care in the home. Organizations that rely on Medicare Advantage have fallen somewhat out of favor as the trend moves toward Medicaid and traditional Medicare models. The Medicaid angle can include pediatric home care, high risk pregnancy, and many chronic issues, and the traditional “aging in place” Medicare model serves an aging population and need for home-based services.
Staffing has been a major challenge for these organizations, so private equity investors are particularly interested in companies who have addressed that issue. Those types of companies include medical staffing companies that are focused on home-based services, or traditional operations with a special angle around staffing (for example, a unique in-house training program).
Like behavioral health, both platform and add-on transactions are strong options for independent homecare providers.
Honorable Mentions/Other Hot Areas
Medical Spas
A feeding frenzy began around medical spas, aesthetics, and plastic surgery a few years ago and has continued into 2025. Finding larger assets has been a challenge since the space is highly fragmented and many investors are seeking new platforms (and usually require their first deal in the space to be larger). Even plastic surgery practices tend to be small, with most having just one physician.
The most sought-after assets are either:
- Plastic surgery practices with multiple physicians and a larger aesthetics business, or
- Medical spas with multiple locations and more sophisticated management teams and systems.
The common theme is scalability. PE groups are looking for assets that are capable of growth. Companies meeting these criteria will have highly competitive sale processes.
Dental Practices
There were more dental practice deals in 2024 than any other area in healthcare services with a total of 132, according to Pitchbook. These include a growing number of specialty practice transactions in oral surgery, endodontics, pediatrics, and cosmetic and restorative dentistry.
More than anything, we think the sector benefits from its stability and provider dynamics that in many ways are more investor friendly than physician services. Because of the large number of dental services organizations (DSO), most larger practices are of interest to multiple investors and experience competitive auction processes. There are also investors looking for new platforms in the dental space, though typically only the most sophisticated practices are candidates.
Scaled Physician Specialties
Robust deal volume continues in PPM verticals with longstanding investor activity and more PE-backed platforms. These specialties include:
- Dermatology (53 transactions)
- Musculoskeletal/orthopedics (29 transactions)
- Ophthalmology and optometry (19 transactions)
- ENT (16 transactions)
Like the dental space, the number of PE-backed platforms usually creates competitive auction processes for medium and large practices in attractive markets. The number of established groups who are looking to grow through acquisition, often before their own sale processes, can create very seller-friendly transaction dynamics.
Selling in 2025
We believe strong organizations in these verticals have a strong selling opportunity in 2025. The team at FOCUS investment banking specializes in representing healthcare providers, especially in transactions with private equity groups and PE-backed companies.
For more information about our services and sell-side process, please contact Eric Yetter, Managing Director and Healthcare Team Leader at [email protected] or 615-477-4741.
