🧘🏻‍♀️Therapy Gold Rush: Building a Mental Health Empire

Today, we’re going to talk about behavioral health rollups in the context of the meteoric rise (and subsequent fall) of LifeStance–going from a ~$7B IPO in 2021 to a Hindenburg short report in 2024. Rest assured that the industry remains fragmented and PE roll up continues.

If you missed it, check out this week’s live deals, where we shared a B2B consulting firm and a psych clinic you can go acquire.

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Company Overview

How do behavioral health clinics make money?
Simply put, these clinics provide therapy and treatment sessions. But there’s more to it.

First, many PE-backed clinics are outpatient—meaning no overnight stays—and they often get referrals from hospitals and independent physician practices.

Second, most referrals happen in-network, meaning clinics establish relationships with insurers so they are (i) listed in insurer directories when patients search “therapist near me,” and (ii) referred by doctors who know the patient’s insurance covers the clinic. For context, LifeStance gets 90%+ of revenue from in-network patients (note: there are also platforms that focus on cash-pay clinics to avoid insurance reimbursement dynamics).

What does unit economics look like?Here’s a breakdown of behavioral health clinic unit economics that leads to average 15–20% EBITDA margins across clinics. But as we’ll discuss later, two key variables went wrong for LifeStance.

History of LifeStance
Now that we’ve covered the fundamentals of behavioral health clinics, let’s delve into LifeStance’s case study.

LifeStance’s strategy was relatively straightforward:

The speed of the roll-up is striking. Below is the company’s timeline of rapid expansion:

With that context, let’s dig into what makes this industry attractive to roll up—and what went wrong with LifeStance.

One benefit of rolling up provider businesses is the ability to negotiate higher insurance reimbursement rates (if you’re at massive scale, like LifeStance) and to drive a higher reimbursement mix.

According to Payer Price, commercial plans often reimburse therapy sessions at $95–$135 per session (we used a $115 midpoint above). For psychiatric sessions, reimbursements can be roughly 2x, at ~$175–$250 per session. For LifeStance, average revenue per session is ~$160. So let’s compare the unit economics of a single-location clinic vs. a LifeStance clinic.

Holding everything else equal, the higher revenue per visit drives EBITDA margins up by ~6%—which, combined with multiple arbitrage, can create highly accretive equity value from M&A. (We’ll touch on where the math broke down later)

Consolidators typically pay mid-single-digit EBITDA multiples for independent clinics. For example, a 2025 survey of healthcare M&A showed addiction-treatment firms (with roughly $3–5M EBITDA) averaging ~5.5x EBITDA multiple (would love to hear if this is what people still see in the market).

In contrast, in the partial sale to TPG in 2020, LifeStance reportedly sold for high teens EBITDA. The multiple skyrocketed during the 2021 IPO and the Company is trading at 20x+ EBITDA multiple today. 

Assuming a “conservative” 15x EBITDA platform multiple, below is the value creation math for $100M of acquired EBITDA:

Now, let’s layer on the 6% margin uplift:

If I had to guess, this simple (and beautiful, if it held) math is what attracted the huge multiple at IPO.

On top of margin uplift and multiple arb, the extreme fragmentation of behavioral health lends itself to a massive TAM (and therefore, a massive equity value-creation opportunity).

There are over 1 million mental health professionals in the U.S. (including ~45k psychiatrists, ~205k psychologists, and hundreds of thousands of counselors and social workers). For example, LifeStance’s ~7,500 clinicians represent only ~3% of the psychiatrist and psychologist workforce.

A quick search on Inven also yields tens of thousands of them.

Source: Inven

Mental health issues continue to proliferate in the U.S. According to FAIR Health, the share of patients with mental health diagnoses rose 39.8%, from 13.5% of patients who received medical services in 2019 to 18.9% in 2023. As USAFacts shows, 2021 (the COVID period) was a major driver.

The growth in patient volume continues to fuel organic demand for behavioral health clinics, as well as continued launches of new clinics to meet that demand—expanding the M&A target universe.

So despite all these positives, what went wrong—and what were Hindenburg’s accusations?

1. Clinician Retention
Perhaps the biggest risk is failing to keep the clinicians (the lifeblood of the business) happy. LifeStance learned this the hard way: after touting an ~90% clinician retention rate pre-IPO, it later revealed retention had fallen to ~80%, triggering a stock crash and lawsuits. Hindenburg’s own analysis asserted a ~70% retention.

Looking at the math below, the financial implications of declining retention are severe—a fully staffed clinic running at 21% EBITDA margins can quickly fall to ~14% if only 70% of clinicians stay each year (without backfill).

Mitigation: In response, LifeStance shifted from stock-based incentives to cash bonuses to better match clinician preferences and introduced more clinician-friendly payout structures (e.g., earlier contracts advanced pay that had to be repaid if productivity targets weren’t met, which bred resentment). Even so, clinician retention remains the highest investment risk for any behavioral health platform.

2. Provider Mix for Insurance Reimbursements
Another allegation from Hindenburg was that LifeStance’s clinician mix across therapists (who are reimbursed at a lower rate of ~$100 per session) and psychiatrists (reimbursed at ~$200+) have deteriorated. The mix reportedly moved from ~65%/35% in 2021 to ~80%/20% in 2024.

The implication of the mix shift is that part of the benefit from negotiating higher reimbursements is offset by the mix shift. In other words, average revenue per visit—and therefore LTV of patient—is pressured.

Mitigation: Thus far, LifeStance’s annual reimbursement increases seem to have more than offset the mix shift—average revenue per visit rose from ~$150 in 2022 to ~$160 in 2024. However, growth appears to have stalled since, signaling that mix effects are becoming harder to overcome with renegotiations.

Are we in the early innings or late innings of the mental health roll-up game? On one hand, we’ve already seen the rise and fall of LifeStance. On the other, consolidation is still just beginning given how fragmented the market remains.

Other PE-backed platforms have also launched over the years. For example:

I’d be curious to hear readers’ thoughts if you or your peers are actively acquiring behavioral health clinics today.

What should I cover next? Send ideas to [email protected]