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.
PE Playbook: Behavioral Health Clinics
State of Play
The mental health services industry has become a hot sector in recent years, driven by rising demand and awareness—in the U.S., 1 in 5 adults (over 50 million people) experience mental illness. And that’s an opportunity private equity won’t miss.
Rewind to 2015: growth equity firms Summit Partners and Silversmith Capital teamed up and collectively invested $250 million to back Mike Lester—a third-time founder/CEO of healthcare services companies prior to LifeStance.
It was a bold play to quickly roll up a fragmented behavioral clinic market—one that paid off handsomely with a partial exit to TPG at $1.2B and later an IPO at ~$7B—yet ultimately left an example of how healthcare roll-ups can go sideways. Let’s dive in.
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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).