Top Areas of Behavioral Health to Invest in 2024

It is a particularly attractive time to invest in behavioral health due to the increasing demand, the anticipated growth of the market, and elevated interest rates, which have brought valuations back down to earth.

According to the Substance Abuse and Mental Health Services Administration (SAMHSA), one in five adults in the US have a clinically significant mental health condition or substance use disorder. Investing in behavioral health not only offers the benefits of holding a defensible asset; it also has the potential to contribute significantly to addressing the mental health and addiction crisis facing our communities.

Top Behavioral Health Opportunities

Here are some key behavioral health areas that are drawing attention from investors in 2024.

Telemental Health

Telemedicine has become common in primary care, and telemental health has also gained significant traction. Telemental health uses telecommunications or videoconferencing to deliver mental health services, and is sometimes called “telepsychiatry” or “telepsychology.” Research shows telemental health works for people with ADHD, PTSD, depression, and anxiety. Delivering remote mental health services through video calls, digital platforms, and apps offers convenience, improves access, and helps overcome geographic barriers.

Here are some specific examples of recent funding rounds and transactions in the telemental health industry:

• In November 2023, virtual behavioral health provider UpLift acquired Minded, a psychiatric telehealth provider focused on women.

• In December 2023, behavioral health companies Integrative Life Network LLC and Integrative Health Centers Inc. merged, rebranding as telemental health provider, Peregrine Health. The merger coincided with a $7 million funding round.

• In April 2024, Two Chairs, a hybrid behavioral health company, announced it had closed a $72 million Series C equity and debt-financing round.
  

Telemental health continues to be an attractive investment. However, as we saw in 2023 and 2022, companies not using this technology as a piece of their offering or having it as their only medium can struggle to succeed and live up to high valuations and even higher expectations.

Digital Therapeutics

Digital therapeutics refer to evidence-based interventions delivered through software platforms, often using mobile applications or online platforms and apps, targeting a wide range of mental health and substance use disorders.

While virtual treatment cannot be a replacement for all types of mental health and addiction care, digital therapeutics represent a significant chance for market expansion. For instance, the virtual substance use disorder treatment industry represents a market opportunity of over $10 billion by latest estimates. In March 2024, virtual substance use clinic Pelago announced $58 million in Series C funding.

Specialized Treatment Modalities

Innovative treatment modalities, such as virtual reality therapy, neurofeedback, and biofeedback, are garnering attention but still have naysayers. Studies have shown that these modalities offer alternative approaches to traditional therapies and can provide targeted interventions for specific mental health conditions.

We have seen investors put money behind specialized treatment modalities that show promise in improving treatment outcomes and enhancing patient experiences. For example, psychedelics has garnered significant interest in recent months for its potential in treating depression and addiction.

Adolescent and Child Mental Health

Mental health services for children and teens are becoming more in demand; investing in specialized programs and platforms for this group can be rewarding, key services include early intervention, school-based programs, and parental supports.

All demographics are financially appealing, but delivering quality care to children and teens is crucial for our society's future and returns emotional dividends.

Geriatric Mental Health

As the population ages, demand for geriatric mental health services is rising. Investing in geriatric clinics, memory care facilities, and telehealth for older adults is expanding and profitable. In January 2024, Talkiartry, the in-network psychiatric care leader, launched specialty telepsychiatry services for adults aged 65 and over.

We have a client selling a successful business in geriatric mental health. We also know of buyers pursuing roll-up strategies in this area.

Treating older adults has technology challenges, but the geriatric mental health market grows yearly as treatment becomes more available and accepted.

Investing in Geographical Expansion and Consolidation

The behavioral and mental health sector offers chances for growth through geographical expansion and consolidation. Investing in established providers in underserved areas or key locations can boost market growth and service reach.

The hub-and-spoke model has long been effective for acquisitions, helping expand provider networks beyond the hospital into rural communities.

Some examples of expansion in recent months, include Acadia Healthcare's trio of acquisitions in North Carolina and Latticework Capital-backed Beacon Behavioral Partner's slew of acquisitions across the Southeastern U.S.

Mental Health for Underserved Populations

There is a strong need for mental health services in underserved areas, like low-income communities, ethnic minorities, and rural regions. Investing in affordable mental health services such as community clinics, mobile clinics, or telehealth programs can greatly benefit society and offer investment opportunities.

We know Lisa Piercey of Tristela Capital Partners invests heavily in rural healthcare and supports these initiatives.

ABA Therapy, Eating Disorder, and Substance Abuse Treatment

We believe there are huge opportunities in these three behavioral health verticals.They have all faced difficult headwinds in recent months, from stagnant reimbursement rates, a challenging labor market that hinders recruitment and growth, decreasing margins, and high-profile insolvencies.

Of course, patient demand is still there. The market is ripe for entry and providers are in desperate need of capital and strategic assistance. We know a provider will emerge that solves the puzzle of how to deliver quality care at scale, while being profitable.

Conclusion

The attractiveness of specific niches, lines of service, modalities, demographics, and geographies can evolve over time based on market trends, regulatory changes, and societal needs.

The behavioral health sector offers several opportunities, from telemental health to specialized treatment options. The rising demand for mental health services, especially in underserved areas and among groups like children, teens, and older adults, allows investors to make a positive impact while gaining potential returns.

Are you ready to invest in behavioral health? Healthcare Capital Advisors can help. Learn more about our buy-side services.