Investment & Consolidation in Mental Health Services

35603_7Investment_Consolidation_in_Mental_Health_Services.pdf

Provident Perspectives:

Investment & Consolidation in Mental Health

Services

The mental health sector has garnered much investor interest in recent years as the sector has seen expedient

growth driven by a plethora of industry tailwinds that are attracting private equity & strategic investment

Introduction

2

Theincidenceofmentalhealthdiagnosesisrising

acrossthecountrytoepidemiclevelswithover25% ofAmericanadultshavereportedhavingamental illnessdiagnosis.Thetruefigureisestimatedtobe over33%whenaccountingforthosecasesthatgo undiagnosed.Theincreasingdemandformental healthtreatmenthasputpressureontheindustryto growitscapacitytosupporttheinflux.Asaresult,the utilizationofmentalhealthservicesisalsoescalating asserviceusehasincreasedby15%since2007.De- stigmatizationandgrowingacceptanceformental illnessbroadlyhasaidedthegrowingindustry.

Inrecentyears,thementalhealthservicesindustry

hasbecomeanattractivetargetforinvestors.Strong demandforitsserviceshasspurredtheincreasein

M&Aactivitywithinthespace.Asafragmented

industry,thereissignificantcompetitionamong mentalhealthproviders.Consolidatorsarelookingto differentiatethemselvesbyengaginginacquisitions toexpandgeographicfootprint,purchasecapacity, andbroadenserviceoffering.Providentbelievesthat thefollowingindustrytransformationsandtrendsare drivingthenextwaveofmentalhealthconsolidation.

SectorDynamics

TheCOVID-19pandemichasbroughtabout

increaseddemandformentalhealthservices, givingrisetotreatmentoptionsliketelehealth

Inordertoimprovementalhealthtreatment

models,providersarelookingatintegrating mentalhealthtreatmentintothecontinuumof care

Withthegrowingneedformentalhealth

services,theindustryisundergoingsignificant consolidationinresponse,primarilydrivenby thefollowingfactors:

Diversepayorprofileandmovement

towardmentalhealthparity

Integratedcaredeliverymodels

Specializedtreatmentprograms

Risingpopularityoftele-mentalhealth

Value-basedreimbursement

Source: U.S. Department of Health and Human Services, IBISWorld, Pitchbook

Mental Health Deal Volume & Capital

Investment

$936M $3B $2B $547M $1B$1B $3B $542M $4B $1B $2B

40374038

48
65
48
74
64
62
45
0 10 20 30
40
50
60
70
80
$0M $1B $2B $3B $4B $5B

20102011201220132014201520162017201820192020

Capital InvestedDeal Count

Growing Market and Rising Demand for Mental Health Services

Amid COVID-19 Pandemic

TheeffectsoftheCOVID-19pandemicarebeingfelt

acrossallaspectsofday-to-daylife.Thementalhealth ofAmericanshassufferedasadirectresultofthe uncertaintysurroundingthepandemic.

Risingincidenceofmentalhealthdiagnosesoverthe

courseofthepandemic

AccordingtoastudyconductedbytheCentersfor

DiseaseControl,asofJune2020,40%ofadultsin

Americareportedsymptomsofmentalhealthor

substanceabuseoverthepreviousthreemonths, comparedtoonly25%theyearprior.Overthesame timeperiodfromtheyearprior,prevalenceofanxiety anddepressionwasfourtimeslower.Asofmid-

AugustaKaiserFamilyFoundationpollfoundthat

12%ofrespondentsreportedincreasesinalcohol

consumptionorsubstanceabuse,36%reported difficultysleeping,and12%reportedworseningof chronicmentalhealthconditions.Poormentalhealth outcomescanbelinkedtochronicfear,lossof employment,andisolation.Mentalhealthtreatment mustfindwaystoadapttorisingdemandandcare limitationsspurnedbythepandemic.

Telehealthemergesasaviableoptionformental

healthtreatment

PriortotheCOVID-19pandemic,only18%of

physiciansacrossthecountryofferedtelehealth services.AsofApril2020,YoYgrowthinthesector was4,347%.Tele-mentalhealthwasanearlyadopter ofthetelehealthcaredeliveryoption-thelackof physicallocationdependencyandtherisingneedfor servicesallowedforpsychiatricservicestobequickly integratedintoatelehealthformat.Integratedcare, direct-to-consumer,andmobilebasedareallviable optionsfortele-mentalhealthdelivery.Integrated careallowspatientstoconnectwithamentalhealth providerthroughtheirprimarycareoffice.Direct-to- consumerprovidersconnectwithpatientsexclusively online,most-commonlyviavideoconference.Lastly, mobileapplicationsallowpatientstointerfacewith therapistsovertheirphoneandoftenprovide symptomtrackingandmindfulnessexercises.State paritylawsarebeingimplementedtoguarantee comparableratesfortelehealthvisits.13states currentlyrequireparity.CMShasincludedpermanent coverageforseveraltelehealthevaluationand managementcodesforMedicarebeneficiaries.This rulingbodeswellforcommercialinsurersfollowing suitandmakingthesamecoverageexpansion.

Source: U.S. Census Bureau, Centers for Disease Control and Prevention, Commonwealthfund.org, NAMI.org, SAMSHA.org3

64%
29%

3%2%2%2%4%4%6%

85%

0%1-25%26-50%51-75%76-100%

Before PandemicDuring Pandemic

Patients Using Telepsychiatry During COVID-19

31%
33%
36%

31%32%

36%

25%27%30%

25%25%

28%

MayJuneJulyAugustSeptemberOctober

Anxiety DisorderDepressive Disorder

American Adults Reporting

Mental Health Disorder Symptoms During COVID-19

Strengthening of the Mental Health Care Continuum

Untreatedmentalhealthconditionscanhaveataxing

effectonthehealthcaresystem.Peoplewithmental illnessare40%morelikelytodevelopcardiovascular ormetabolicdiseases,20%morelikelytoexperience homelessness,andare28%morelikelytodevelopa substanceusedisorder(SUD).Itisestimatedthat untreatedmentalillnesscoststheUSupwardsof $300billionyearlyduetolossesinproductivity.These costshowever,canberemediedbystructured diagnosesandcaredeliverymechanisms.

PrimaryCareInterventions

Primarycarephysicians(PCPs)operateasagateway

tospecializedserviceswithinthehealthcaresystem.

Healthcaresystemsarestrivingtoimplement

behavioralhealthassessmentsandservicesinto primarycaretoidentifymentalhealthissuesin patientsbeforeconditionsworsenandeffectively directthepatienttothenecessaryservices.Asa result,increasedresourcesarebeingallocatedfor behavioralhealtheducationandtrainingofPCPs.The patientcenteredmedicalhome(PCMH)model, popularwithprimarycareoffices,isbringingcase managersandbehavioralhealthprofessionalsinto primarycaresettingstoaugmenttheservices provided,removingtheneedforexternalreferral.This co-locationapproachbringsamoreholisticoffering intotheircaremodel.

AcuteCareInterventions

Acutecareisamajorsourceofrecoursewithinthe

behavioralhealthsystem.Ill-equippedemergency departmentsoftenlacktheresourcesnecessaryto dealwithcomplexbehavioralcases.Drivenbylackof behavioralservices,acutecarefacilitiesserveas holdingplaceforthoseinsevereneedofmental healthcarebeforetheycanbeproperlydirectedto theappropriatepsychiatricservices.Sincemost emergencyroomslackbehavioralspecialiststoassess psychiatricneedsefficiently,behavioralhealthvisits createlongwaittimes(oftenthreetimeslongerthan average)andsignificantcoststothepatientsand payors,onaverageupwardsof$2,000pervisit.More cost-effectivecaredestinationsforacutecareare psychiatricspecificcenters,whichincludepartial hospitalizationprograms(PHP),crisisstabilization units,andevensomeintensiveoutpatientprograms (IOP).IOPprogramscanworkasaneffective stepping-stonetothecorrectlevelofcare,including: residentialserviceswhere24hoursmonitoringis provided;medicallymanagedtreatmentforthose sufferingfromSUD;orotherlevelsacrossthecare continuum.

CreatingEffectiveChange

Theresourcesbetweenthedifferinglevelsofcare

needtobecoordinatedandsharedtostrengthenthe continuum.Behavioralhealthgroupsareutilizing behavioralhealthfocusedEMRplatformsthatare tailoredtocreatingacollaborativeenvironment.

Mentalhealthcareisintegratingcasemanagersdue

tothecomplexityofbehavioralhealthneeds.Lastly, theconsolidationofmentalhealthprovidersasa networkwillactivelymanagethepatientpathway. Source: U.S. Census Bureau, Centers for Disease Control and Prevention, ASMA.org4 $566 $592 $681 $725 $761 $722 $763 $813 $896 $963 $991 $1,013 $1,089 $1,153 $1,225

20072008200920102011201220132014201520162017201820192020P2021P

Medicare & Medicaid Mental Health Clinic Expenditures ($B) Consolidation Drivers within Mental Health Services Industry

5Source: IBIS World, Agency for Healthcare Research and Quality (AHRQ), Psychologytoday.com, Pitchbook inc.

Asmentalhealthtreatmentcontinuestogain

momentumasanefficienttreatmentoptionwithinour healthcaresystem,mentalhealthpracticeshavebeen garneringincreasedattentionfrominvestorsand strategicacquirers.M&Aactivityisacceleratingas privateequityinvestorslooktofindplatform-capable groupsandconsolidatorslikehealthsystemslookat mentalhealthgroupstocapturemoreofthecare continuum.

In-NetworkOpportunity&MentalHealthParity

Inrecentyearstherehasbeenaprevailingmovement

amongthehealthcarecommunitytoprovidemore attentionandfundingformentalhealthservices.

Crucialtothistrendisthenotionofmentalhealth

parity.UndertheAffordableCareAct,mentalhealth (MH)andSUDservicesweredeemedandessential healthbenefits.Asaresult,planssoldintheindividual andsmall-groupinsurancemarketsmustincludeMH andSUDcoverageandaresubjecttoMHPAEA compliance(MentalHealthParityandAddiction

EquityAct).Althoughtheselawsareinplace,parity

hasstillbeendifficultformanyMHprovidersto achievewith28%ofpeoplereportingusinganout-of- networkMHprovider.Groupswithin-network contractsgenerallypresentmoreattractiveinvestment opportunitiesbecauseofthecertaintyoftheirrates andlargerreferralvolumes.Thepercentageofmental healthprovidersacceptinginsurancehasdeclined overtime,drivenbyhighdemandforcareandthelow supplyofmentalhealthprofessionals.Giventhe fragmentednatureofthespace,smallermentalhealth organizationsoftenlacktheinfrastructurenecessary toeffectivelycontractwithpayers,creatinganumber ofout-of-networkplayers.Partneringwithalarger provideroraprivateequitygroupwillgiveMH providersthescalabilitytogoin-networkwithmajor payersbecausetheycanincreasetheirpatient volume.Largergroupsarealsobetterpositionedto negotiateratesbecauseofthesizeoftheirpatient base.

IntegratedCareDeliveryModels

Theprovisionofmentalhealthcarecanoccurin

multiplesettings.Certaincaremodelsfocuson outpatienttreatment,othersonresidential,inpatient anddetox(inthecaseofSUDprograms).Platforms thatdeliverend-to-endcareintreatmentoffering oftenprovetobevaluablepartnerstobuyersbecause ofthemulti-levelreimbursement.Inthisway reimbursementisbeingcapturedatacute interventionslikedetoxandPHP,andalsoinalong- termsetting,suchasresidentialtreatment.Diversified groupsmaintaincontinuityofcare,allowingtheir patientvolumetoflowfromoneleveltothenext ratherthanlosingthepatienttoaprogramthat providesthatlevelofcare.Thecollaborativecare modelalsoleadstobetteroutcomesbecausethereis morecoordinationacrossthecaredeliverycontinuum,

bettertailoringcaretothe宬宱宧宬容宬宧宸室宯尋家needs.Mental

healthprogramsthatmaintainthisapproachtocare presentattractive,platformlevelinvestmentsfor privateequityfundsbecausetheyhavesignificant resourcestoscaleanddemandhighervaluations.As morecostpressureisplacedonprovidersby insurancecompanies,weexpecttoseehighdemand acquisitiondemandfromlargerhealthcareplatforms lookingtointegratebehavioralcare.Galen宓室宵宷宱宨宵尋家 recentacquisitionofEvolveBehavioralisevidenceof this.守容宲宯容宨尋家platformincludes,detox,IOP,PHPand residentialtreatmentoptions.Theplatformfocuseson treatingthepatientthroughoutthecontinuum,and offersgeneralmentalhealth,substanceabuse,and generalbehavioralcare.

InterestinSpecializedTreatmentPrograms

Eachpatientthatseeksoutmentalhealthtreatment

comeswiththeirownuniquesetofneeds,andaone sizefitsallapproachisnotfeasiblefortreatingthose withmentalillness.Mentalhealthproviders differentiatethemselvesbytailoringprogramsto specificpatientpopulations,suchasfamilycare, veterans,pregnantwomen,homeless,andinmates. Consolidation Drivers within Mental Health Services Industry (continued) 6

Source: IBIS World, Agency for Healthcare Research and Quality (AHRQ), The Wall Street Journal, Commongwealthfund.org.

Treatmentprogramsthatcurrentlydeployaspecialty

approachtocareorutilizeabe-spoketreatment modelwilldemandhighvaluationsfrombuyers.These groupsrepresentattractiveadd-onstolarger platformsthatarelookingtoexpandtheirservice offeringtootherpatientbases.Evidenceofthisis Kelso&Co.backed,RefreshMental宋宨室宯宷宫尋家 acquisitionofA+solutions.Refreshoffersa comprehensivementalhealthserviceoffering; however,A+wasanattractivepartnerbecauseoftheir educationalservicesoffering.Thiswas宕宨宩宵宨家宫尋家first entranceintotheeducational&psychologicalservice servicessector.

Value-basedReimbursementSchemesandEvidence

BasedTreatmentOptions

Behavioralhealthisnoexceptiontotheparadigm

shiftofvalue-basedcaremovementinhealthcare today.Thismigrationinbehavioralhealthistaking rootinevidence-basedtreatmentprogramsthatare outcomedriven.Payorsarebecomingincreasingly interestedintheeffectivenessofthecaregivento mentalhealthpatients.Evidencebasedcareproves moredifficulttoachieveinthementalhealthspace

because專宵宨宦宲容宨宵宼尉宬家宱尋宷asclearasitisinthecasefor

physicalailments.Valuebasedreimbursementfor mentalhealthprogramswillcomeintheformof merit-basedincentivepaymentspaidtothose providersthatachievebenchmarksinquality measures.BlueCrossofNCisrollingoutthispayment schemeviatheirBluePremierBehavioralHealthPlan.

Capitatedpaymentmodelsandotherrisksharing

mechanismarealsomovingintomentalhealthcareas payorslooktotheprovidersforcostcontainment.

Crucialtothesuccessofthesereimbursement

schemesismethodicaltrackingofpatientoutcomes andclinicaldata.Mentalhealthprovidersthat implementthesetrackingmechanismsanddata collectionarebetterpositionedinratenegotiations withpayors.Duetotherelianceoninformation systemtotrackthesedatapoints,privateequity presentsanimmediateopportunityinthattheywill investinITinfrastructurecapableoftrackingthese outcomes,betterpositioningpracticesinnegotiations withpayers.Astheparadigmshifttowardsvalue- basedcaregainsmoremomentumProvidentexpects behavioralhealthtobeanearlyadopterofthese reimbursementschemes.Theseincludefocuseson populationssuchaspregnantwomen,thehomeless, geriatrics,andthosewithco-occurringdisorders, amongothers.Moreover,theutilizationofspecialized careprogramssuchastraumainformedcare,crisis services,andcommunityinvolvementcanyieldbetter outcomesforthesespecificpopulations. 26%

27%17%

14% 9% 7%

Retail Prescription Drugs

Hospitals

Office Based Professionals

Specialty Centers

Insurance Administration

Long Term Care

Mental Health Industry Expenditures (2018)Mental Health Impact on Per Capita

Medicare Spending

0.89 0.34 0.89

2.692.78

0.84 1.95 5.07

All Beneficiaries

Aged 65+

0-1 Chronic

Conditions

2-3 Chronic

Conditions

4+ Chronic

Conditions

Without Severe Mental IllnessWith Severe Mental Illness 1.0x

Relative to Average Medicare Spend

Althoughprivateequityhashadapresenceinthis

industryforsometime,manyoperatorsarestill unfamiliarwiththisformofoutsidecapitalandits benefits.Privateequityinvestmentreferstoinvestors andfundsofcapitalthatseektomakedirectequity investmentsinprivately-ownedbusinesses.General Partners(GP)investthe宩宸宱宧尋家capitalinbusinesses thatalignwiththeirinvestmenttheses,seekingtoexit theirinvestmentstypicallywithinthreetosevenyears forsubstantialreturns.Uponinvestment,ora recapitalization,aprivateequityfirmwillacquirea stakeinaprivatebusiness,providingtheshareholders withsignificantliquidityintheformofcashproceeds aswellasretainedequityinthenewlyrecapitalized company.Post-transaction,privateequityfirms provideaccesstocapitalandexpertiseastheyseekto improvetheirinvestmentsbothfinanciallyand operationallybybuildingouttheinfrastructureto provideafoundationforgrowth.

Thetypeofgrowthinitiativevariesfrommodelto

model.Inmostcasesprivateequityfirmswillinfuse theirbusinesseswithcapitaltoincreasegeographic densityorganicallythroughdenovoinitiativesand inorganicallybyexecutingadd-onacquisitionsto enterintonewgeographiesandincreasemarket share.Byexpandingthroughacquisition,these investorscreateplatformsusedtointegratepractices underonecommonmanagementcompany.In tandem,withprivateequityfirmsmayutilizetheir capitaltoscaletheirportfoliocompaniesbeyondtheir existingserviceoffering.Mentalhealthbusinessesin particularcanexpandacrossthecontinuumofcare.

Theaccesstocapitalmayalsobetappedforlarge

capitalintensiveexpenditures,suchasthehiringof experiencedmedicalpersonneltoexpandintomore sophisticatedlevelsofcarelikemedicallyassisted treatment.

Inpastdecades,privateequityinvestorssoughtto

buyoutbusinessesentirely,directlyaccumulatingall theprofitscreatedbythebusiness.Asthemarket evolved,generalpartnersrealizedthevaluein keepingtheoriginalbusinessownersinvolvedinthe businessandhavebeguntoprovidemoreattractive partnershipopportunitiestoowner/operators.

Today,whenaclinicpartnerswithaprivateequity

groupshareholderswillhavetheopportunity,andin somecasesberequired,torolloverpartoftheir ownershipintothenewcompany.Thisprovides individualswithalargeup-frontpayment,taxedat advantageouscapitalgainsrates,alongwithequity ownershipinthenewcompany.Thisnewbusiness modelallowseachoperatortoshareinthe profitabilityoftheclinicastheyexpandthrough acquisitionanddenovoinitiatives.Afterathreeto sevenyearholdingperiod,itisanticipatedthatthe businesswillhavegrownmeaningfullyinsize, promptingthebusinessownersandprivateequity grouptoagreethetimingisrighttoselltheplatform toalargerprivateequitygroup.Duringthissecond transaction,operatorscanrolladditionalequityinto thenewlyformedcompany,providingasecond liquidityevent,orlump-sumcashconsideration.

The Four Stages of the Private Equity Investment

Refine Internal

Infrastructure

and Establish

Growth

Objectives

Increase

Market Reach

& Brand

Awareness

(De Novo)

What Is Private Equity?

7

Execute

Acquisition

Strategy

Exit

How Does Private Equity Grow a Business?

8

Source: Pitchbook.

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Sample Overview of Multiple Arbitrage

CompanyValuation

RangeRationale專宓宵宲宩宬宷室宥宬宯宬宷宼尉

EBITDAMultipleEV

PrivateEquity

Platform

Investment

9x-11x

Regionaldominance

Establishedinfrastructure

$10M10.0x$100M

Add-On

Acquisition4x-6xFirst-moveradvantageensuresless

competition$2M5.0x$10M

Combined

Organization10x-12x +

Valueofadd-onisenhancedasthe

organizationbenefitsfrompremium demandedfortheplatformcompany

Combinedorganizationleveragesthe

infrastructureandregionaldominance ofplatform

Synergiesfromcentralizingback-

officefunctionsandincreased leveragewithpayorsenhancethe

EBITDAofthecombinedorganization

$12M + $500K in synergies = $12.5M

11.0x$137.5M

Healthcareprovidersacrossawiderangeof

specialtieshavefoundthatthebestwaytostay competitiveinthemodernhealthcareenvironmentis togainsizeandscale.Privateequityhasbeenakey driveroftheconsolidationoccurringwithin healthcarethroughimplementinga專宥宸宼and宥宸宬宯宧尉 or專宵宲宯宯-宸害尉investmentstrategyinfragmented sectors.Thestrategystartsbypartneringwithan established專害宯室宷宩宲宵宰尉organizationthatpossesses talentedmanagement,astrategicvision,andabase infrastructuretoscalethebusiness.Followingfurther internalinvestment,organizationsalignedwitha privateequityfirmwillthenlooktoperform專室宧宧-宲宱尉 acquisitionsofsmallerbusinessesatlowervaluations thantheplatforminvestmentreceived.Thepractice ofincreasingenterprisevaluethroughacquiring smallerorganizationsisknownas專宰宸宯宷宬害宯宨 室宵宥宬宷宵室宪宨尉.Astheplatformorganizationgrows,its valueincreasesintandemwitheachsubsequent additiontotheplatform.Areturnisrealizedthrough asubsequenttransaction,atwhichpointthe organizationcanseeahigherexitmultiplebecauseof thepremiumthatistypicallypaidforthelargerentity uponexit.Inaddition,eachadd-onacquisitionthat wasperformedissubsequentlyexitedaspartofthe platformorganizationatthehighervaluation.The opportunitytoimplementthis專宥宸宼and宥宸宬宯宧尉 investmentstrategyasoneofthefirst-moversinthe fragmentedmentalhealthtreatmentmarketiswhat makespartneringwithaprivateequitypartneran attractiveoptionforgroupsthatpossessthequalities ofaplatformorganization.Thementalhealthmarket isripeforconsolidationasthetwomajorpublic consolidatorscontrollessthan10%oftheoverall marketshareleavinggreatopportunityfor competitionandconsolidation. 5%4% 91%

Universal Health Services, Inc

Acadia Healthcare

Other

Mental Health Market Share (2019)

Provident Deal Spotlight: Beacon Behavioral Hospital

BeaconBehavioralisaleadingregionalbehavioral

healthorganizationofferingawidearrayof outpatientandinpatientprograms.Beaconemploys over350staffandoperatessevenoutpatient treatmentlocationsandfourinpatienthospitalsand managesanadditionalinpatienthospital.宅宨室宦宲宱尋家 clinicalservicesincludestabilizationofcrisis conditions,medicationevaluationandtreatment, safetyevaluation,structuredgrouptherapy, psychosocialrehabilitation,andcomprehensive dischargeplanning.Apatient-centeredmodel focusesensuringpropercarefromintakethrough dischargewithmultipletouchpointsandefficient teamsdedicatedtoonboarding,stayanddischarged.

Thecompanywasfoundedin1998inBatonRouge,

Louisiana.In2007,thecompanyhadgrownto6

locationsandwasrenamedtoBeaconBehavioral

HealthwithSeanWendellasChiefExecutiveOfficer.

Sincethen,thecompanyhascontinuouslyexpanded

throughoutsouthernLouisiana.Throughtheir establishedreferralbaseandmarketinginitiatives,

Beaconhasbeenabletogrowinpatientand

outpatientratesby17%and6.7%,respectively,in 2020.

InNovemberof2020Beaconcompletedits

recapitalizationbyLatticeworkCapitalManagement (LCM).Beaconwillserveasaplatforminthemental healthtreatmentsector.LCMwilllooktoexpand

Beaconbyacquiringlocalcompetitorsandbuilding

outanewinpatientfacilitytoestablisharegional behavioralhealthplatform.

Providentservedasexclusivefinancialadvisorto

BeaconBehavioralHospitalintheirtransactionwith

LatticeworkCapitalManagement.

Beacon Behavioral Hospital Locations

Has been acquired by

Key:

Inpatient Facility

Intensive Outpatient Facility

Recent Consolidation in Mental Health Services

Providentbelievesthereissubstantialopportunityto

gainmarketsharethroughfinancialandstrategic partnerships.Theprimarysourcesofconsolidation willbedrivenbycontinuedinterestfromprivate equitybackedplatformsandlargestrategicacquirers.

Trendsinthemacrohealthcareindustrywillalsodrive

consolidationwithinmentalhealth,asapreference foroutpatientsettingstoreducecostsandenhance conveniencewilldrivementalhealthbusinessesto expandtheirfootprintgeographicallyandbuy capacity.Allofthesetrendswillbenefitmentalhealth businesseswithownerslookingtoexpandthrough partnerships.

Source: Pitchbook.

Select Mental Health Services Transactions

10 3% 10% 23%
25%
38%

Brain Injury

At-risk Youth

General Mental

Health

Development

Disabilities

Substance Use

Disorder

Mental Health Services Transactions by Sector

through Q3 2020 Deal DateTarget NameAcquirersService OfferingHQ Location Noveber-20Refresh Mental HealthKelso & Co.Comprehensive Outpatient MHJacksonville, FL October-20A+ SolutionsRefresh Mental HealthABA, Speech Path., Therapy, TutoringColumbus, OH September-20Comprehensive Counseling LSCWsLearnwellPsychotherapy, Family CounselingNew York, NY September-20NeuroPsychiatric HospitalsEnahnced HealthcareIOP, Therapy, Case ManagementNew York, NY

September-20Behavioral and Development CenterCenter for Social DynamicsABA, Family Therapy, Counseling Los Angeles, CA

August-20Next Steps Behavioral CentersAcorn HealthABA, CBT, Counseling Henrico, VA July-20Rebound Recovery CenterBrightViewDual Diagnosis, IOP, OP, SUDLexington, KY May-20LifeStance HealthSummit Partners, Silversmith, TPGComprehensive Mental HealthBellevue, WA March-20BRC HealthcareNewSpring Capital, VSSDual Diagnosis, Detox, ResidentialManor, TX March-20Houston Group HomesCaregiverIDD, ResidentialCrawfordsville, IN

January-20Lenox Hill Psychiatric AssociiatesBay Psychiatric AssociatesTMS, Ketamine Therapy, OPNew York, NY

November-19Authentic Recovery CenterDiscovery Behavioral HealthDual Diagnosis, Detox, IOP, Res.Los Angeles, CA

September-19Invo Healthcare AssociatesGolden Gate CapitalABA, Speech Path., Therapy, TutoringJamison, PA

September-19Community Psychiatric ClinicSoundCounseling, telehealth, SUDSeattle, WA

August-20Gelbart & AssocaitesCommunity Psychiatry ManagementDual Diagnosis, Counseling, SUDTorrance, CA

July-20KSPS Medical Consultants AppleGate RecoveryDual Diagnosis, MAT, SUDLouisville, KY May-20Kidz Therapy ServicesRegal Healthcare Capital PartnersChild Therapy ServicesGarden City, NY

March-20Promises Behavioral HealthBlueMountain Capital ManagementDual Diagnosis, IOP, OP, SUDLong Beach, CA

Case Study: Refresh Mental Health (Lindsay Goldberg)

11Source: Pitchbook.

Lindsay Goldberg / Refresh Mental Health Investment Timeline

2017201820192020

RefreshMentalHealthservesasaprimeexampleof

privateequityfollowingthestrategyofestablishinga platform,expandingtheirfootprint,bolsteringservice lines,andacquiringadd-onsatlowermultiplesto buildamuchmoreattractiveandrobustbusiness beforeexiting.

RefreshMentalHealthwascreatedasaplatformby

LindsayGoldberginSeptemberof2016.After

establishingthisinitialplatform,thegroupexpanded rapidlywithadd-onacquisitionscompletedevery~6 monthsafteritsinitialadd-onacquisitionofUrban

Balancein2017.

Refreshwasabletoexpandrapidlythroughoutthe

southeasternUnitedStatesacquiringMHbusinesses intheeatingdisorder,SUD,psychiatryandtherapy sectors.

Asaresultofthisrapidgrowthspurnedbytheir

privateequitybacking,Refreshnowemploysover

1500employees,has150locationsacross20states

andannualrevenueof$120million.

LindsayGoldbergexitedtheirinvestmentinRefresh

MentalHealthinNovemberof2020inasaleto

privateequityfirm,Kelso&Co.inadealvaluedat $750million.

Invests in

September 2017

Acquires

December 2017

Acquires

January 2018

Partial Hospital Systems

Acquires

January 2018

AP Psychiatric &

Counseling Services

Acquires

May 2018

Acquires

May 2018

Acquires

July 2018

Acquires

March 2020

Acquires

October 2020

Acquires

2017

Acquires

November 2019

Other Refresh Mental Health Acquisitions

Red Oaks

Daybreak Treatment Center

Acquires

November 2020

Forthelasttenyearsmentalhealthandthe

behavioralhealthspace,morebroadly,havebeen undergoingrapidconsolidationasdemandforits services,andincreasingadoptionfrompayorshas drivensignificantinvestment.

Inthewakeofthecoronaviruspandemic,increasing

hardshipwillbringaboutrenewedneedfor behavioralhealthservices.Asmentalhealth diagnosescontinuetheirexpeditiousgrowth trajectory,psychiatricproviderswillhavetoadapt, andtheindustrywillhavetoincreasetheresources tosupportit.Providentexpectstoseemostmental healthprovidersadoptingsomeformoftelehealth optionfortheirpatientsasinpersonappointments maynotbefeasibleforsomepatientpopulations.

Asthebehavioralhealthsectorcontinuestomature,

Providentexpectstoseeimprovementsmadeto

furtherprotectthecontinuityofcareformental healthpatients.Morecoordinationbetweenprimary care,acutecare,andlong-termcaremanagement willstrengthenthecontinuumofcareandreduce drop-out.Providentexpectsthatgroupswho embracethisapproachtocarewillbeviewedas moreattractivepartnersintransactionsastheycan retainpatientsforlongerperiodsandoffermore services.

Asthementalhealthspacecontinuestoevolve,

strategicconsolidatorsandprivateequityinvestors havebecomemoreinterestedinthegrowingmarket andarelookingtocapitalizeonthefavorable industrytailwinds.Providentbelievesthatthe increasedacceptancebygovernmentand commercialpayorswilllenditselftoparityin reimbursement.Additionally,weexpecttosee increasedinterestinthosefirmsthatcandevelopan integratedcaremodeland/orfillaparticularniche withspecializedtreatment.Lastly,thoseproviders thatarepositioningthemselvesforinnovationwith theadoptionoftelehealthandembracingvalue- basedcaretransformationwilldemandhigher valuationsfrompotentialinvestors.

Amidthechanginglandscapeofmentalhealth

provision,thebehavioralhealthteamatProvident willremainup-to-dateonalltransactions,trendsand challengesthattheindustryisseeing.

Forfurtherinformationpleasecontact:

Daniel宒尋宅宵宬宨宱

ProvidentHealthcarePartners

(617)226-4292 dobrien@providenthp.com

StevenGrassa

ProvidentHealthcarePartners

(617)226-4213 sgrassa@providenthp.com

Concluding Thoughts

12

ProvidentHealthcare宓室宵宷宱宨宵家尋investmentbankingteamworkswithprivatelyownedhealthcarecompaniesto

provideadvisoryservicesrelatedtomergersandacquisitions.Priortoformalengagement,Providentworkswith companiestoprovidetheupfronteducationtoshareholdersnecessarytounderstandtheeconomics,structure, andmotivationofatransaction.Followingtheeducationprocess,ifformallyengaged,Providentleveragestheir extensiveknowledgeofthebuyeruniversetofindthemostcompatiblepartneranddrivevaluationsfora

宦宲宰害室宱宼尋家previouslyilliquidstock.Drivingtheentiretransactionprocess,Providentfacilitatesandassistswith

dealstructuring,negotiations,exitplanning/processing,counselingamongstshareholders,andduediligence.

National Presence

1-3 Transactions

4-6 Transactions

7+ Transactions

Provident Office

21+Years of Healthcare

Investment Banking

145HealthcareDeals

Closed

12-15Landmark Deals

Per Year

25BankingProfessionals

Note: The above map represents states where Provident clients were headquartered. Provident has successfully closed transactionswith clients

operating in 45 states and Puerto Rico.

Provident Contacts:

13

Steven Grassa

Senior Associate

Email: sgrassa@providenthp.com

宇室宱宬宨宯季宒尋宅宵宬宨宱

Analyst

Email: dobrien@providenthp.com

Provident Healthcare Partners

Los Angeles:

315 S. Beverly Drive, Suite 504

Beverly Hills, California 90212

310-359-6600

Boston:

260 Franklin Street, 16th Floor

Boston, Massachusetts 02110

617-742-9800

Provident is the leading investment banking firm specializing in merger and acquisition advisory, strategic planning, and capital formation for middle-market and emerging growth healthcare companies. The firm has a vast network of senior industry relationships, a thorough knowledge of market sectors and specialties, and unsurpassed experience and insight into the investment banking process.