With more Americans dealing with grief, anxiety and loneliness after two years of the pandemic, the mental-health services sector is ripe for investment.
Aric Crabb/Associated Press

By Khadeeja Safdar + and Gregory Zuckerman 

Psychiatrists and psychologists once ran their practices. Now the local therapist’s office could be controlled by a buyout king.

Venture capitalists and private-equity firms are pouring billions of dollars into mental-health businesses, including psychology offices, psychiatric facilities, telehealth platforms for online therapy, new drugs, meditation apps, and other digital tools. Nine mental-health startups have reached private valuations exceeding $1 billion last year, including Cerebral Inc. and BetterUp Inc.

Demand for these services is rising as more people deal with grief, anxiety, and loneliness amid lockdowns and the rising death toll of the Covid-19 pandemic, making the sector ripe for investment, according to bankers, consultants, and investors. They say the sector has become more attractive because health plans and insurers are paying higher rates than in the past for mental-health care, and virtual platforms have made it easier for clinicians to provide remote care.

“Since Covid, the need has gone through the roof,” said Kevin Taggart, managing partner at Mertz Taggart, a mergers-and-acquisitions firm focused on the behavioral-health sector. “Every mental-health company we are working for is busy. A lot of them have wait lists.”

In the first year of the pandemic, prevalence of anxiety and depression increased by 25%, the World Health Organization said in March. About one-third of Americans are reporting symptoms of anxiety or depression, according to the Centers for Disease Control and Prevention.

The number of behavioral-health acquisitions jumped more than 35% to 153 in 2021 versus the previous year, and of those, 123 involved private-equity firms, according to Mertz Taggart. In the first quarter of this year, there were 41 acquisitions, of which 30 involved PE firms.

The push into mental health carries risks. A rush of private-equity firms could send prices for practices higher, reducing potential profits. A risk for patients and clinicians is that new owners could focus on profits rather than outcomes, perhaps by pressuring clinicians to see more patients than they can handle. If care becomes less personal and private, patient care might also suffer.

Investors poured $4.5 billion into U.S. mental-health tech companies last year, ranging from meditation apps to platforms such as SonderMind, which offers in-person or virtual care from local therapists.

Online mental-health company Cerebral and other telehealth startups have begun to face scrutiny over their prescribing practices. The Wall Street Journal has reported that some of Cerebral’s nurse practitioners said they felt pressure to prescribe stimulants. This past week, Cerebral said it would pause prescribing controlled substances such as Adderall to treat ADHD in new patients. Last year, Cerebral logged a $4.8 billion valuation

Investors poured $5.5 billion into mental-health technology startups globally last year, up 139% from 2020, according to a report by CB Insights, an analytics firm. Of that, $4.5 billion was spent on U.S. firms. They range from platforms like SonderMind that match people with clinicians to meditation apps like Calm.

Venture firm General Catalyst has invested in 10 such companies recently, including SonderMind, which raised $150 million last year. General Catalyst last month led a $50 million funding round for Eleanor Health, which provides virtual and in-person mental health and addiction care.

Growing interest from investors and payers has attracted more entrepreneurs, said Holly Maloney, a managing director at General Catalyst. “It’s a flywheel,” she said. “People want to start companies where they know there’s interest in funding them.”

Ms. Maloney said one of the big questions will be if startups can get insurers to reimburse for their services. “We are excited to see innovation, and we will need to see how the payer mindset evolves,” she said.

The Mental Health Parity and Addiction Equity Act of 2008, a federal law that requires the same benefits for mental health as for other medical problems, laid the legal groundwork for insurers and health plans to cover services. But many plans don’t have enough in-network therapists to meet the needs of their members, creating an opportunity, investors say.

A rally for the Mental Health Parity and Addiction Equity Act outside the U.S Capitol in 2008, where House Speaker Nancy Pelosi spoke. mandel Ngan/AFP/Getty images

SonderMind Chief Executive Officer Mark Frank said the company offers in-person or virtual care from local therapists, and one of its main selling points to customers and investors is that its clinicians are in-network with most insurers in the states where the company operates. He said employers are driving the change. “It took employers starting to bang the table and say, ‘We want this benefit covered,’ ” he said.

Employers and investors began paying more attention to mental health during the pandemic because people were seeing the fallout up close and personal. “We’re seeing it in our kids. We’re seeing it in our co-workers,” Mr. Frank said.

Successful recent investments in the sector also have ignited interest. Mr. Taggart said Summit Partners, a private-equity firm in Boston, approached his M&A firm back in 2017 looking to buy small psychiatry and psychology offices. At the time, the idea appeared risky. “I thought, ‘How are you going to manage all these?’ ”

Summit backed LifeStance, helping it to grow and become one of the country’s largest outpatient mental-health companies. In May 2020, TPG Inc. and its investors purchased a majority stake in LifeStance, valuing the company at over $1 billion. LifeStance went public last year.

Earlier this year, Kelso & Company sold Refresh Mental Health, another operator of clinics, to UnitedHealth Group Inc.’s Optum unit. Financial terms weren’t disclosed.

Many private-equity firms have experience buying and building medical, dental and veterinary practices, and they see similarities in mental health. They say they can build large networks and help alleviate administrative, technology, and other burdens that therapists face. They say patients have an easier time getting appointments.

Eileen O’Grady, research manager at Private Equity Stakeholder Project, a watchdog group, says that adding staff or facilities doesn’t necessarily mean patients are receiving better care. “The private-equity business model is at odds to provide quality healthcare,” she said since such investors are looking to generate cash and rapid returns.

Private-equity firms investing in the sector, including KKR & Co., say they can invest in systems to protect patient privacy in ways that single practitioner offices can’t, and that they don’t sell patient data to third parties or profit from it.

Kelso managing director Hank Mannix said outpatient mental-health facilities have proven to be safe investments because clinicians continued to see patients online throughout the pandemic. He said Refresh increased its number of clinicians during Kelso’s 14-month ownership to more than 3,000, up from roughly 2,100, and expanded the business to 36 states from about 20. “We were very busy during our part of the ownership,” Mr. Mannix said.

KKR started Geode Health last summer to provide outpatient mental-health services. Geode is recruiting psychiatrists and therapists and starting practices around the country. It is also buying existing practices.

Over the next few years, KKR expects to spend between $100 million and $200 million from one of its funds to back Geode. KKR said it eventually will have hundreds of clinicians in Geode’s network, and will offer services in underserved parts of the country.

“Covid has shined a light on existing mental-health issues while also exacerbating them,” said Ali Satvat, who co-heads KKR’s healthcare business. “Demand is huge, but the needs are often not being met.”

KKR has also invested in a company called Brightline, which provides virtual behavioral-health care for children, teens and families, and it operates Blue Sprig Pediatrics, which runs about 150 U.S. centers treating children diagnosed with autism spectrum disorder.

Tim Epple, managing director at Avalere Health, a healthcare advisory and analytics firm, said most acquisition targets in the mental-health space aren’t mature enough to justify cost-cutting strategies that are typical in private equity.

“You still have a lot of individual practitioners—small therapy, psychology and psychiatry groups,” he said. “Extreme fragmentation in the market means a lot of opportunity for private equity to build platforms and add more doctors.”

Write to Khadeeja Safdar at and Gregory Zuckerman at

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