Good morning, healthcare fanatics.
 
Well, it’s a few weeks out from year-end, and it appears you all are working hard to get deals signed or bids in before year end.
 
According to a report Preqin published just this morning, healthcare-focused private equity is poised for a record year. Through November, 585 healthcare-focused deals totaling $56 billion have been announced – putting the year on track to surpass the 619 deals worth a record $57 billion in 2017.
 
It’s also the fourth consecutive year healthcare-focused funds raised more than $20 billion, Preqin said.
 
Among those that have been active is Audax Capital, which I learned recently prevailed in the process for 3 Rivers’ Phoenix Rehab.
 
And there’s Linden Capital Partners, which, if you haven’t noticed, has been both a busy buyer and seller this year. The Chicago buyout shop agreed to put up a $309 million equity contribution to support its LBO of Avalign, Moody’s said. The anticipated deal follows a William Blair-run auction for the maker of orthopedic implants, sources told me this week.  
 
ICYMI, Linden made about 4x on its recent sale of SeraCare.
 
Elsewhere in Chicago, Vistria Group is buying Frontenac’s Behavioral Health Group, whose network of clinics offer medication-assisted treatment to individuals struggling with opioid addiction.
 
Another tack to investing behind behavior health?
 
Tech.
 
Behavioral Health Group, of course, is just the latest example of sponsors’ continued appetite for providers of behavioral health treatment generally speaking.
 
Activity involving groups of clinics that treat everything from substance abuse to intellectual development disorders and autism disorder ought to remain steady. But sponsors are showing interest in software and tech providers supporting these companies.
 
One currently up for sale, I learned, is Rethink First. The VC-backed company serves various end markets, offering clinical tools such as video-based training for ABA therapists, and separately, physician practice management software for behavioral health providers.
 
Read my full story to learn who’s advising and more.
 
As it relates to Rethink, I’ve heard from more than one source that the sellers expect a big pricetag. It’s unclear what that means, but on the surface, behavioral health + tech seems like a nice recipe.
 
As one source put it: helping employees manage their autism benefits is an important market, and one that doesn’t have a lot of specialty offerings.
 
As for the most likely outcome of the auction for Rethink … well, that’s unclear. Some believe Rethink ought to be part of something bigger. One source suggested a strategic that services the employer ought to buy Rethink for its clinical tools and then sell its practice management business. The two offerings don’t have a ton of connectivity, the source said.
 
Rethink could be “a good arrow in the quiver” for a whole host of employer-facing companies - whether that’s Magellan, Optum or even Virgin Pulse, this source said. Virgin Pulse, btw, has been consolidating employee engagement benefits under the backing of Marlin Equity.  
 
Much of the rationale for greater institutionalization of behavioral health providers holds true for the tech helping support these evolving areas.  
 
One is the lack of reporting requirements from a payer perspective. People don’t know what quality looks like. There’s no standardization, and that’s problematic. One source likened the landscape to the “hinterlands”.
 
There also appears to be growing acknowledgment that if you don’t address behavioral health issues you can’t get ahead of chronic medical conditions or illnesses. In other words, you can’t treat one and not the other, the source said. As things stand today, behavioral health networks are not connected to traditional payer networks.
 
Other activity
 
In other dealmaking to be aware of in behavioral health, there’s Lightyear Capital and Oak HC/FT’s recent purchase of Therapy Brands, whose physician practice management tools serve behavioral health clinicians ranging from ABA therapists to psychiatrists and clinicians focused on substance abuse.
 
It’s fair to say the practice management piece of Rethink competes with Therapy, as well as with Insight Venture Partners-backed CentralReach.
 
It’s also worth giving a shout out to a couple VC-backed assets that have taken different approaches in their participation of behavioral health tech.
 
Oak HC/FT also backs Quartet, a tech provider that streamlines the hand-off between primary care and behavioral health. There’s AbleTo, which offers next-day phone or video access to therapists and behavioral coaches, while Lyra Health helps employees confidentially explore which behavioral health treatment they may be best suited for.
 
The big picture? Investors are not only looking at a consolidation play in terms of behavioral health treatment clinics, but also at the various ancillary areas that can help address industry bottlenecks.
 
Another top of mind bottleneck is diagnosis, a separate source told me this week. While everyone agrees that early intervention - getting kids into therapy early on - is important, that doesn’t occur until there’s been a diagnosis, the source explained.
 
That being the case, the source said another ancillary area to watch will be the various genetic labs and diagnostic providers playing around in the space. While a still nascent and evolving area, there are interesting companies out there trying to find the earliest indicators of developmental disorders, autism, etc., the source said.
 
That’s all I’ve got time for today. Have a great weekend, everyone.
 
Reach me at springle@buyoutsinsider.com with any feedback, tips, or just to say hello.
 
-Sarah