Podcast - The Evolving Landscape of Behavioral Health Transactions: Insights from Industry Professionals

Morgan Ribeiro: Welcome to Counsel that Cares. This is Morgan Ribeiro, the host of the podcast and a director in the firm's Healthcare Section. On today's episode, we are continuing a series we recently started with observations on trends impacting our clients and the behavioral healthcare space. For this conversation, I'm joined by John Arnold, a partner in the firm's Healthcare Transactions practice, and Erika Haanpaa, a managing director at Cain Brothers. John and Erika are here to provide insights on the evolving landscape for behavioral healthcare transactions. While behavioral health mergers and acquisitions activity over the last, past 12 months or so is down from the levels that we saw in 2021 and 2022, we are still seeing strong investment interest in the space, and key investment drivers include the still-unmet social need for behavioral health treatment, expanded third-party reimbursement and evolving business models that create opportunity for established providers and new entrance. At the same time, capital constraints, higher interest rates, inflation, ongoing staffing challenges and lingering economic uncertainty have made buyers more selective and placed an even greater emphasis on due diligence and vetting applicable regulatory and third-party reimbursement issues, which we will talk about all of this in our conversation today with John and Erika. And before we jump into our discussion, would love for each of you to share more on your background and the work that you do in the behavioral healthcare sector. So, Erika, I'll turn it over to you.

Erika Haanpaa: Thanks, Morgan. Hi everyone, I am Erika Haanpaa. I am a managing director at Cain Brothers and I run our behavioral health practice, and I spend all of my time working with providers in the behavioral health space. And most of that is focused on advisory buy-side, sell-side-type transactions, but Cain Brothers is part of KeyBanc Capital Markets, which is a full-service investment bank serving clients across all sectors and all services and needs. I'll leave it with that and happy to share more as we have conversation.

Morgan Ribeiro: Thanks, Erika. John, how about yourself?

John Arnold: Thanks, Morgan. I am a partner in our nationally recognized Healthcare Transactions practice. I spend 100 percent of my time in the healthcare space working across various healthcare services sectors. In addition to my work in ABA, outpatient mental health, IDD addiction treatment and other subsectors in the behavioral health space, I'm very active in dental physician practice management and other outpatient healthcare services sectors. I'd point to a part of the body or name a specialty or provider type, I've probably done a deal in that space. I predominantly represent PE groups in their portfolio companies on transactional matters, but also handle sell-side engagements involving private equity and strategic buyers. And I'm usually the first phone call when a client has a legal need, and it's the diversity of my practice, both in terms of the sectors I work in day-to-day work I'm doing, that is probably my greatest source of stress but the thing I enjoy the most about what I do well.

Morgan Ribeiro: Well, thank you both for that, and let's just get started and jump into the conversation. First, I'd like to focus on where you are seeing transactions happen across the behavioral healthcare sector. So, Erika I'll start with you, can you touch on what's really driving the deal activity that we're currently seeing in the behavioral healthcare space?

Erika Haanpaa: Yeah, I think this year it's really been autism that has been the most active, and part of that — will probably talk about this a bit more later — part of that is a little bit of when you think about the cycling of performance that a lot of providers have seen in the space, that for many 2022 was a bit slower year, then 2023 picked up and we have, you know, a nice track record of positive performance for the companies that have gone to market this year and are potentially coming to market soon. And then within the other subsectors as SUD seems to have a bit more, I'll say, consistent deal flow, doesn't quite seem to cycle as much as what you might see in other areas of behavioral health in that it's perhaps a bit more mature than some of the other subsectors as well. So there hasn't been as much of kind of cycle timing impacting the deal flow there, and there are a number of tuck in that can happen in just about any market in that space. You know, we've seen some areas slow down a bit, not as much in eating disorders or mental health really this year, at least not that I've seen. And IDD has been a bit quieter for the past couple of years, but I think those trends will probably shift again here in the near term.

Morgan Ribeiro: Right. And John, how about you? Anything to add there?

John Arnold: Well, I agree with Erica on the ABA space. I think we're starting to see the 2.0 era of investments in the ABA space. I think Erica's behavioral framework deal at the beginning of '24, the spark that jumpstarted deal activity for the year, and it's not just platform deals, I'm seeing an uptick in platforms using M&A to grow. I do think the uptick in the add on-deals in the ABA space will be less in part due to high interest rates and some existing platforms not being well positioned to turn on the M&A. But I think it's also due to the ability of ABA companies to grow organically and through de novo opportunities. I think for the same reason, though, the cost of admission doesn't have to be a hundred-plus million-dollar platform deal. You know, it can be a solid asset in a good region with the ability to expand into attractive markets, that can be your first play in ABA. At the same time, though, there's not many large founder-owned assets out there now, which can be a limiting factor for investors who are looking to spend a little more capital but maybe don't have the capital to go out and buy an existing platform.

Erika Haanpaa: John, just to tag on to that, I think in ABA there's a ton of opportunity for organic growth, as you mentioned, and there's a little bit more complexity in trying to do a tuck in that space when you think about the perspectives of the clinicians and actually getting cultural alignment, which is something that's so hard to measure on a piece of paper. So I think that that presents its own issue with tuck-ins.

John Arnold: Yeah, I agree on the add-on deals being the more complex for your traditional tuck-ins. I think there are kind of nontraditional add-on deals where you have some pre-2020 platforms that haven't fully recovered from COVID and post-COVID, you know, labor inflation cost and staffing issues that are not bad businesses. But they're not going to trade like a traditional platform would, and those could be strong pickups for existing platforms over the next 12 months, 24 months.

Erika Haanpaa: I agree with that point completely, and I actually think there are probably a good number of somewhat subscale that could be very complementary and have some of that alignment and could mesh all together when you think about the evolution of M&A in the ABA space.

Morgan Ribeiro: So, John, you mentioned we're going into, about 2.0. What is 1.0? What did that era look like, and how does that differentiate from what we're seeing now kind of in this new era of investment?

John Arnold: Yeah, I think in the kind of 1.0 era there was everyone wanted to get in and they wanted to make a splash, they moved quickly and they were often planting flags in new states with, you know, good markets, good demographics, good rates but that may be, you know, half a country over from where the management team is and they're predominantly home-based. While I think the recent trend has been certainly more toward regional density and center-based care, and I think it's just much easier to manage and operate a successful business when you're not spread thin in 15 states and you're really dense and doing well and, you know, in three to five states. Erica, you've probably seen a shift in kind of how the valuations and financials of the deals have changed somewhat.

Erika Haanpaa: Yeah, and I'll say, I think the home-based models are still in. Multistudy models still get a lot of interest, and we can talk more about that later. But on the overall kind of valuation impacts and agree with everything, what you said about, you know, regional density and the like. On the valuation impacts, I think what we've seen really shift in there relates to investments in ABA platforms, is that, you know, not 17, 18, 19, 20 kind of time frame, you would likely see full maturity adjustments underwritten as it relates to the EBITDA. So I don't think the multiples have changed quite as much, but the EBITDA that is underwritten has changed. So I think you can justifiably and arguably get credit for run rate adjustments in, you know, kind of looking at the EBITDA performance of businesses, but getting credit for those earnings that are on the come, that's just much less likely to happen today.

John Arnold: You make a good point about the home-based services versus center-based services and the center-based services almost being an add-on to the home-based programs, not shifting fully away from home-based. We also see a bunch of school-based and, you know, certain school programs like the business itself as a school for children with autism, and those are attracting investor interest.

Erika Haanpaa: Yeah. And I think within that, if you think about the ABA market in particular, the centers tend to focus on kids that are before school age, whatever the exact numbers are for any individual provider. But then the home-based services allow for continuity of care and school-based, I should say, of care, once a kid kind of graduates from that early intervention center-based program. And there's a lot of demand for those services.

Morgan Ribeiro: You mentioned earlier IDD, we can dive in that deeper on some of the trends that we're seeing there.

Erika Haanpaa: Sure. So within the IDD space, I think we really haven't seen much activity since 2021. Part of that I would attribute to the labor challenges of, you know, late '21. 2022 was a really tough labor year, especially in kind of high turnover sectors and, you know, areas where you might have lower wage staff that are performing some of the functions [that] were hit really hard during that time frame when, you know, great resignation, people not returning to the workforce post-COVID when there was a really high demand for these services. Well that all led to massive labor inflation for the cost of labor. So that certainly impacted these providers. IDD doesn't tend to be a really strong margin business, it all depends on, you know, the states, the rates and the wages. But that has a real impact on the ability to transact when you're seeing those types of fundamentals impacted. That has all normalized now, I'm glad to say, and you know, states are finally catching up with some of that wage inflation. So it's looking very positive, and I think we'll start to see more activity in the space.

Morgan Ribeiro: John, that so much of what you're seeing?

John Arnold: Yeah, I agree. It's a very fragmented market. I think a lot of the main providers and markets are still nonprofit, and faith-based, in and of itself, can make transacting, you know, difficult. And from an investor's perspective, it is more complex than other behavioral health sectors. It is more complex than an ABA business. Reimbursement rates can vary wildly by market. Programs are almost exclusively waiver-based programs. Sometimes there's other funding from the state and local government agencies, so you can be highly dependent on those agencies for your funding, and kind of the diversification of your revenue streams, I think, is important here. I think, as Eric noted, I mean, it's a space where the impact of labor inflation cost and staff shortages was particularly significant, I think, even relative to other behavioral health spaces.

Morgan Ribeiro: Switching gears a little bit to substance abuse, I know that's an area where we've seen a lot of activity in over the last few years or some larger platforms. I would say this is one area in particular where we're seeing some regulatory headwinds. Erika, we want to talk about what you're seeing in this space in terms of deal activity.

Erika Haanpaa: I'll say Morgan, my ears kind of caught up when you said regulatory headwinds, and I was thinking maybe John can talk a little bit about that.

John Arnold: Yeah, I think, look, there's been not always the best press releases about substance abuse disorder facilities programs, and it's a space where I think there's just increasing kind of regulatory scrutiny, not necessarily in the sense of AG oversight and big scary things everyone's been focused on for the last few months, but more so AHCA and fraud and abuse issues, just licensure issues. When we look at a residential, you know, SUD business, one of the things we often have to talk to our clients about when we're on the buy side, maybe this is their first investment in the space, is, you know, look, the facility did have 17 licensure violations last year. Of those, 17, 16 were fairly normal course for this type of business considering the patient population services they're providing and other factors. Here's the one you really need to worry about, right? So it's kind of one licensure violation. That's a unique way of having to look at things. You're not used to it that way. It is an area where I think there is kind of more regulatory scrutiny, more ways of kind of messing things up and where I think the compliance function becomes more important than it does in perhaps like, you know, in ABA space. Not to say it's not important there, but there's just more with the job and more to be attentive to if you're running, you know, inpatient substance abuse facility, right.

Erika Haanpaa: Well, and I think actually that brought out one of the main factors for me, is I think about SUD treatment facilities because there is a wide variety of quality and compliance as it relates to those programs. The ones that are most actionable in terms of a transaction are those that are most compliant and have high-quality reputations. And from an overall market perspective, I think there always is demand from an acquisition, like appetite for an acquisition of a high-quality SUD treatment provider, because the demand for these services isn't going away, it just continues to grow and get worse. And you know, the providers that are focused on and driving and delivering that quality care are the ones that also have the best relationships with the referral sources, the payers, and good reputations just across the broader community. And there's demand for that.

John Arnold: I think the programs that are on top of compliance are on top of outcomes. You know, they can tell you, here's our patient dropout rate and here's the data that backs up the success of our treatment programs. And then those that you know, have built out and have a comprehensive service program, right, because these patients typically have dual diagnoses. And that allows for introducing your psychiatric and other outpatient services expanding into IOPs. I think the programs that, you know, offer the more comprehensive service offerings are going to be best positioned and more attractive to investors in the long run.

Morgan Ribeiro: Well. And then another area that's been growing even beforehand, but particularly post-COVID, it's teen and youth services. And that kind of covers the gamut. But primarily, you know, those that have been diagnosed with depression or anxiety or other behavioral health disorders. So maybe talking about some of the programs and investments that are happening in that space.

Erika Haanpaa: So I think there's a lot of demand for investment in that space and a lot of interest. There just aren't a ton of scaled or semi-scale of assets out there. There are a handful. But beyond that, there's a lot of kind of smaller providers that are starting to gain traction. And I think part of that is we talk a lot about the evolution and time frame for the growth of these different subsectors within behavioral health. I'm just not sure there was quite as much an appreciation for the need for services for this population in particular. Of course, like we had seen Newport and some of the other providers, but there weren't a ton that were focused on this, until kind of COVID, I think that's when the awareness really shot through the roof for these services.

John Arnold: I agree. I mean, post-COVID, you've got these shifting societal views resulting in, you know, what I would describe generally as like a very positive focus on teen and youth behavioral health. And then increased instances of teens and youth being diagnosed with depression and anxiety. Studies showing that the keys to long-term treatment success is early diagnosis and intervention and treatment and probably not where it should be, but increased funding and some legislative reforms focused on it. But to your point, almost in its infancy, everyone kind of sees the tailwinds, but kind of what's out there, right? So like in the PHP/IOP space, not much of any scale in the market right now that we are seeing kind of start up to know those who are entering that space. And so maybe deal activity there is, you know, 18, 24, 36 months out perhaps, and then, you know, programs for youth, got to take a step back, they're going to be structured differently, I think, than those for adults. Right. If you've got a IOP program, you got to account for the fact kids are in school. They've got all sorts of activities that they're doing these days, probably many of which are contributing to their stress and anxiety. You know, they do. I know how jampacked my kids' days are and, you know, in IOP program, it's called an intensive outpatient program for a reason. So even if you've got something successfully happening in the adult space, it's probably not going to translate perfectly to the youth space. It's not as simple as just changing the name to youth or teens and doing the same thing.

Erika Haanpaa: Well and I think on that point, it's important that you have clinicians that are focused on working with that population to deliver the outcomes that everyone's looking for. You mentioned it being in its infancy, so there are residential, some IOP programs, also companies that are delivering services in schools. So I think we'll see a variety of ways people are tackling this problem, but it's really just getting started.

John Arnold: Yeah. And I think less intensive, kind of more traditional outpatient end of the market counselors, I think there are some reimbursement issues there. It's a very fragmented, open space right now where there's a lot of opportunity, I think, to improve care, be a part of the solution here. But it's so fragmented, reimbursement rates are so low, that it's challenging to kind of make that work.

Morgan Ribeiro: Over the last few years, we've heard a lot about the impact of labor and wages, I would say, overall, in healthcare, but particularly the impact it had on behavioral healthcare sector as a whole, but particularly on deals. So can you talk more about the impact of labor and wages?

Erika Haanpaa: I think it hit the IDD and ABA spaces hardest, probably. Because those are subsectors that have traditionally high turnover. Anyway, in normal times they have pretty high turnover, and that's part of being a growing provider in those services. But when you add another 10-20 percent turnover rates and something that might already be as high as 80 percent, that makes it really hard to keep up with the staff needs, not only to support your existing clients because you need to refill that slot for somebody that recently left. Then to think about adding staff or new hires, especially in a time when people would accept the job and not show up. And we were seeing that kind of thing. It made growth really hard to come by in those industries and then created some pressure on the margins. I think we saw many different ways people tackled the labor challenges, and I think many of the businesses in the space are frankly more resilient for it today because they have come up with creative solutions to source talent, to train talent and to have a clear pipeline of talent to support the growth that they're expecting.

John Arnold: Yeah, I agree with that. I mean, you can look at the ABA space. Recent study I saw said that there were less than 100,000, I think less than 70,000 BCBAs in the U.S. There's over 2 million children diagnosed with autism. So you've got staff shortage to begin with. You've got labor inflation costs, and they're down by a few percentage points, that doesn't mean the cost of the labor is not an ongoing concern. I will say I'm hearing less about rising labor costs and conversations have kind of returned to the, I think, recurring issue of like turnover. Right. We were talking about that in 2018. We're talking about that today. 2018 we weren't talking so much about labor inflation costs. So the staff turnover point I think is just somewhat inherent in the business. And it's really not surprising. I mean, these staff work physically demanding jobs with high-need patients, and when reimbursement rates in ABA, for example, have kind of stagnated in some markets, I mean, it makes the wage inflation issue much more challenging, right? It's going to continue to be, I think, a factor that folks are looking at when they're making their investments. But I do feel like it has changed now toward the conversations we were having in, you know, 2018, 2019, pre-COVID about staff turnover, right. Like what is your staff turnover rate, how do you retain and train your providers? And it's not so much about the cost of labor anymore, but it's still there. And then, you know, I would just say my experience is anecdotal, but it's certainly been that this is usually a mission-driven career for many providers, especially those who have, you know, gone to postgraduate programs and gotten license, so BCBA, for example. And I think having a business that shares their mission and is focused on outcomes and supporting their delivery of care is the best thing you can do. And I think that's going to overcome a lot of a lot of issues. I think that's where folks have been devoting their time and resources in the last few years.

Erika Haanpaa: I agree with you. I think that certainly rings true for the kind of more senior kind of master's level clinicians. I think on the technician side, you'll certainly have a subset of those that see this as a long-term career. But part of that workforce tends to be a more transient workforce, and that's just part of the business.

John Arnold: And this is not a warning, and I would not call this a trend because what I've seen has been pretty region-specific and recent, but I have seen an increased in organized labor in the behavioral space in the last few months. It again, may just be recent experience, I'm suggesting that this is something to watch for. But the reasons behind, you know, organized labor, if you look at nurses who have organized, right? It's really not that different than in the behavioral health space. So just something to watch out for and pay attention to in the coming months to see if that picks up.

Morgan Ribeiro: Let's talk about what's important to buyers as they're out there in the market. I mean, of course they're interested in EBITDA and the financial metrics, but it seems like clinical outcomes and quality are increasingly important component and how they're really measuring that when they're looking at positions or investments.

Erika Haanpaa: So I guess my answer would be there isn't a consistent way outcomes are measured, but as a provider that will frankly be more interesting in a process, and when demonstrating outcomes, I feel it's imperative on the provider to decide which outcomes are important to them and be demonstrating those outcomes for the payers and everyone in their ecosystem. I think within behavioral health, because there isn't like a specific blood marker that you can show improvement in — certainly you can show goals mastered in ABA, but how they're identifying, tracking and measuring those goals can vary from provider to provider and which scores we're looking at in assessments, those things can be variable — but that the provider within their organization is doing something to keep an eye on outcomes and trends and has defined what good is for them, I think, is an important piece of that.

Morgan Ribeiro: One of the things that we've seen just in terms of overall, just at a federal and state level, some of this scrutiny around private equity or kind of investor-backed healthcare that we need to maybe dispel some of those perceptions. Is that something that you've seen in working with your clients in the behavioral health space in particular?

John Arnold: Yeah, we can debate some other time. Some of the messaging out there around private equity investments in healthcare. One can say with confidence is the resources and capital that private equity can bring to the table is invaluable for many of these businesses that are often mom and pop businesses that did not have the resources. They did not have the sophistication. They didn't have the expertise to develop and implement a robust compliance program to do a HIPPA security risk assessment. They didn't even know what that was, right? And so I think what we see, especially when you go to the recap, is you've got a company that, you know, started with like little to no compliance infrastructure, and through the investments and expertise, sophistication, that that investor brought to the table, now have a thriving, robust compliance program that's operating as it should be. They are auditing the charters of new providers who start, they are following up with them and educating them on issues, they're doing their rogue exclusion checks on a monthly basis and the state-level exclusion checks on a monthly basis, they're doing their annual, have a security risk assessment. So they're doing the right things that you don't see in companies that lack that kind of capital and resources. And what I think is often missing from the discussions is the ability of private equity-backed behavioral health platforms to serve the neediest populations, where maybe the reimbursement rates aren't as great, but because they can bring scale, they can innovate, they are able to successfully serve those populations and have great outcomes. And that's not talked about. I will leave it at that. But there are certainly two sides to the story that's being told out there. And it seems like one side certainly kind of getting most of the words, and there are so many great things that these companies bring to the table.

Morgan Ribeiro: Absolutely. Yeah. So I want to maybe switch gears a bit, but it's also a term that I feel like gets a lot of play and would like to get your feedback on it. I was actually just at a conference this week, and one of the speakers said that value-based care is sort of a wastebasket term. There's a lot of questions, I think broadly across healthcare, about the success of value-based care and some of those initiatives. What are you all seeing in terms of value-based plays in the behavioral health space?

Erika Haanpaa: I think value-based care and behavioral health gets a lot of talk, but the ability to implement something that is truly value-based is exceedingly challenging, especially when you think about, within the payer system, the behavioral side and the physical healthcare side are separate. And if you wanted something that was truly value-based, frankly, a lot of the savings on behavioral interventions may actually come in the reduction of physical healthcare costs, and within the peer organization, one side of the house isn't incentivized to save money for the other side of the house. It's really hard to create something that is truly value-based. It's not even really the incentives. They don't necessarily have insight into what's happening with those outcomes, right, in those savings that occur. And they may be occurring, you know, a couple of years down the road versus in the next 30 days.

John Arnold: I agree, I think value-based care in the behavioral health sector is squishy at best right now. It is a great concept. It is something to strive for. But the practical realities of it and the current highly fragmented market where there's often, you know, not the scale and data necessary to truly implement something meaningful. I don't see it happening in a very meaningful way now or, you know, probably in the next few years. It is a process.

Erika Haanpaa: Going back to that, one of the points I made earlier, there isn't a consistent way to measure outcomes and show improvement across all areas of behavioral health as well. So that makes it even harder.

John Arnold: And even in certain sectors where on paper it makes sense. So you can think like substance abuse disorder, you know, medication assisted therapy or office-based opioid treatment, much cheaper than residential settings, much cheaper than someone being in the hospital. That should be something where on paper, value-based care makes sense, but actually implementing that's a totally different story.

Morgan Ribeiro: Absolutely. Can I switch gears here a little bit back to what we were discussing earlier, John, around going to private equity- and investor-backed behavioral health. Of course, the state legislation that's being considered kind of across the country in various states around private equity investments and healthcare practices. California bill AB 3129 has received a lot of attention, and fortunately for many, Governor Newsom did recognize that there was duplication in that legislation that had passed there and ended up, you know, vetoing that. I think that there's still a lot to be considered here and how that impacts behavioral healthcare deals that are getting done at a state-by-state level. So if you were to do an acquisition or you're looking to sell a practice in a certain state like Indiana or Oregon or California, that's going to impact how deals get done. So, John, maybe you can talk more specifically about some of the state legislative actions that we've seen over the last 12 months or so.

John Arnold: Yeah. Thankfully, Governor Newsom, you know, did veto AB 3129, citing it being duplicative of legislation that it passed for them in the last 12 months or so. It certainly would have been detrimental to healthcare access and costs, I think, and introduced significant uncertainty and ambiguity internally. We had assessed the bill, and you know, we had a running list that was two pages long of very fundamental, straightforward questions about, you know, what does this mean? Right? So the bill was very concerning, and thankfully it was vetoed. It hasn't stopped the train, though. There's legislation pending in Pennsylvania right now. Indiana recently passed something. You noted the legislation that was passed in Oregon. And I think it's notable that AB 3129 and many of these other bills, you know, do pick up licensed counselors, psychologists and other forms of behavioral health providers. And so I think that they're kind of more extreme and they are picking up kind of the full spectrum of healthcare providers from hospitals to marriage and family therapists. At the other end of the spectrum, you know, I think they're kind of honing in on licensed healthcare facilities. So I mentioned the Pennsylvania bill as an example. Current iteration of that — it's evolving by the day almost — but the current iteration of that has kind of really narrowed it down to kind of healthcare facilities and health systems. So there's kind of a licensure component to what's pending there. My hope is that we've reached the peak of this frenzy of states targeting private equity investments in healthcare, or at least that legislatures will take a step back and take a more thoughtful and informed approach to the issue. Again, we can debate pros and cons of private equity investments in healthcare, but any debate like that has to at least start with acknowledging that, you know, private equity investments can and often do lower healthcare costs, increase access to care, improve outcomes, support services to the most needy populations. And they're able to do that because they have access to capital, resources and sophistication that non-feedback companies just simply don't have.

Morgan Ribeiro: Going along the lines of deal making, I think obviously that impacts, you know, our kind of statement as a firm has been around you know, the sky is not falling, right. I think it's just really considering how these legislative actions could potentially impact how the deal gets done, the timeline and sort of sticking through that. If you're aiming to get a deal close by a certain date, sort of factoring in the states' specific licensing requirements, etc. So I also think over the years, you know, the cadence of deals and the timing to close has shifted quite a bit. And in the behavioral setting, I'm just curious — maybe, Erika, you can lead on this one — what that timing looks like from start to close and some of those considerations for those who are listening, who are looking to get deals done in this space.

Erika Haanpaa: Yeah. In fact, this has been across all of healthcare. The timing kind of in the initial phases of sale process. So preparation that always varies a bit, but we want to do as much work as we can in the preparation phase. But from the timing of starting to reach out to buyers, you know, that timeline to indications of interest and letters of intent for a kind of, call it a traditional auction process, that hasn't changed that much. It fluctuates a bit with each client, but it's, you know, a couple months. What has changed is the timing between getting a letter of intent and closing a transaction. At least in my perspective, what I've seen, it seems to take a bit longer in terms of the timing to complete all that due diligence, kind of get the rep and warranty policy underwritten and then, you know, kind of sign and then subsequently close the transaction. Of course, part of that is the regulatory, which is out of anyone's control, but the timing to, you know, get to sign a purchase agreement and do all the diligence, that does seem to be taking a bit longer where it's, you know, maybe a couple of years ago it would be 30 days and almost everything would be done. Now it seems more like two months based on the transactions.

John Arnold: I agree. And the other area where I've seen a little bit of a shift has been, these are probably more vintage companies who are kind of going to market, the reaction they're getting isn't maybe what they were looking for. And so I've got several that have kind of been stop and go for the last 18 months. We've started a process two or three times. We've kind of slowed it down. And I think that's been a product of a whole host of factors that we've already talked about. And a lot of it interest rate-driven issues for some buyers and trying to kind of make the economics of it all work. But I do think in the last six months or so, that has stopped for the most part. I think it's been a go. It's been a go. So I'm not seeing that as much as I was just, you know, one or two that are a little stop and go but that's been positive. So I think some of the just the uncertainty around dealmaking generally is kind of phasing out at this point, and that, that wasn't the case, you know, this time last year.

Erika Haanpaa: I agree completely.

Morgan Ribeiro: Last question for you guys. We're obviously, hard to believe, heading into the end of the year and starting to look towards 2025. You all have any sort of predictions and what we can anticipate in the behavioral healthcare sector for next year?

Erika Haanpaa: Well, I'd say broadly across dealmaking, I hear a lot of talk about activity kicking off very robustly in 2025 with more things getting ready to come. Maybe I'm slightly optimistic, but not quite as optimistic as that talk would lead me to perhaps be. Maybe a little bit of skepticism, maybe healthy skepticism after what the past couple of years has been. But I do think the transactions we've seen this year, particularly in ABA, but in other areas as well, are leaning toward continued momentum, I think, and behavioral.

John Arnold: I agree. And if you just were to look at the market of existing PE-backed companies and you do the simple math on how long they have been invested in those companies and what their typical timeline is to sell those companies, I think, you know, there's a number out there that needs to go to market for liquidity purposes. But just more generally, I think the activity is going to be picking up. I'm not as optimistic as others, but I also think the past few years haven't been as down as people may lead you to believe. I think it's relatively steady if you look at it linearly and 2021 part of it.

Erika Haanpaa: Ignore that big spike.

John Arnold: It's about kind of resetting what expectations are. It's just disingenuous to think that 2021 is like the new normal. It's not. If you look at it as kind of more linearly, where are we? I don't think activity has slowed to the extent that people have made it sound. I mean, you can look at the stats and they kind of are what they are, but, you know, we've certainly been steady. Has it slowed down a little bit? Sure. But is it dropped off? No, not at all. And I think the interest rate environment is kind of normalizing. So I think all the fundamentals are there for 2025 to be busier than 2024 was for sure.

Erika Haanpaa: I agree.

Morgan Ribeiro: Well, that's exciting. I look forward to checking back in with you guys this time next year. See if our predictions were correct. Appreciate your time, both of you today. And always a pleasure to talk to you.

Erika Haanpaa: Sounds like a plan. Thank you.

John Arnold: Thanks, Morgan.