Inperium
Inperium

Ownership does more than determine who holds a company's shares. It sets a time horizon for decision-making and shapes what happens to an organization's resources. In behavioral health, those choices can affect whether a provider plans around a future sale or invests in services meant to endure.

Since 2024, several proposed transactions have explored nonprofit acquisitions of for-profit, private-equity-backed behavioral health companies aiming to transition these businesses to nonprofit ownership. These deals have included proposed acquisitions financed through tax-exempt bonds, reflecting growing interest in the for-profit-to-nonprofit conversion model. However, some transactions have encountered obstacles, including the proposed acquisition of Advantage Behavioral Health, illustrating both the potential of this approach and the challenges of structuring and financing such conversions.

"A nonprofit conversion is designed to give an organization a longer horizon, one shaped by the services it needs to provide rather than by a fund's exit timeline," said Ryan Dewey Smith, President of Primine, which focuses on structuring nonprofit conversions of health and human services organizations.

Smith, who is the Founding Executive Chairman and CEO of Inperium, a nonprofit that helps other nonprofits grow through a shared constellation of services, expertise, and capital while preserving mission, identity, and operational independence.

"Primine is poised to draw on the skills and experience of the Inperium management team for nonprofit conversion opportunities outside the operating structure and capital stack of the Inperium Network, positioning Primine to transition these health and human service assets to the nonprofit arena with a focus on quality and sustainability rather than the next sale."

"Caring for people is continuous, while ownership and financing often run on different clocks," Smith said. "Staff need stability and facilities, technology and treatment programs require ongoing investment. The communities involved depend on services that are often not equally profitable. New ownership can change who receives financial returns and what leaders are expected to prioritize." In Smith's view, this is about more than who provides the capital; it must also consider whether the structure gives an organization a workable way to meet its obligations and continue investing in care. "Ownership labels do not determine quality," he said. "But the incentives and constraints they create can shape decisions that patients and communities will eventually feel."

While private equity can bring capital and expertise to a provider, it often comes with a catch. Private equity funds typically have a lifecycle of seven to 10 years, and investors naturally expect a return through a sale or other liquidity event. That timeline does not make the model inherently wrong, but it can shape the decisions an organization must consider as an investment approaches its next stage.

"A nonprofit has no comparable fund lifecycle or equity investors requiring an exit," Smith said. "After operating costs, reserves and debt obligations are met, surplus funds can be reinvested rather than distributed to equity owners." For Smith, the absence of required investor exit gives leaders additional time and flexibility to sustain lower-margin services that remain important to the people who rely on them.

According to Smith, tax-exempt bonds can provide long-term capital, about 30 years on average, and may reduce the cost of capital. Municipal bonds can finance eligible nonprofit healthcare facilities and other qualifying projects, with terms that may extend for decades. Bond proceeds can fund an acquisition, reserves for debt service and other expenses, and financing and closing costs. "Those reserves serve defined purposes. Gross bond proceeds are not the same as funds available for services or distribution, and the allocation varies by transaction," Smith said.

How proceeds are allocated affects whether the provider can meet its obligations and sustain operations after the acquisition. Ryan Kraus, CFO, said, "A financing structure has to work after closing, not just on closing day. The organization needs enough cash flow to meet debt service while continuing to fund staffing, facilities, technology and treatment. A longer repayment term can support continuity, but only if the obligations remain manageable as operating conditions change."

Nonprofits are limited in their approach because, when using tax-exempt bonds, they need to demonstrate that the purchase price reflects fair market value. Appraisals and other third-party reports, like feasibility studies, help ensure values are vetted before funding. "Long-term financing still carries risks, of course, but these third-party reports provide an important long-term forecast that will guide management decisions and behaviors over the life of the asset."

All of this raises the question: which ownership model gives a behavioral health provider the strongest opportunity to sustain care over time? One approach is a nonprofit conversion, designed to align financing and governance with a long-term commitment to service and communities.

"Patients should not have to endure the disruption of a financial transaction," Smith said. "When a nonprofit buyer can acquire the organization and finance the transaction on sustainable terms, communities have a chance to retain the services and care relationships they rely on instead of seeing the provider carved up or sold."

For Primine, this approach means looking beyond the immediate mechanics of an acquisition to the long-term impact on care. "We look beyond the cost of closing a deal to what its structure makes possible afterward: stable services, continued investment in staff and facilities, and care for populations that might otherwise be left behind," Smith said.

As behavioral health organizations consider their next stage of growth or ownership, the question should be more than who can acquire the business. It should be what ownership structure will best sustain care, support the people delivering it, and preserve access for the communities that depend on it.