Valuing SUD / Addiction Treatment Services Providers in 2025: A Comprehensive Guide for Providers, Owners, Investors, and M&A Professionals

Will Hamilton
Jun 13
8 min read

The addiction treatment industry is a vital and rapidly evolving segment of the behavioral healthcare market, focused on the diagnosis and treatment of substance use disorders (SUDs), including alcohol, opioids, stimulants, and other drugs. Services range from detoxification and inpatient rehabilitation to outpatient therapy and medication-assisted treatment (MAT). M&A activity in the sector is driven by private equity interest in scalable treatment platforms, especially those offering a full continuum of care and strong clinical outcomes. Valuations are often shaped by payer mix, census stability, licensure and accreditation, and geographic presence, with integrated, multi-site operators attracting higher multiples.

Whether you're preparing to sell an addiction treatment business, evaluating a partnership opportunity, or seeking to benchmark financial performance, this article explores the key valuation methodologies, drivers, and risk factors that determine the value of a SUD business.

I. Industry Context: Why SUD Treatment is in Demand

The addiction treatment sector has seen rapid expansion in recent years, driven by the ongoing opioid crisis, rising prevalence of substance use disorders, and expanded insurance coverage under the Affordable Care Act, which made treatment an essential health benefit and opened access to millions more patients. Increasing awareness and de-stigmatization, government support for medication‑assisted treatment, telehealth/virtual care expansion, and the fragmented structure of the market creating room for consolidation and scale. Together, these trends reflect both strong demand and evolving delivery models, including hybrid and virtual programming, fueling sustained growth across the addiction treatment landscape.

Key Growth Drivers

Key growth drivers for the industry include the following:

Rising Prevalence of Substance Abuse and Opioid Crisis: The increasing rates of alcohol, opioid, and illicit drug use-especially the ongoing opioid crisis in North America-are fueling demand for treatment services.
Government Initiatives and Increased Funding: Governments worldwide are allocating more resources to support addiction treatment, awareness campaigns, and rehabilitation infrastructure, which is expanding access to care.
Advancements in Treatment Methods (Medication-Assisted Treatment and Digital Therapeutics): Innovations such as medication-assisted treatment (MAT), behavioral therapy, and digital health solutions (including telehealth and mobile apps) are improving treatment efficacy and accessibility.
Integration of Mental Health and Addiction Services: There is a growing trend toward integrating mental health care with addiction treatment, addressing co-occurring disorders and providing more comprehensive, effective care.
Increasing Public Awareness and Reduced Stigma: Public health campaigns, media outreach, and education are raising awareness about the dangers of substance abuse and reducing the stigma associated with seeking treatment, encouraging more individuals to access care.
Expanding Insurance Coverage and Reimbursement Policies: Broader insurance coverage, including Medicaid expansion and improved reimbursement policies for addiction treatment, is making services more affordable and accessible, particularly in North America.

Reimbursement Outlook

The reimbursement outlook through 2025 and into 2026 generally reflects moderate reimbursement growth, with Medicare and Medicaid maintaining established coverage levels for standard services like IOP and PHP, though rates remain constrained amid tight budgets. Private commercial reimbursement for behavioral health continues to lag behind reimbursement for other healthcare providers, though some states, like Illinois, are enacting legislation aimed at boosting rates, potentially setting a floor at around 141% of Medicare for behavioral health services, including addiction care.

Rising medical cost trends elsewhere may pressure payers and delay meaningful rate hikes for SUD services. Simultaneously, under federal reform proposals, such as the restructuring of SAMHSA, grant funding and regulatory support remain uncertain, potentially impacting supplemental reimbursement and workforce retention in addiction programs. On balance, providers should expect incremental fee-schedule growth and heightened policy focus on parity and access, but meaningful reimbursement pressure may persist without further legislative or regulatory intervention.

II. Top Reasons to Get a Valuation of Addiction Services Business

The following is a list of common reasons for commissioning a valuation analysis or appraisal of a SUD treatment practice or center:

1. Preparing for a Sale or Strategic Partnership

To establish a defensible asking price when marketing the business
To evaluate offers from private equity, strategic buyers, or joint venture partners
To understand how your business compares to market benchmarks

2. Internal Ownership Transition

For buy-in or buy-out of partners
To support fair and compliant equity allocation among owners
To plan for generational succession or family transfers

3. Compliance with Healthcare Regulations

To support Fair Market Value (FMV) and Commercial Reasonableness (CR) assessments required by Stark Law and Anti-Kickback Statute in deals involving ownership by other healthcare providers
To document compliance in joint ventures, especially when there is a referral relationships (hospitals, ancillary service providers, or physicians)

4. Estate & Tax Planning

For gift or estate tax reporting to the IRS (especially for closely held businesses)
To support asset protection strategies
To plan for long-term wealth transfer or charitable contributions

5. Litigation or Dispute Resolution

For divorce proceedings involving business asset division
In shareholder or partnership disputes
For economic damages assessments in legal proceedings

6. Business Planning & Strategic Growth

To establish a valuation baseline for performance benchmarking
To support capital raise, refinancing, or line-of-credit applications
To identify value drivers and areas for operational improvement

III. Valuation Approaches for Addiction and SUD Service Providers

Valuation professionals typically apply three core methodologies to estimate the value of a SUD business:

Income Approach (Discounted Cash Flow or Capitalization of Earnings)

This approach values a business based on the present value of its expected future earnings or cash flows. It’s most appropriate when a business has a stable operating history and predictable future performance.

Key assumptions include:

Normalized EBITDA or owner’s discretionary earnings
Growth rate assumptions (organic and acquisitive)
Risk-adjusted discount rate (typically 10–25% for addiction treatment)
Capital expenditure needs

Pros: Based on the business’ future earning power

Cons: Sensitive to forecasting errors and discount rate subjectivity

Market Approach (Comparable Transaction Method, e.g. Market Multiples)

This method uses observed EBITDA multiples or revenue multiples from recent M&A transactions or public companies in the addiction services space. Typical multiples for small to medium -sized SUD operators are within the range of 4x to 8x EBITDA, depending on a wide variety of factors.

This article includes more details and information about valuation multiples in the industry.

Pros: Easy to benchmark; useful in active M&A environments

Cons: Requires access to quality private market data and careful adjustment for business size, margin, geography, and a variety of other factors

Asset-Based Approach

Used only when the business is underperforming or being liquidated. The value is derived from the net assets (e.g., equipment, leasehold improvements) minus liabilities.

Pros: Useful in distressed scenarios

Cons: Intangible value of the business can be difficult to quantify under this method

IV. Key Value Drivers in SUD Valuation

Several specific factors can materially influence an addiction care provider's valuation multiple:

Earnings Quality

Buyers and valuation professionals place significant emphasis on normalized EBITDA and / or cash flow. Adjustments often include:

Owner compensation (if above/below market)
Non-recurring revenue or expenses
Related-party lease arrangements
Post-transaction adjustments
Out-of-period adjustments

Growth Potential

Discount rates and valuation multiples are a function of perceived risk and growth. Key considerations within the industry related to growth include the following:

Full Continuum of Care: Offering multiple levels of treatment extends patient retention, increases revenue per client, and positions the business as a comprehensive recovery platform.
Scalability Through Multi-Site or Regional Expansion: A replicable clinical and administrative model enables geographic growth, particularly in underserved areas with high need and limited local competition.
Strong Referral Networks and Community Partnerships: Relationships with hospitals, courts, employers, and community organizations drive consistent patient flow and support ongoing census growth.

Risk Factors

Key considerations within the industry related to risk include the following:

Consistent Census and Strong Clinical Outcomes: High and stable occupancy rates, coupled with measurable treatment success and low relapse/readmission rates, indicate dependable demand and effective care delivery.
Diverse Payer Mix with In-Network Contracts: A balanced revenue stream from commercial payers, Medicaid, and self-pay clients—especially with in-network agreements—reduces reimbursement risk and volatility.
Full Continuum of Care Across Multiple Levels: Offering detox, residential, PHP, IOP, MAT, and aftercare within one organization reduces patient leakage and increases revenue per client while enhancing continuity of care.
Licensure, Accreditation, and Regulatory Compliance: Maintaining proper state licensure and national accreditation (e.g., CARF, Joint Commission) reduces legal and operational risk and increases buyer confidence.
Experienced Management and Clinically Qualified Staff: A stable leadership team and well-credentialed clinical staff ensure consistent operations, support scalability, and reduce dependency on any single individual.

V. Current Market Trends in Addiction Services M&A

The number of announced addiction treatment M&A deals has declined steadily since 2019, outside of a major spike of activity in 2021. This subdued activity reflects a broader trend across the behavioral health sector, influenced by macroeconomic headwinds, higher interest rates, and a more cautious investment environment. While the declines have been steady, they have not been particularly significant in terms of magnitude, and consolidation remains a defining trend. Despite the slowdown, private equity and strategic buyers remain active, particularly in seeking platform and add-on acquisitions to build scalable, integrated care models.

While the substance abuse disorder treatment industry remains fragmented with a large number of potential acquirers, the number of platforms that have made more than a handful of acquisitions over the past few years is fairly small. By far the largest acquirer in terms of announced deals since 2019 is Baymark, with 29.

New platforms are being created and / or changing hands at a steady rate, with seven announced platform deals in each of the past three years (2022-2024), according to our database.

Cash Flow Multiples for Small SUD Providers

There are a number of small addiction service providers listed for sale currently, but it's difficult to glean much useful information from deals this small where the level of owner involvement is unclear. A clinic making $400k per year in cash flow for an absentee owner is much different from a clinic making $400k per year in take-home for a full-time provider-owner. Our study of current and recently removed businesses for sale shows a range of multiples from 2.85x cash flow to 5.67x cash flow at the 25th and 75th percentiles, with a median of 3.98x.

Impact of Size on Addiction Services EBITDA Multiples

To better illustrate the impact of size on SUD valuations, particularly for larger businesses, we looked at historical comparable transaction data from the Scope Research Healthcare M&A Valuation Database. Using this data, we compared the size of the acquired company in terms of EBITDA to the implied multiple from the transaction. EBITDA multiples for larger addictions services business can range from 6x to 16x EBITDA, and the size of the platform can have a major impact, all else equal.

VI. Final Thoughts: Keys to Maximizing Value

If you're an addiction services provider owner or executive planning to explore a sale or equity partnership, consider the following strategies to enhance your valuation:
- Maintain High Census and Strong Clinical Outcomes: Consistently high occupancy / census and measurable success in patient recovery and retention demonstrate strong demand and effective care.
- Diversify Payer Mix and Secure In-Network Contracts: Build a balanced payer portfolio by securing in-network agreements with commercial insurers and reducing reliance on out-of-network billing or cash-pay clients.
- Offer a Full Continuum of Care: Provide multiple levels of treatment (detox, residential, MAT, PHP, IOP, and aftercare) to increase patient lifetime value, reduce "leakage," and demonstrate scalability.
- Ensure Regulatory Compliance and Accreditation: Maintain full licensing and seek national accreditations (e.g., Joint Commission, CARF) to reduce operational risk and increase buyer confidence during diligence.
- Professionalize Financials: Buyers prefer accrual-based, GAAP-compliant statements.
About HealthFMV
HealthFMV specializes in appraising healthcare businesses and services arrangements, including addiction / SUD service providers.
- Business Valuation: We perform independent, third-party valuations of healthcare businesses to document regulatory, tax, and financial reporting compliance, resolve ownership disputes, and help ensure both parties to the transaction are comfortable with the financial terms.
- Transaction Advisory: We work with healthcare business owners, organization executives, providers, and their health lawyers to develop transaction structures and deal terms that further their business objectives while maintaining compliance with the complex healthcare regulatory environment.
- Services Arrangements: We prepare fair market value and commercial reasonableness opinions for a variety of healthcare services arrangements including management services, hospital-based specialty stipends, case rates and PC/TC splits, block leasing, and shared savings distributions, among others.
Contact Will Hamilton at whamilton@healthfmv.com with questions about our healthcare valuation services or to discuss your specific situation. Visit scoperesearch.co for more information about our healthcare M&A research services.