Sheridan Capital Backs ICANotes in Behavioral Health EHR Play

Sheridan Capital Partners has completed an investment in ICANotes, a Baltimore-based electronic health records platform purpose-built for behavioral health providers, the Chicago private equity firm announced January 13. The transaction, which closed with undisclosed financial terms, positions Sheridan to capitalize on surging demand for specialized mental health software as providers grapple with rising demand for care alongside expanding documentation and compliance obligations.

The deal marks Sheridan's latest healthcare technology investment following a busy 2024 that saw the firm close 14 transactions across the healthcare sector. For ICANotes, the partnership brings growth capital and operational expertise to a 26-year-old company founded by brothers Ira and Don Morganstern and now led by the second generation of the Morganstern family.

The investment comes as the behavioral health EHR market enters a period of accelerated growth. The U.S. behavioral health EHR market size was estimated at USD 286.74 million in 2024 and is expected to grow at a CAGR of 10.37% from 2025 to 2030, according to Grand View Research. Globally, the Behavioral Health EHR Market is expected to reach USD 1.56 billion in 2025 and grow at a CAGR of 11.87% to reach USD 2.74 billion by 2030, per Mordor Intelligence.

The transaction brings together a specialized software platform with a healthcare-focused private equity investor known for building technology-enabled businesses. Harris Williams served as financial advisor to Sheridan, while McDermott Will & Emery provided legal counsel.

The deal team at Sheridan included Partner Jeff Foote along with Sean Dempsey, Matt Collins, and Aman Singla.

Sheridan's thesis centers on the growing complexity of behavioral health practice management and the need for vertical-specific software solutions. Unlike general-purpose EHR systems designed for primary care or hospital settings, behavioral health requires specialized workflows for psychotherapy notes, substance abuse treatment documentation, and mental health-specific billing codes.

"We believe ICANotes is an outstanding business that has earned the trust of a wide variety of behavioral health providers by enabling management of an entire practice with one secure system," said Jeff Foote, Partner at Sheridan, in the announcement.

For ICANotes, the partnership addresses a critical inflection point. The company has built a loyal customer base over more than two decades, but scaling requires capital for product development, sales expansion, and potential acquisitions.

"As we searched for a strategic capital partner who could help us meaningfully scale, it became clear that the Sheridan team was the ideal choice given our strong cultural alignment and their relevant experience building healthcare technology businesses," said Jamie Morganstern, CEO of ICANotes.

The alignment extends beyond capital. Sheridan's portfolio includes SimiTree, a healthcare revenue cycle management software provider, and National Care Systems, which serves skilled nursing and assisted living facilities with billing software. Both investments demonstrate Sheridan's playbook for scaling niche healthcare software businesses.

Founded in 1999 and headquartered in Baltimore, Md., ICANotes delivers a comprehensive, cloud-based EHR platform designed specifically for mental health professionals, including psychiatrists, therapists, counselors, social workers, and nurse practitioners.

The platform's core value proposition lies in its behavioral health-specific design. Where general EHR systems force mental health providers to adapt their workflows to generic templates, ICANotes builds the software around how psychiatrists and therapists actually work.

Key Platform Capabilities:

The Company's AI-enhanced system supports clinical workflows and integrates advanced features that save time, support regulatory compliance, and enhance patient care. ICANotes serves providers across multiple treatment modalities, including medication management, psychotherapy, substance use disorder treatment, trauma-focused care, couples and family therapy, case management, and psychosocial rehabilitation.

The platform's configurable point-and-click interface allows clinicians to document sessions quickly while maintaining the narrative detail required for insurance reimbursement and clinical quality. This addresses a persistent pain point in behavioral health: administrative burden that reduces time available for patient care.

The behavioral health EHR market sits at the intersection of three powerful trends: rising mental health demand, regulatory complexity, and digital transformation in healthcare.

Mental health utilization has climbed steadily since the COVID-19 pandemic, with telehealth expanding access and reducing stigma. Behavioral health providers face capacity constraints as patient volumes grow, making practice efficiency critical.

Documentation requirements have intensified. Providers must navigate HIPAA privacy rules, 42 CFR Part 2 substance abuse confidentiality regulations, parity compliance for insurance coverage, and state-specific licensing requirements. Manual documentation systems cannot keep pace.

Behavioral health has historically lagged other medical specialties in EHR adoption, creating a large addressable market of practices still using paper charts or outdated systems. Cloud-based platforms with modern interfaces are driving conversion.

The behavioral health EHR market remains fragmented, with vendors ranging from large health IT companies offering behavioral health modules to specialized pure-play platforms. Key competitors include Qualifacts (owned by Roper Technologies), Netsmart (owned by Clearlake Capital and TPG), Valant, TherapyNotes, and SimplePractice.

Private equity has shown sustained interest in the category. Clearlake and TPG acquired Netsmart in 2016 for approximately $950 million, while Roper Technologies has built a behavioral health software portfolio through acquisitions including Qualifacts and AdvancedMD.

Sheridan Capital Partners is a Chicago-based private equity firm focused exclusively on partnering with businesses across the healthcare landscape, including outsourced services, products and manufacturing, providers, and software and technology.

The firm's healthcare software and technology portfolio demonstrates a clear investment pattern: acquiring vertical-specific software platforms serving niche healthcare markets, then scaling them through organic growth and add-on acquisitions.

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Sheridan's operational approach emphasizes hands-on partnership with management teams. The firm typically targets lower middle-market companies with $10 million to $100 million in revenue, providing both capital and strategic resources to accelerate growth.

The firm's healthcare focus has intensified in recent years. Beyond software, Sheridan has invested in healthcare services (Tarrytown Expocare pharmacy, later sold to Carlyle) and medical products (Currier Plastics, a contract manufacturer for life sciences companies).

For ICANotes, Sheridan's playbook likely includes product expansion, sales team growth, potential add-on acquisitions of complementary technologies, and possibly exploring adjacent markets like addiction treatment or integrated behavioral health in primary care settings.

The ICANotes investment positions Sheridan to benefit from structural tailwinds in behavioral health technology while navigating meaningful execution risks.

The regulatory environment continues to favor specialized EHR adoption. Recent changes to 42 CFR Part 2 have created compliance complexity that general-purpose systems struggle to address. Mental health parity enforcement is increasing, requiring more sophisticated documentation to justify medical necessity for insurance coverage.

Consolidation among behavioral health providers creates opportunities. As private equity-backed behavioral health platforms like Headway, Talkspace, and traditional provider groups scale through acquisitions, they need enterprise-grade software that can handle multi-site operations. ICANotes' comprehensive platform positions it well for these larger deals.

AI integration represents a significant product development opportunity. Clinical documentation is time-consuming and contributes to provider burnout. AI-powered ambient documentation—where software listens to therapy sessions and generates notes automatically—could be transformative if privacy and accuracy concerns can be addressed.

Competition is intensifying. Well-funded competitors with deeper pockets may outspend ICANotes on product development and sales. Large health IT vendors like Epic and Cerner (now Oracle Health) are improving their behavioral health modules, potentially capturing market share among integrated delivery systems.

Customer concentration poses risk if ICANotes derives significant revenue from a small number of large accounts. Behavioral health practices tend to be smaller than other medical specialties, requiring high customer volumes to scale revenue.

Regulatory changes could disrupt the market. If federal policy shifts toward interoperability mandates or data sharing requirements, smaller vendors may struggle with compliance costs.

The deal reflects private equity's continued appetite for vertical software in healthcare, particularly in underserved specialties. Behavioral health represents one of the last major medical categories where specialized software can still gain market share from legacy systems and paper charts.

For behavioral health providers, the investment signals that practice management technology will continue to evolve rapidly. Practices that delay EHR adoption may find themselves at a competitive disadvantage as AI-enhanced platforms enable competitors to see more patients with better documentation quality.

The transaction also highlights the importance of founder transitions in lower middle-market software. ICANotes' shift from first-generation founders to second-generation family leadership created a natural inflection point for institutional capital. Similar generational transitions across healthcare IT may create deal flow for private equity in coming years.