This post comes from Ascend 2019 speaker Paul Martin, the president of Martin Healthcare Advisors. Want to see Paul speak about rehab therapy business and leadership strategy during a live interactive session? Register for Ascend here. Curious about the rest of the speaker lineup? Check it out here.

Everyone knows that the physical therapy mergers and acquisitions (M&A) market is hot right now, and everyone has questions. Who are the real buyers? Where are their next targets? Who will be going public? But very few people are in a position to see that—only recently—three dramatic changes have occurred in the market that rewrite the rules for getting the highest possible valuation.

If you are even thinking about selling your practice some day, it will be the biggest financial transaction of your life, and you cannot afford to ignore the impact these changes are having on valuations. You owe it to yourself and your family to stay informed. With that in mind, here they are:

1. You can no longer wait until you’re “ready to sell.”

Once upon a time, your best opportunity for a high valuation was tied to one thing: your company’s own performance. When you hit your peak, you got your highest number. Not anymore!

There are now 25 companies aggressively pursuing acquisitions in this market. They are all in different stages of growth, and they all have different strategies and deal preferences.  

Additionally, the rehab M&A market has gone from a single national market to literally dozens of regional and local markets across the United States. One market will be “hot” for a few months, and several acquisitions will occur in that market; then, the companies that missed or passed on those opportunities will focus on a different market, and that market will get hot for a while.

The best deals are happening when an acquirer who has interest in a specific market—and for a specific purpose—finds a seller who perfectly matches those needs. These opportunities are like waves at the beach, and you’re the surfer—not the wave-maker.

So, to be successful in this new M&A arena, you must routinely survey your market to:

  1. see who has made what moves, and
  2. determine what moves may come next.

There has never been this sort of competition among acquirers in the history of our industry. For that reason, many acquirers try to “lock up” a seller before that seller can explore all of his or her new options. Acquirers do this by showing early interest (always flattering to the seller!) and pushing for an early commitment.

Don’t give up your right to the best possible deal! There are new buyers out there with fresh funds who want a foothold in this market. The acquirers who initially try to “lock you up” will agree to compete for your company if they know you will put them on a level playing field with a process that is professional, straightforward, and fair. It’s the best way to get the best deal in this constantly changing market.

2. Investing in growth before a sale is now a smart strategy.

In the past, the biggest driver of valuations was earnings before interest, taxes, depreciation, and amortization (EBITDA). So before a sale, smart sellers would scale back and stop making investments in growth opportunities to keep EBITDA high. Not anymore!

In today’s market, while EBITDA is still important, another very powerful factor is: “Can you help the acquirer grow right away?” Nowadays, acquirers need to grow quickly, and they are seeking sellers who:

  1. are executing a growth plan now, and
  2. can continue doing so without help after the sale.

If you fit that bill, you can get a deal that will net you a handsome return on the investments you are making today.

3. More acquirers means more lucrative deal structures and more chances for a terrific cultural fit.

In order to compete, many of the new acquirers are offering fresh, creative approaches to deal structure—including the ways you can make money after the sale. For instance, the traditional “partnership” structure has been turned on its head—to the seller’s advantage. 

What hasn’t changed is the objective: you want a structure that rewards you as well as the acquirer when you and your team keep growing profitably after the sale.

But these new structures also make deals more complicated, with more ways to miss out if you don’t know what to ask for. There’s a lot more money in “the fine print.” So, you may want to seek out a representative who has participated in a number of recent deals in this market. After all, you don’t want to look around the negotiating table and realize you’re alone—and the only one there who’s never done this before.

In most deals, you’ll spend multiple years working with and for an acquirer. In many cases, you are then acquirer’s partner! Your future success and satisfaction depend on you finding an acquirer who is a terrific cultural fit.

The new acquirers entering our market increase your chances of achieving that optimal goal, so it’s worth considering adding someone to your team who can introduce you to all of them.


Paul Martin, MPT, CBI, M&AMI, is the president of Martin Healthcare Advisors, which he founded in 2000 to provide consulting and M&A advisory services to the rehab industry. He and his team have helped more than 500 rehab business owners grow and prosper through strategic planning and execution.