The physical therapy and rehabilitation care industry market is large and growing. Merger and acquisition activity remains on the radar for many of our nation's largest rehabilitation providers. In fact, private equity firms now own six out of the ten largest players. There are several reasons for this industry phenomenon, which has driven multiples to a 20-year high and has attracted both financial and strategic buyers from all walks of life. Here are a few of those reasons:
- This particular market has a total value of $28 billion—and growing.
- The projected five-year growth rate is 6.8%.
- This industry has proven recession-resistant, as the sector grew through the recent recession period.
- There is a rapidly growing aging population, providing a stable customer base for a highly fragmented landscape of providers.
- There is a proliferation of investors with access to capital who are ready to invest.
Whether these attractive market dynamics have piqued your interest or you’re simply looking to bring in a partner who can help you take your practice to the next level, the timing couldn’t be better to consider your options. There has been significant merger and acquisition activity by both strategic and financial acquirers, and attractive valuation multiples with creative terms could offer both short-term and long term-returns for therapy providers looking to sell or partner for a longer period.
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When these opportunities present themselves, clinic owners must carefully evaluate their situation. They can either stay and grow, or exit and move on to the next chapter of their lives. A decision like this is an emotional one, as many times the owner has become attached to his or her own shop and way of doing things. To determine which option makes the most sense for your practice, you must evaluate your current situation and future plans. Some questions to consider:
- What are your goals for your practice—to continue growing or to exit?
- To accomplish your goal, what do you need financially?
- What role do you want to play in your business going forward?
- What arrangement would fit your plans personally and professionally?
- Who is your target partner or investor?
- Do the partner’s ideas and strategies align with yours?
To find these answers, you must do some soul-searching and conduct research. That way, the heart and the head can come to a comfortable agreement on next steps. The nice part is that whether you’re interested in selling or just finding a partner, the process is fairly similar. It all starts with determining what your current practice is worth by completing a valuation analysis. Such an analysis not only provides a financial snapshot of your business, but also identifies the strengths, weaknesses, and resource needs you must consider in order to grow and/or increase the value of your practice. Typically performed by a broker, a valuation analysis is based on the following factors:
- Number of locations
- Market dynamics and competition
- Revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA)
- Payer mix
- Team (i.e., Will you stay?)
- Clinic infrastructure and technology
- Amount of investment needed to compete and grow
The potential strategic partner who offers the best value for your practice may very well be a current competitor. This valuation is often driven by the prospect of add-backs or cost savings that would result from the consolidation of various people or processes. Such a strategic partner may require you to stay on, but in most cases, the partner will want a majority portion ownership. This means that, going forward, somebody else would be driving the bus; you would no longer have the deciding final vote on many items. So, if you’re extremely passionate about your model and your brand—and if you have dreams of expansion—then a financial partner (rather than a strategic partner/majority owner) may be a better fit. This type of partner might not always give you the highest offer, but he or she likely will want you to stay on and continue your trajectory of expansion with the added benefit of the partner’s financial resources and connections. A financial partner’s motive is usually to continue to grow and multiply as that is another way to decrease overhead and increase profits.
If you’re interested in forming a partnership, here’s an action plan to help you get started with the exploratory process:
- Define your personal and professional goals in terms of time and money.
- Prepare yourself and your business to be sellable.
- Do your research on financial/strategic buyers and competitors in your area.
- Assemble an advisory team to assist you through this process, including a broker, an accountant, and an attorney.
- Determine how much control you’re comfortable relinquishing.
- Prepare a contingency plan to institute if you decide to do nothing.
This process will take time—and plenty of patience—and possibly an investment on your part to prepare and valuate your business. Be prepared for a few stops and starts—and some tire kickers—along the way. Last but certainly not least, make sure proper non-disclosures are in place to protect your information as potential partners or buyers review it.
About the Author
Now the president and CEO of Flexeon Rehabilitation, Joe LaPorta has lent his business leadership skills to several companies and organizations in the healthcare space, including Gambro Renal Care, McKesson Corporation, GE Healthcare, and Vidar Health Systems. Along with a broad skill set, keen business acumen, and a long-established network of industry relationships within the healthcare space, Joe brings a solid understanding of how to develop and manage strong revenue growth through team-building, innovation, and hands-on execution. His expertise encompasses both healthcare products and services in the areas of acute care, physical therapy, primary care, extended care, surgery centers, imaging centers, and laboratories.