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  • 2015-09-September

Change – the eternal love/hate relationship

By Stacy M. Menz, PT, DPT, PCS

As a business owner, you know that change is often necessary as your business evolves and grows. You are the one implementing the change on your business. You feel in control, you are doing it for the good of the company, your employees, and/or your patients. When change comes on our terms, it is exciting and generally welcomed. Change also can be imposed on us and not something that is in our control—or even something that is welcome. You are on the receiving end of it. You feel like you have less control. You do not know how it is going to affect your company, your employees, and your patients. Do you see the reason for the love/hate?

As October 1 rapidly approaches all of us will be required to change to ICD-10. Hopefully you have begun to implement strategies for navigating the transition. While this change is an example of one that was externally imposed on our practices, what you are able to do is reframe it. Look at how you can create some control for you and your staff. How does your staff navigate change best? Do they need to sit with it for a while, take baby steps, or just make the leap? By knowing your staff, you can best support them during a period of change. Also, sometimes it is changes that force us to make needed process changes or provide the opportunity to reassess different aspects of our operation that can be improved. Is there a positive that can be taken, are there creative solutions to some of the changes that make whatever the change is more palatable?

Private Practice Mergers & Acquisitions

Boom times for selling or raising capital.

By Ryan Buckley

Outpatient physical therapy is in the midst of a decade-long mergers and acquisitions frenzy with no signs of abating. My firm has had the benefit of a front row seat to industry consolidation, advising on a dozen sale and refinancing transactions with private practices, corporates (known as strategic buyers), and private equity investors. There neither has been a more compelling nor lucrative time in the last ten years for private practices to: (i) take chips off the table while also recapitalizing for growth with a private equity partner; (ii) pursue a full sale to a strategic buyer; or, (iii) fund an expansion through debt financing. In a sector as dynamic as physical therapy, the old adage that you are “either growing or dying” has never held truer. To their credit, private practices have responded with a ravenous appetite for outside investment.

The hunting ground is plentiful for buyers and investors. The industry has been consolidating for 10+ years, yet private practice remains immensely fragmented. The ten largest companies—two public operators and eight private equity-backed strategics—comprise just 21 percent of clinic market share (or 3,300 clinics), with no company owning more than 7 percent of clinics. Beyond the large strategic consolidators, the number of companies with more than 12 clinics approximates only 100 companies, who collectively own approximately 2,300 clinics. This market landscape results in 10,000+ clinics spread across literally thousands of private practices nationwide.

For practices interested in mergers and acquisitions, the landscape is ideal. A decade ago, sellers could look to just a handful of acquirers. Today, the amount of financing alternatives and number of potential capital partners has grown significantly. The influx of private equity into physical therapy has led to the development of over 15 new strategic buyers that are actively looking for practices to buy, both regionally and nationally. The prevalence of these PE-backed strategic consolidators—supported by favorable industry tailwinds, a stable reimbursement environment, strong operating performance, and robust debt markets—has created a uniquely attractive environment for private practice sellers. This dynamic continues to drive higher valuations, seller optionality, better deal terms and high certainty to close. Valuation, most often measured as a multiple of adjusted pre-tax earnings, has jumped upward by 25 percent to 50 percent in recent years.

For practice owners, pursuing strategic alternatives related to one’s life’s work can be daunting. In this environment, the reasons to pursue a transaction abound; yet, preparation and proper positioning are paramount to ensure an optimal and successful outcome. Hiring an experienced mergers and acquisitions advisor for guidance through the four- to six-month transaction process is often a critical step. An advisor with physical therapy experience and intimate market knowledge will ensure that a compelling investment thesis is properly crafted and communicated to credible counterparties. A good advisor will calibrate deal expectations, enhance certainty to close, and provide counsel on transaction nuances such as retained ownership versus an outright sale, employment and partnership terms, restrictive covenants in a purchase agreement, and on-going business considerations like personnel modifications, billing consolidation, and payor/reimbursement changes.

Every business eventually reaches an inflection point where a mergers and acquisitions or capital markets solution should be evaluated vis-à-vis continued expansion, long-term business building expertise, and wealth monetization. While personal seller dynamics such as age, succession planning, the need for expansion capital, and business life-cycle considerations should be contemplated, private practices should not ignore this ideal environment for outpatient physical therapy and the multitude of compelling strategic alternatives that exist currently.

What Is Your Game Plan?


Be careful not to treat your practice as a commodity.

By James Glinn, PT, DPT, OCS

In the late 1960s and early 1970s kids actually “traded” baseball cards. I can recall all sorts of amazing trades taking place, oftentimes with large lots being swapped in multiple item deals. There were small reptiles, marbles, skateboards, bikes, and, of course, all sorts of sports cards. Oftentimes you would see new unopened packs traded with fervor with the acquirer paying handsomely for the chance at what might be inside. Every once in a while some kid would screw everything up by flooding the market. Maybe a grandmother would buy someone a whole box of sport cards or an older brother would hand down boxes of curated cards. Trades would go sideways and the stakes would change. Sometimes the cards in one’s collection would plummet in “value” when a big brother handed down four or five Steve Garvey cards. The emotions of the trades and the ever-changing market were exciting and one never knew what might come next. Everyone had at least one card that was “special,” had more inherent value for some reason. You could never get that card. It might have been a card seemingly worthy of only sticking through the spokes of a bike, but to that cardholder, for their own reasons, it was special.

The cards started to lose their luster for me when the blowhards entered the scene. Sports card shops and shows gained in popularity, and the blowhards spouted about dollars rather than double plays. It seemed the inherent magic slowly dwindled, and, over time, so did the sports card market magic. All along the path of diminished interest were blowhards barking about how much money a card could be worth, seemingly oblivious to the magic. Baseball cards became another commodity…

Cardiac Conditioning


Making exercise your clinic’s medicine.

By Carl DeRosa, PT, PhD, FAPTA

Private practice physical therapy has historically centered on orthopedic conditions with referrals for musculoskeletal care targeted toward orthopedic and family practice physicians. Expansion of physical therapy practice is often viewed in the context of ancillary services; that is, massage, Pilates, yoga classes, orthotics fabrication, etc. While these and other ancillaries increase the menu of services and generate revenue, they typically do not contribute to building new or strengthening current referral relationships. Such ancillary ventures rarely contribute to gaining a foothold into larger referral network enterprises. This is especially important in an era of population health and increasing attention to wellness.

The purpose of this article is to provide an overview of a Cardiac Conditioning and Wellness approach to practice expansion. This is a model developed to enhance referral and collaborative business relationships with cardiology, internal medicine, and family practice physicians, as well as other provider specialties. More important, however, we view it as an opportunity to better position the practice to meet the triple aim of health care, and thus be recognized as a potential vital cog in the larger local community’s health enterprise. One of the triple aims is improving the health of the population. This is strongly coupled to the emerging Population Health mandate—the focus on not just minimizing the total cost of care, but also on enhancing the overall health status of a population by supporting wellness at the earliest practical point in the care continuum. Providers of the future will clearly need to develop strategic alliances to position themselves to go above and beyond simply providing individualized care; instead we need to focus on defining their contribution to the overall health of the patient.

Navigating Practice Transitions


How Physical Therapy Central successfully partnered with Confluent Health.

By Bridgit Finley, PT, DPT, FAAOMPT

“Start with the end in mind.”

These words, by Steven Covey,1 helped me successfully navigate the partnering of Physical Therapy Central with Confluent Health this past January. Confluent Health is a newly formed private-equity firm resulting from the roll up of several successful entities under the direction of Larry Benz. PT Development, Texas Physical Therapy Specialists (TexPTS), Fit for Work, Evidence In Motion, BreakThrough Physical Therapy, and now Physical Therapy Central all came together under one common holding company, Confluent Health. Now months later, I still view this as a success. But not all such mergers are successful. Why this one?

In just 10 years, Physical Therapy Central (PTC) expanded from one location to seventeen—from a small business to a significant enterprise. In 2014, I transitioned from treating patients to full-time Chief Executive Officer (CEO) in order to devote my full attention to this thriving business. We also began to centralize systems—payroll, accounting, and human resources—to enhance our ability to effectively manage the increasing size of the company. Unknowingly and unintentionally, we were positioning ourselves to be an attractive acquisition. While PTC was successful on its own, partnering with Confluent Health provided the opportunity to achieve two goals: (1) to enable us to have an impact on health care delivery as a nationally recognized player, and (2) to solve my need for a succession plan and an exit strategy—all without sacrificing our culture. Successful partnering does not happen by chance. You must start with your goals—the end—for merging and test each step against those goals.

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