Developing A Transition Strategy


5 Key Steps in Succession Planning During a Time of Significant M&A Activity

By Paul Martin, PT, MPT, CBI, M&AMI

Succession planning in most industries is done over years, taking time to carefully complete each step along the way. However, in the current outpatient rehabilitation market, this may not be the case. There are upwards of 20 regional and national public and private equity–backed companies that are aggressively seeking to acquire outpatient rehabilitation businesses in every market in the United States. This is the most active mergers and acquisitions (M&A) market that the rehabilitation industry has seen in the last three decades.

So, depending on your current goals for succession, you may need to act fast as this explosive acquisition market will not last forever. One view is that as the large acquiring companies begin to run dry on local and regional acquisitions, they will begin to merge and to seek large-scale acquisitions among the top 20 companies. If this is indeed what occurs, the market for acquiring smaller outpatient rehabilitation companies will greatly diminish. So, whether you have been in business for one year, 10, or 25, it is crucial to begin planning a successful transition strategy.


Step 1: Have your business valued and assessed for current market interest.
Have a valuation/industry expert value your business based on the current market trends in your market area. Even more importantly, have an industry expert assess your company to provide you with an understanding of how the current purchasers will view your company. In the current market, acquiring companies are looking for market leaders that have an appetite for growth and have shown a pattern for growth over time. This is a huge value driver in the current market. A business that is growing will always sell for a higher earnings multiple and better deal structure for the seller than a business that has stayed stagnant or is possibly on a decline.


Step 2: Consider timing and structure of a transition.
Once the value of your business has been defined, develop a timing strategy for transitioning based on the current market and your company’s current performance. If there are potential short-term fixes (less than six months) that could add significant value to your business, then consider a focused effort to make those improvements. This is a very calculated decision. The ability to time the market in order to attain the best deal as well as predict whether short-term fixes will impact your company’s performance can be extremely difficult. Whether you have a long- or short-term growth strategy, keep a close watch on the market to make sure it does not run by you. If your decision is to remain independent, a growth strategy must be developed in order to compete with the new regional and national competitors.

In regard to structure, the current market can have the best of both worlds. Some acquirers will wish to purchase 100 percent of your company, while other acquirers prefer a partnership structure. Therefore, based on your desire for a full transition out of your business or to stay actively involved as a partner in the business, both choices are probably available to you in the current acquisition market.


Step 3: Do the “personal balance sheet” test.
You should seriously consider the financial impact resulting from the full or partial acquisition of your business. A 100 percent sale, as well as a partnership and restructuring of your business, will have an impact on your personal balance sheet and income. This look at “the bottom line” will give perspective as to how a transaction of your business will impact you personally. It will shed light as to whether you can fully retire or whether the transaction provides you with security and income for the near-term future only. This will help you to discern whether to consider a transition in this current market or to potentially remain independent knowing that there will be another opportunity in the future. Make sure an expert has analyzed the valuation of your business so you fully understand the tax consequences as well as potential risks of an acquisition.


Step 4: Develop a focused growth strategy for success.
The next step is to take the information from the valuation and assessment of your business and develop a focused strategy for either continued growth on your own or growth with a partner. In this current market, growth is not an option, but a requirement to successfully stay in your business or exit your business.

If you decide to grow with a partner and go into the market in the near term, outline all of the steps so your business is confidentially presented to all qualified acquirers in this current market. In addition, be sure that you have clearly outlined the attributes that you are looking for in a partner, and that those attributes are clearly defined in the information that will be presented to the acquirers.

If you decide to remain independent and grow on your own, outline the specific strategies and steps needed to continue to increase your market share, and meet the challenges head on of the new competition in your market.


Step 5: Execute the transition plan.
This is where most companies struggle, the ability to execute on a developed strategy. Depending on the path you have chosen, put an internal and external team together tasked with the execution of your desired strategy. This team should meet at least once a month or, if you are going into the market to be acquired, once a week is recommended. This weekly meeting ensures that you are moving forward as efficiently as possible with your strategy to transition.


Paul Martin, PT, MPT, CBI, M&AMI, is president of Martin Healthcare Advisors. He can be reached at

Copyright © 2018, Private Practice Section of the American Physical Therapy Association. All Rights Reserved.

Are you a PPS Member?
Please sign in to access site.
Enter Site!