Acquire or Be Acquired: How to Sell (or Expand) a Physical Therapy Practice
M&A activity is strong in the physical therapy field, giving business owners a unique advantage.
This year is expected to be another banner year for the healthcare field, with many sectors within this mega-industry predicting high growth and exceptional profits. One of the largest sub-sectors of the healthcare industry is the outpatient rehabilitation sector and even further down the chain, the physical therapy field. Companies in the physical therapy sector provide outpatient treatment or therapy with the goal of improving the mental or physical functionality of a patient following an injury or illness. There are over 115,000 physical therapy practices in the United States and successful ones can bring in profits as high as 10.9%. This industry as a whole is expected to grow 7% annually through 2018 and due to a shortage of physical therapists, the industry is experiencing high M&A activity. These factors put owners of physical therapy practices in a unique position. High growth, large profits, increasing acquisition demand all spell out one thing: it is a fantastic time to consider selling your physical therapy business.
Due to the shortage of physical therapists, practices are using M&A as a growth strategy and are actively looking for firms to acquire. Firms within the industry are also trending towards specialized service offerings, creating a higher demand for aggressively-growing firms looking to add new services to their repertoire. If you are the owner of a physical therapy practice, this is an opportunity to cannot afford to miss. Selling your business may feel intimidating but with the help of an intermediary, it can be completely painless. The first step in the M&A process is finding out how much your practice is worth. We have included some of the commonly used formulas to give you an idea of what is important during the valuation and also some tips on how you can increase that number. Keep in mind that all businesses are different and only a professional intermediary can tell you the true value of your business.
- 60-75% of annual sales
- 8-2.5x SDE
- 5-2x EBIT, 1.5-3x EBITDA
Now that you know part of what goes into valuing a physical therapy practice, you can begin taking steps to ensure your business secures the highest multiple possible. We have valued and sold several physical therapy practices in the southeast and we hope these tips will get you ready to take the next step in the small business cycle.
Physical therapy practices are mostly being acquired by strategic buyers, or buyers who have a business in the same industry and are looking to expand. When it comes to selling your business to a strategic buyer, location is critical. Buyers are looking for a firm in a livable area with good schools and job opportunities. Safe neighborhoods and attractive scenery also plays a role. Considering that a buyer may be moving to your city to manage the firm, they may not consider a practice in a seedy area.
Complementary Products & Services
Your physical therapy practice doesn’t have to just offer rehabilitative services. Offering complementary products and services can boosts your revenues and customer loyalty. Products such as protein powder, exercise balls, kettlebells, or fitness attire could really drive your sales up and increase your cash flow. Offering additional services such as massage therapy or a Zumba class will also increase your revenues but will give you something even better – client loyalty. Clients are more likely to stay with a practice they like and have more invested in. Your practice will also appeal more to buyers due to the additional revenues streams and one-stop-shop offerings.
Strategic partnerships are a great way to boost revenues, build service offerings, and generate more leads simply by networking. Firms in the physical therapy industry are often seen partnering with physician’s offices to guarantee referral leads in exchange for referring clients to that doctor. If you are not quite ready to sell and you are still in growth mode, a larger scale partnership may be something to consider. For example, say you merged with a massage therapy business. You now have a complementary service to offer clients, plus a new pool of prospects and tons of future marketing fodder. Merging two business like this would increase your number and clientele tremendously. On a lesser scale, simply sharing office space with another firm, such as a chiropractor, would get more people in your door and potentially round up new customers, without all of the fine print of a merger. Ultimately, partnerships can increase you customer base, revenues, and show buyers that your business is in growth mode.
Referrals are critical in the physical therapy industry. Physical therapy practices rely heavily on physician’s referrals and referrals through organizations such as ACOs (Accountable Care Organizations). As the owner of a physical therapy practice who may be getting ready to sell, you will want to build the strongest referral network possible. Networking at community events or trade shows is one way to build relationships with local healthcare providers. We also recommend an email marketing campaign to advertise your specialties and qualifications. Social media and a robust website probably won’t get you a referral, but it will make you easier to find online and build credibility in the community. Having a strong referral network in place will show buyers that your business is stable and profitable, decreasing the risk of investing in an acquisition.
Specializations help your organization stand out and will bring in new clients looking for niche therapy. The American Board of Physical Therapy Specialties offers certification courses in 8 main areas: sports, cardiopulmonary, pediatrics, orthopedics, neurology, clinical electrophysiology, and women’s health. Having certified therapists on your team will open up your offerings to specialized populations and give your business the opportunity to earn additional revenues. Specializations also give practices new marketing material and the opportunity to tailor services to niche customer groups, plus buyers will feel more secure with certified staff members.
If you have been thinking about the next step for your physical therapy business, the timing could not be better. The outpatient rehabilitation industry is thriving right now, and growth is being driven by several factors. Our baby boomer populations is building demand in this sector as is rapidly advancing technology and current healthcare plans. If your business has been trending upwards for the last couple years, you may be in a good position to finally cash in on all of your years of hard work and sell your physical therapy practice. The first step to selling any business is finding out how much it is worth, and we can tell you with a no-cost, no-obligation valuation. Market conditions are favorable now, but could change any day – let this year be the year you finally take your business to the next level.