How This Acquirer Tries to “Do More, With Less”
Steve Chenoweth, CEO of Therapy Partner Solutions, joins Paul to discuss a lighter early diligence process, flexible deal structures, and what PT business owners should know before a partnership.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. I welcome all of you who have joined us today. And today we are really excited because we have with us Steve Chenoweth. Steve is a physical therapist and he is the CEO of Therapy Partner Solutions. Therapy Partner Solutions is a company that is private equity-backed physical therapy company based out of Fernandina Beach, Florida. But this really does not give the full picture of the company. Therapy Partner Solutions has a very unique model in they have aligned partnership solutions in the areas of compliance, rehab billing and collections, contract management, clinic development, as well as recruiting.
All the musthaves for a physical therapy company. Steve, it's great to have you with us today. Hey, thanks Paul. It's great to be here. And you guys have been busy with all those partnerships. Amazing in four years that you guys have been really kind of in business here as therapy partner solutions. Yeah, th this iteration of our company we really kind of reinvented ourselves back in about 2016 actually and and have grown through that time. So yeah, well again remarkable having those partnership alignments and those solutions because yes absolutely all of those are much needed for an acquisition you guys may do as well as for your company as well.
So Steve, you know, our clients often ask us three specific questions when new acquirers like yourself enter into the market. Sure. And the first one is your strategy, Steve, for Therapy Partner Solutions for becoming a successful company in this industry very different or different in any way from the strategies that some of the larger legacy companies have followed. Yeah, I you know, I'm not sure our strategy is different. I mean, there's really only so many ways that you can reinvent the acquisition and partnership wheel. But I think our perspective and our approach is very different.
My founding partners and I h have been where your clients are today on the sell side. On the business owner side, on the operator's side of the transaction, we sold a 17 clinic platform of outpatient clinics back in 2010 to a large national provider. So we fully understand where your clients are and where they're coming from. Including the struggles and the victories that they've experienced over the years. When we enter into a partnership with a new group, we really in enter into that partnership from that perspective.
Each one of your clients have different motivations for even exploring this process. And we've got to understand those motivations first and foremost. We don't believe in a one-sizefits-all type partnership. That one-sizefits-all usually means all the sellers fit into an acquirer's one model. And there are some real advantages to that model. But those advantages are usually all on the buyer side of the new partnership. We really invest heavily in the future success of our new partnership. Our partners have to get more out of the partnership than what they would otherwise achieve on their own without therapy partner solutions or any buyer for that matter as their partner.
So the other question we get is what is therapy partner solutions looking for? In other words, what are some of the characteristics of the companies that you guys are seeking that would really thrive by joining with you guys? Yeah, and that's a great question because not all partnerships are great partnerships and I think first and foremost a seller should know that u not every partner is going to be a great partner. And that includes therapy partner solutions. We what we like is we like a history of previous and current success in their current business model.
We like a practice to have a reputation of being among the best if not the best clinicians in their markets. We love a company that's got strong employer employee culture that really embodies a trust between the owners and their employees. We like folks that are better than average operators. Just because you're a great clinician doesn't mean that you're a good clinic operator. U, so we like folks that are better than average operators. And we like folks that have an openness to a new and complimentary way to increase the success of their current business.
You know, at the same time, we've had some great success stories of practices that were filled with great clinicians, but the industry's just kind of rapidly pass them by from a business perspective. These practices just need a big brother, if you will. Someone, you know, a partner that will allow them to focus on the things that they do really well, like getting patients in the door and treating them with a high level of clinical care. As real as well as really pouring into their people and their associates and their employees and just let us as their big brother take care of everything else.
And then finally, you know, a history of consistent growth and a strong desire to grow further but not at the expense of their work life balance. U that may be one of the absolute keys to success as our partner u which is understanding that growth in the context of work life balance. It's important to me, so I suspect it's really important to a seller as well. Sure. Sure. So, what I'm hearing you saying is you're an ad to an individual company. You you will help them to achieve the goals versus simply a consolidator.
Is that absolutely I mean it's got to be complimementaryary and it's gota it's got to be part of their next steps, their success story for the future. Yeah. Good great stuff. Great stuff. So Steve is the approach that you guys use in terms of the nuts and the bolts of an acquisition process, structure, you know, process, etc. Is it any different than the approach that's used by some of the larger legacy companies out there? Yeah, I think so. You know, first of all, in the what we call the get to know you stage, we try to do more with less.
We ask for just a very few basic financial, operational and billing reports. You know that can be six to nine reports in all. Depending on the practice management system and the billing system that they use. We feel pretty strongly that we can get a very accurate glimpse of the business from these reports. Develop a valuation and a deal structure to talk around and we can find out very quickly if our company is a good match for the business that we're looking to partner with. There is absolutely nothing worse as a private practice owner, a busy private practice owner, than doing a lot of due diligence work just to find out you're not in the same value ballpark or the same culture ballpark as a potential partner.
Secondly, we're typically more flexible in our deal structure than most of the acquirers that are out there. I understand why a lot of the larger companies are more prescriptive with their deal structure. You know, quite simply, it's just easier to do a one-sizefits-all model. We've just found that our deals seem to go better and the partners are happier when we can be a little bit more creative on things like how much equity we're buying, the length of their employment agreements, that type of thing. We also can work with a seller on structures that include earnouts.
If they truly believe there's a significant and immediate upside in the value of their business, there's got to be a really compelling reason for us to do an earnout because those earnouts can be a little bit complicated, but we're absolutely open to the structure. Next, we spend a lot of time educating our potential partners about the deal, about deal value, about deal structure, and about the potential backend or what, you know, people refer to as a second bite of the apple value. One of the great things about dealing with a group like Martin Healthcare Advisors is that the sellers typically are more educated about the process.
They've got a realistic expectation on value. They've got realistic expectations about the future and real realistic expectations about, you know, what we call what's next. And then ultimately, I mean, we're trying to get the maximum value to the seller. A value that we can justify, a value that we can underwrite, and ultimately a value that doesn't impart significant risk for us as the investor. We want our partners to be happy about the transition and about the transaction and we don't want them wondering if they left value on the table.
Yeah, some really great points there. You know, kind of going back for our audience, you know, kind of quick to a decision. So when I use the word quick, get a limited amount of information, have some of the real critical conversations first on value, culture, you know, to make sure that there is some kind of a match there before you again go through and you know almost go through a due diligence process of lots of lots of reports etc. And then I also heard loud and clear that your structures have flexibility.
So flexible structures, unique structures depending upon what would make the deal. Those are kind of the two big things I got out of that. Did I miss anything? No. And I mean, just to reemphasize, I I'm not sure that any one of our deals has been structured like any of the other deals. I mean, that's really how flexible we are. And granted, we we've done deals in lots of different spaces from revenue cycle management companies to compliance companies and private practice clinics. So obviously there's going to be some variability in the deal structure on different types of companies, but even within the private practice piece of it, I don't think any of our deals have been exactly like another deal.
Interesting. Interesting. So, a former owner that's a part of your company, how would they describe the culture of your company? Yeah. No, that that's a great question. And you know, we encourage all of our potential partners to speak with our current partners and owners. We believe our partners would probably tell them that we number one deliver on our promises. We believe they probably also say that they don't always agree with therapy partner solutions. But we know that they'd probably also say that they always find ways to work as true partners with Therapy Partner Solutions for the good of the company, for the good of the partnership and their associates and really for the good of their patients.
As you know, we recently recapitalized our company with a new private equity partner. All of our partners that wanted to participate financially in that recapitalization did so. Whether their documents said that they were able to participate in that transaction or not. We made sure that they were able to. And not only did they have a financial event or a second bite of the apple during that recapitalization, but Therapy Partner Solutions was able to actually deliver more value to those partners than we had originally promised to them in their original agreements.
Additionally, I think these partners are now getting to continue to grow the remaining stake of their business and they're actually going to have a third bite at the apple, which is has put a lot of smiles on our partners' fight faces. And then I think our partners would tell a potential seller that we are true partners. At Therapy Partner Solutions, we don't put our shares on the table and vote those shares. We make partner decisions with our owners. U, we think that's the only way to handle a true partnership.
So often owners who are you know partnering selling their company you know they have an ideal an idea in their head of what's it going to look like for their people in the future. What would your partners say about how that may have changed or not changed from what they thought would be for their people to what now is the opportunity for their people? Yeah. You know I think what they tell you is that there's more opportunity for their for their people. One of the things that a partnership like Therapy Partner Solutions should bring to a potential seller is just that it's not just opportunity from a financial standpoint for the owner of the business.
It should provide opportunity for everybody in that company. Whether it's the front office manager, whether it's a physical therapy technician that might want to go back to school and become a physical therapist, whether it's somebody who's looking to become a director, but there's only one clinic and there's only one director and they may have limited opportunities. We really believe that our growth strategy will continue to provide those opportunities for everybody in the organization. You know, we pour a lot into those new partnerships in the first 90 days that have nothing to do with things like visits per referral and units per visit.
We pour into the people. There's certain things we have to do early on in the partnership like, you know, get their books, shift it to our financial books. U, but the first person they see is our vice president of human resources. Because we think that's the most important thing. We need to make sure in that transition their people are taken care of, that their people are cared for. And that most of all their people know that they're cared for. So that that's why we spend so much time in that first 90 days of really just pouring into the people.
Yeah. So, if we took an atlas out, good oldfashioned map, right? Walk us through current geographies that you're in and how you determine what geographies you will acquire in and grow in the future. H how do you guys look at that? Yeah, you know, it it's a funny question because people will go onto our website and they'll look at our map and they think they have a sense of what our geography might be and then they see this little spot on the map kind of outside of our core territory.
So, we get this question a lot about geography. And really our answer is that we're not geographically limited, but rather we're culturally limited. All buyers in the industry talk about culture. They talk about culture matching. They talk about culture fit. And that's great, but I mean, we really mean it. We don't believe in growth for growth's sake. But we're and so we're not just going to reach to geography because we can we can grow. We're currently in a pri primarily in the southeast and we extend up through the mid-Atlantic states, but we also jumped to the Boston area of Massachusetts.
And I can assure you, we didn't jump to Massachusetts because we like the state regulatory environment or the reimbursement rates in the Northeast versus the Southeast. We went to that area because we found a partner that we loved, a partner that reminded us of us. U a partner we felt we could grow with and establish a platform with. She truly was a cultural match for us. So when we when we say that it's a cultural limitation, I mean, we really mean it. Yeah. We we always, you know, I can hear Tom Carden in the office next to me.
It's culture, structure, price. Yeah. Typically in that order. So, you know, we're into 2022 now and you know, we've been through a lot. This industry has been through a lot. What advice would you have for a business that is preparing for this market? Meaning, you know, considering looking into the market to partner, sell to a larger company. What do you think is most important to their preparation? Yeah. I I'd say first and foremost, spend some time educating themselves on the process. Most firsttime sellers don't know what they don't know.
They should have an industry valuation done before they start the process so they know what their practice is really worth and not what they think it's worth. A lot of times there's a big discrepancy in those two things. They should know how their practices are valued and understand what increases or decreases that value in the market to a potential buyer. They need to understand that they're likely not going to get a max value walk away type deal. Most buyers want and need the owners to stay as vested partners in the practice at least for a period of time after closing.
They need to understand that if they've got debt in their practice, that debt's going to need to be retired or paid off either prior to closing or at closing with the new partner and ultimately that's going to decrease the net proceeds of their acquisition. But they really need to take that into account. They also need to understand that a buyer wants them to continue to do the things that made their practice successful to this point in their history. But there will be and necessarily there'll be some changes that come along with a new partnership and that those changes should help increase the value and the opportunity for the partners and the associates.
But only if those changes are implemented with a true partnership spirit from both sides. So, so willingness on both sides. And then finally, you know, the highest upfront value may not represent the best partner and ultimate value for a seller. A seller should look for someone that can grow their remaining equity stake in a way that's meaningful from a dollar standpoint while maintaining the lo local culture that they've established over the years. That walk away or second bite of the apple could and should be as valuable as the initial piece of the company that the owner selling now.
And so they just need to realize that upfront value isn't always representative of their best partner. Absolutely, Steve. Really, really helpful advice and I really appreciate it. So Steve, thank you for participating today. I really appreciate your time and as well as your knowledge. And we wish you the best of luck with Therapy Partner Solutions. We appreciate the opportunity to speak with you guys and and we look forward to dealing with you guys and some of your clients here in the near future. Yeah. Thank you.
And for any of you out there today who have any questions about the discussion that I had with Steve Chenoweth today, click below and let's talk. Thanks and have a great day. Take care. Take care, Steve.
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