This Acquirer Acts as a “Growth Accelerator”
Drew, CEO of ActivePro Rehab Partners, joins Paul to explain his marketing and operations approach to growing acquired practices, the two to eight clinic owners he targets, and how his deals keep owners invested.
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. Today we have with us Andrew Lzus. Andrew is the CEO of ActivePro Rehab Partners, formerly Twin Barrow. An active pro is a private equity-backed physical therapy company that is based out of Cranford, New Jersey. Currently, they have grown to 42 clinics, all located in New Jersey. Drew, it is great to have you with us today. Thank you, Paul. And Drew has been a guest on our show a number of times. I have often ret referred to him as one of the best physical therapy operators in the country.
So Drew, you do hold that title. Thanks, Paul. Well, first off, I got my start with you, 31 years ago in 1989. And, I wouldn't be here today if it wasn't for you. So, we go back a long ways. Yes, we do. And, and I appreciate that. I appreciate it. You know, I know you guys have been at this for a number of years now, but as you look at some of the other larger legacy companies, you are still referred and as a newer acquirer. And when new acquirers enter the market, our clients and folks that we talk to out there, they ask us three questions.
And the first one is active pro strategy for becoming a successful large company in this industry. How is it different from the strategies that the larger legacy companies are following out there? Yeah, I think there's a couple things involved with that. I think that when you get so big, I think that in some sense that it gets very difficult for a lot of larger companies to transcend or transpose what their perceptions are in reality in terms of operating a local market business. We have a six-pronged marketing approach.
You know, with marketing and different aspects of it. I feel like active for rehab partners is a growth accelerator. In every acquisition that we've done within 18 months, we've grown by 40%. So, [clears throat] and that's all fact and I invite anyone to come and look under our hood and to see what we do and how we do it. So there's a marketing approach and then there's an operational approach and I think there is a combination of the both that you know help helps each local market grow right because all these locations are hyper local marketdriven businesses right and it's in direct proportion to the quality of the clinician and quality of the people and the quality of the care and what the actual product that's being delivered at the local level.
Not all physical therapy is created the same, right? Just because a location has physical therapy on it doesn't mean that it's successful or that it's going to be successful. It's in direct proportion to the people and the evolution and quality of how that product is being delivered. And then the combination of the marketing and the operation and the person. All three of those things take make a big impact. And we spend a lot of time and strategies in each of those you know silos to make sure that you know we're trying to make the wheel go around a little bit better for everybody.
So 40% growth 18 months. I mean that is remarkable. You know, it sounds like an owner that joins your company really has to be prepared to kind of step up their game. Would you agree with that? I don't I think it's really knowledge is power, right? I mean, I've been in this business a very long time. And, you know, I kind of know, you know, what works and what doesn't work or what's the right recipe. And in a lot of sense you know it's getting the right people to buy in terms of strategies to help you know the funnel of new patients.
There's many different aspects that make that occur. And then on the operational side, you know, really managing and giving the therapists and the clinicians the tools to manage at the case level, right? And you know, there's a lot of software platforms out there that really people don't take advantage of or don't utilize data and knowledge to help produce results, right? And we want clinicians spending time with the patients and so the growth factor like I said it's very incremental and it's very how do I say you know purposeful in terms of our strategies to kind of measure growth in certain areas.
So and that in turn comes back to the actual product being delivered and at what level are patient actually being discharged right and at what level are we retaining patients so there's not a high level of dropout factor either. Yeah. So I think you know in terms of stepping up their game you're giving them the tools in order for them to step up their game. They don't have to unilaterally or in their own as you said kind of cyclone they they're not stepping up their game on their own you're guiding and helping that process.
Drew what do you think are some of the key characteristics of a company that would thrive by joining Active Pro? Oh, I would say that any practice between two and eight locations that want to be, you know, 20 to 25 locations in a very short period of time. It really come down to you don't have to, you know, be a platform of 20 to 25 locations. I like working with you know passionate owners that really want to take that next level and grow their current brand and I'm a big believer of the local market driven brand strategy and somebody that has anywhere from two to eight clinics that's a good sweet spot for us and giving them the opportunity to be you know a hub and spoke around that and giving a joining practice practices, the opportunity to grow that brand and that local market.
You know, so larger companies, some of them have a different strategy. I don't necessarily believe that. I believe that if somebody spent the last 5, 10, 15 years of building up a good name in the community, I think it's strong a strong belief to keep that local market brand that people are familiar with. So yeah, really interesting with the focus of the two to eight clinics. We often say, you know, that's kind of the land of you need resources, you need to really step up. You need more around you to grow through into that, you know, 10 plus.
So that that's a really interesting focus and it sounds like with 40% growth, you guys have gotten very good working with companies like that. Yeah, there's an example u of a company that partnered with us only in we're only one year into the relationship which was Pro Staff Physical Therapy. They had nine locations and just in a short period of time just after one year we're up 26% over their 2019 numbers. Obviously 2020 was a COVID year. Sure. But you know I was in fact looking at the numbers yesterday and you know and looking at our budget and just a company even that large with nine location we've had a tremendous impact.
So a lot of it is really related to like I said the marketing aspect and the operational aspect and then looking at the quality of the leadership that they have and giving the leadership the tools and the structure to help better understand what's happening in their clinic at all times and giving them the tools to help accelerate their own growth. I'm a big believer too, Paul, that since the Samaritans invented currency, it's been known to induce behavior. All of our leadership, all of our all of our leadership, and from the top down shares in the success of a clinic.
I'm not interested in partnering with companies that don't have a Ben Franklin model, I would call it, to where everybody gets rewarded. And that's from, you know, front desk operations to an aid. There has to be, you know, a true reward that can be felt if success is isertained. People need to make more money today. And you know we you know are certainly able to help provide that model and give people the tools to do that. You know as you look at your process kind of the nuts and the bolts of the acquisition process and you know the structure of the deals that you do how is your process different from again kind of the approach used by the larger legacy companies in the industry.
So we try to structure everything where we want the owners to stay, right? We want people that want to grow, have the right motivation, that want to really build their brands and we do buy a portion of their business and they retain a portion and all the way up through we help organize the compensation packages that everybody is rewarded on the success of the clinic itself. They then retain that portion and take some chips off the table. Now, but in a sense when we model out what the growth is and will be taking a practice from two to eight locations to 25 and 30 locations, what the value that they can generate is lifechanging for their families, right?
So, it's very hard today to be an independent private practice. It's very hard today to get to the size to be able to offer an infrastructure to help drive a business and drive growth itself. You're seeing mass consolidation around the country in health care from hospital system just in New Jersey nine years ago there were 35 health systems today there are five health systems physicians consolidation is really taking place especially in New Jersey where they're all working for a major health system and they all have self I call them self-interest models right so we've done a very good job at transition itioning into a direct access model to where it's my hopes and dreams that we all become champions of direct access that we are the origin of every mus and each community the origin of muscularkeeletal delivery systems for every local community.
We're putting great emphasis on direct access and getting really I guess if you can say institutionalizing the private practice model. We've done a pretty darn good job at that and that's what we are and that's how I would categorize us. As far as away from a corporate to more of a you know institutional private practice model to where we're just you know you know an eight lane highway to give them you know all the tools they need to deliver the care that they want to deliver and become totally market dominant in every market that we serve.
We want to be the number one choice provider in every local market. That that's you know and that that's a defined strategy and a defined core purpose of you know why we exist and what we do many of the large acquirers there are tremendous amounts of consolidation going on and a lot of great acquirers out there and I tip my cap to all of them and everybody has their own you know recipe for success and I get it but [clears throat] at the end of the day at the end of the say it's about the quality of the growth that's happening, how it's happening.
People are great at buying things right now, right? Everybody's great at buying something when they have, you know, money and somebody else a checkbook, but what happens the day after it closes and how do you grow, right? We don't we don't want to be a barge in the ocean and just sit there, right? So, I think there's a lot of good people out there right now and they're really great at buying things, but at the end of the day, you know, how are they really making a difference for, you know, that practice owner?
So, Sure. Sure. No, buy and build and align with your partners with that build also absolutely impacting their future as well. So yeah, great stuff. Great stuff. Yeah. Culture. A lot of companies will a [clears throat] lot of sellers out there will join a company because of the culture and because of the people. How do you think business owners, former owners would describe the culture of Active Pro a year or two down the road after being a part of Active Pro? Well, I think the number one thing is integrity, right?
We're totally have a total transparency system and I believe in integrity and you know and proven results, right? So I want everyone to come that does want to partner with us do a full day of discovery, right? You know, I've been involved recently with some processes where I want the sellers they sometimes try to keep the sellers or the buyers away until they get their price. But I kind of like turning the hourglass upside down. I want the sellers to come and spend a day with me and I want them to look under my hood.
I want them to look under, you know, under the desk. I want them to look in my drawers, right? I want them to look, you know, at how we run things and what we do and how we can make a difference in their business because people talk a good game. And if they don't want to do that, then it just to me it's like, well, are they all about the money or are they all about trying to make a their practice better and trying to learn what we do, how we do it, and if it would be a good fit because the worst thing that could happen is that, you know, they're not buying in to what we're putting down.
Right? I want them to be able to pick up what we're putting down and learn and become totally market dominant. And at the end of the day, you know, I would say that integrity is the number one aspect and proven results. I mean, you know, we're very compassionate in terms of our employees. Our our total infrastructure team is totally dedicated to making everybody as successful or the best version of themselves that they can be. And we're there to support that. We're there to support that. You know I'm very hands-on you know as my in my own role I'm involved in a lot and on the day-to-day operations of the entire company and you know it this isn't a to me I want to be down in the in the rice patties with everybody else trying to move the business along and and that's how our whole company operates and I think that you know a potential seller or a potential partner can appreciate that when talking to our partners now we've done eight acquisitions and in every instance like I said the average growth has been over 40% in 18 months and I want those potential partners to go and spend even a day with the the people that have partnered with us and let us show you how we made them successful.
So yeah, great stuff. Great stuff. That's all I That's all I can, you know, it's like it's the biggest decision of somebody's life and you know, if they're just going to let transactional paper go back and forth and determine the the aspect of their next maybe 10 or 15 years. To me, that's a hard pill to swallow when at the end of the day, you really need to see the success levels of what is happening behind the scenes and how do we do it so that they're successful, too.
And they're excited then to be on board and know what may be potentially incremental changes are coming. You know, there's other acquirers out there, other potential partners that say, you know, join up with us and we'll leave you alone. And I get that but that recipe doesn't work well because for me anyway because there's no built-in what's the growth determination right it's kind of like you know there's no annuity program here right it's kind of like we are what we produce and at the end of the day I want to produce for all our partners in a passionate way and make them as successful that they can be you know so yeah I mean I'm hearing you want to work with partners that have hit a ceiling and they just they just can't they can't grow on their own anymore.
So the recipe you bring to them is that recipe to grow and then obviously you both win. You both win. Yeah. Drew, you guys have stayed, you know, very disciplined in, you know, your New Jersey geography. How do you look at geography and how do you look in the future now for active pro it's in the beginning you talked a little bit about some other geographies you're growing in how do you analyze that and strategize about geography well there's two elements of that though we're not you know [clears throat] anything that's you know on the eastern seabboard from you know the New England area down to you know you know Georgia you know we'd potentially partners for somebody that will do that.
I think that, you know, we've only been out of the gate for two years now with our private equity firm and we had this thing called, you know, the Corona virus happened to us and like everyone else in the nation. So, I think that we, you know, have focused on New Jersey because it was closer to home and easier to manage through a pandemic. That we really haven't been as aggressive in other states because you know I could grow another 20 locations in the next two years just in New Jersey and and be it you know still only the you know the fifth or sixth place number of acquirers in New Jersey.
So, Jersey just happens to have 9 million people in it and, there's a lot of room for a lot of players, but, we're a strong, very strong provider and, I want to remain strong with the consolidation that's here at home, but we're not agnostic to, you know, potential partners in the region. You know, a lot of acquirers, you know, they say, "Oh, well, you know, there's really no state-to-state synergy, right, at all." I mean in any in any aspects of it, it's really finding a really strong local market provider in a given area and growing out from there.
And you know this year we have we're in a big denovo push this year in New Jersey. We have six denovos on the docket this year. And we developed the whole real estate department to master some key locations. And so so we're we we've been here and doing a good job. And we're just with 42 locations this year. We'll see over 500,000 visits this year with just 42 locations. So, we have our hands full here, but, you know, we are potentially looking at two other acquisitions in other states that are between a two to eight, location aspect and grow that footprint, you know.
Sure. So, for a company that's out there preparing for, you know, going into the market looking for a partner, what do you think's most important as far as their preparation? Yeah. So, I look at this and I think that it really comes down to what the owner's intention is, right? You know, and being prepared to really communicate what their true intention is, right? Do they really want to stay? Do they really want to grow? Are they just, you know, in their heart, what do they feel, right?
Where do they really want to be? And who in essence do they think that would be the best partner to help them live their dream? And to me, look at the success of everybody, right? Like what success story can you show us in your last 10 acquisitions and show me how the last 10 acquisitions that you did and how they performed? And I want to see the visits when you bought them and I want to see the visits now today and when you close the deal.
So if I'm in a choir, if I'm getting a choir today, I want to ask that question on the due diligence of my own end and I want to see what they did, how they did it, and what the proof in their pudding was and you know, how they grew their company and what those aspects were. So I think that's an important element. If I'm sitting on the other side of the table now, you know, what are you going to do for me and how are you going to do it, right?
So show kind of like show me kind of attitude, right? Like show me, you know? So yeah, great point. Great point because you know as you know as a seller you're getting asked all the questions and you feel like you're on a witness stand. But I think what you're saying is show me what you've done with other partners. Show me what progress they have made. Because that's going to be me someday and I want to know what's going to happen when I get, you know, on your platform.
Yeah. And what and like I said, listen, our platform isn't for everybody because you know, we're involved in helping you grow. We are a growth accelerator. That is what we are. And if somebody, you know, I mean, doesn't feel like they're getting, you know, the best advice from their representatives. If they don't want you to do what I'm asking, then the person representing you shouldn't be representing you, right? As you know, because this is the biggest decision of your life, and you need to know, you know, who you're getting married to.
This is a marriage, right? And at the end of the day, I want to know, do you want to have kids or do you not want to have kids? Right. Right. Like we're getting married. Like what, you know, like what you know, it all family to grow. You want to pay the wedding sounds great. You know what I mean? Like but and we're gonna have a great band at the wedding, but you know after you get married and the band's going home and you got to go home, it's like whoa, what are we doing here?
You know, what are we building? You know what? What do you mean you want to live in a country? I thought you wanted to live in the city, right? Simple. Well, we laugh now, but people aren't asking those questions and they're like, "Oh, well, I have, you know, a half million dollars of EBITDA and I, you know, show me an LOI and then I'll sign an LOI, but I don't even know what your true intentions are." And to me, if I'm selling my business today, I think I don't think you're asking enough hard questions or enough honest questions to know, you know, great, the money looks great up front, but what's the day after going to be like, you know, and I want everybody to know that.
I want them to come visit. I want them to spend the day with me, spend the day with the team, and you know, so great advice. Really great advice, Drew. Again, I thank you so much for coming on and sharing. You are always such a fresh look. And you know, you always bring such great information. I appreciate it. Thank you. I had a very good teacher, Paul. You know, so and we look forward to having you back again. All right, man. Thank you. And for all of you out there today who have watched this, if you have questions about the conversation that I had with Andrew Les today, just click below. Let's talk. Thank you.
Want to talk about your own business?
Marlton, NJ 08053