The Newest Acquirer's Key to Success Is an Alignment of Interests
Guy Sansone, chairman and CEO of H2 Health, joins Paul to discuss building a comprehensive rehab provider, aligning interests with every employee, and what PT business owners can expect from a newer acquirer.
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. So excited to have all of you here with us today and we are real excited to have with us Guy Sansone. Guy is the chairman and CEO of H2 Health. H2 Health is a private equity-backed company based out of Jacksonville, Florida that currently has 118 but very soon will have 138 clinics. Guy, it is great to have you with us today. Paul, thanks for having me. So guy comes to the physical therapy industry and brings a wealth of experience in healthc care management, leadership and consulting.
I don't want to say over too many years guy because you know you still look like a very young guy and I don't want to age you at all but trust me guy comes with a lot of experience to our industry. We're we're really glad to have him. So guy you know when newer companies and H2 health is really one of the newer companies into the industry given the stop we had with COVID and etc. But often our clients and folks that we talk to, they ask us a few questions about a new acquirer.
And the first that I'd like to ask you guy is the strategy that you and H2 Health is using to become a successful company in this industry, how does it differ from some of the larger legacy companies and the strategy that they're following? Well, that's a great question. I I'm first going to go back in time and many people who know me have heard this story. I first got introduced to this industry in 2003. There was a little company called Hell South. Many people may remember it.
Many people in this industry still have legacy ties to Health South. And [snorts] during the fraud, my firm Alvarez and Marcel was brought in and I became the interim CFO of that company about five days after the fraud was announced. About six months after I took on that role, I was also asked to oversee the physical therapy division. And you know, it was then that I really fell in love with the industry and the people. I found it to be passionate, have passionate caregivers, entrepreneurial, creative people with high degrees of energy and passion for what they do.
And I always thought even back then, that if there was a chance that I could return to the industry in some capacity, it's something I'd want to do. Over the years at&m I you know built a large consulting practice and our clients included the physiootherapies and the Fox rehabs and the and the and the athleticos and so on and so forth. So we we've had tremendous exposure to understanding what works in the industry and with the people compared to maybe somebody else that's just diving into this sector as a nonPT that I am.
So it's given me time to as we purchased H2 which used to go by H Heartland Rehabilitation when it was owned by Manorare to build what our goals for the organization are. And what we found as we first purchased H2 we had 60 locations in like eight different states. And you know our goal was from the very beginning was to become a comprehensive rehab the comprehensive rehabilitation provider in every community that we serve and that goes from pediatrics all the way up to seniors both in their home and in assisted living communities.
So our goal was to build that concentration and again we started with 60 in eight states today where we are like you said 118 in nine states. So we haven't really expanded geographically but we have over doubled in size or doubled in size approximately in the in the states that we're in. Becoming that provider of all rehabilitation services to me creates concentration. It creates connection to the communities. It gives us the ability to take care of you know kids. We also branched into ABA services inside of the inside of these communities and thus a connection to the community.
Because as we know direct to consumer and reputation is probably the most important thing in terms of creating a legacy in the c in the communities that you're operating in. Yeah. Wow. And I can imagine going all the way back to your time with Hell South seeing you know truly the good, the bad, and the ugly. Yeah. Yeah. You know, enables you to really see this industry through some very unique lenses and yeah, really interesting. And you know, we remember back to H Heartland and you know, they were very proud of the physical therapy services that they offered but really never took that step to grow their outpatient.
It didn't seem like outpatient was what they really wanted. And what I failed to mention initially is that Guy you were actually a founder of H2 Health when you made that acquisition. So Guy was there at the very beginning was not a CEO brought in later by the private equity group. You were there right from the beginning. That's right. That's right. Yeah. So what do you see that's going to be different in terms of your strategy compared to the big companies and the biggest of the companies in the industry right now?
You know, I think Paul, a lot of people talk about creating alignment of interests. It's a word that gets tossed around. I don't believe it's a word that truly gets exercised in reality. We have made alignment of the interests with all of our employees one of the keys to how we're going to succeed long term. We believe everybody in the clinic are partners. 90% of our employees have the ability to earn bonuses and achieve some level of success financially as the company itself grows. So you know pushing that and aligning interests all the way through the organizations the organization is extremely important.
We also believe in a living wage. You know, we are taking all politics out of out of it. You know, we think it's important that everybody has can earn $15 an hour or at least have a path to earning that living wage. So, again, we think that creates alignment with our people. We we recruit on acquisitions a lot of former owners and while there's a lot of models out there and we toyed with a couple of them very early on. Our s most successful model is where we bring in former owners that have gas in the tank and that truly want to take another bite at the apple and also want to grow with us and have a seat at the table.
Our model does not create the joint venture structure at the local level. We think that's inherently wrought with conflict and while we tried one of those at the beginning, we experienced that conflict. So you can see what does the local entrepreneur who continues to own a piece of their business want to do and how does that work in concert with the goals of the organization. So, what we've done, Paul, is we offer for most acquisitions, particularly those with people that want to stay on long term, an opportunity to reinvest a portion of their purchase price and roll a portion at the hold co level, at the parent company level.
This aligns interests in ways that most people don't. And my best example of that I can tell you right now is that we have an owners meeting coming up of just the employees that own equity. And we have nine former owners that are going to be sitting in that meeting with me as we go through the strategy for the next three to five years. And they're going to have a seat at that table. And whether or not they rolled a $100,000 or a million dollars, they still have a seat.
And to me, that creates the alignment. And I try to pull their entrepreneurial experience, their ability to feel like they're local owners, but at the same time, let them see the bigger picture. Let them see that we do have ABA services and pediatric services and at home and senior living services so that as we grow they can also add on those services in their communities thus becoming a more comprehensive provider. So that's I think that's how we are different and why our phrase of alignment is probably more powerful than others.
Yeah, very unique. And I think that yes, the partnership model is out there. You know, started way back when with the with the USPT partnership model. They're still doing that partnership model today. What's interesting though is, you know, not, you know, kind of taking away the opportunity of the local equity, but as opposed to just I have equity up in that parent company. I have no idea what they're talking about dayto day. I have no idea what they're doing. What I heard you say is they actually have a seat at the table, huge strategy, getting to contribute to that strategy going forward for the company as a whole.
And yeah, I would agree that that's a real significant alignment of interests. Yeah. Yeah. Appreciate. Yeah. Really, really great stuff. So what do you see would be some of the key characteristics of a company that would thrive by joining your company or by joining H2 Health? So when I meet with an owner at the very beginning and I meet with every one of them very early in the process, it's not just a regional business development person that is meeting with the potential partner or target, however you want to describe it.
I meet with everybody and I am immediate to point out and bring with us our culture statement and our mission statement which we created right before we purchased the business and we stay true to and that culture statement includes phrases like no BS. We're we're straight. We wear our hearts on our sleeve and what you hear from us you get. And you're going to get throughout the both the process on the acquisition and afterwards and that's our hope and our goal. Our culture statement emphasizes entrepreneurialship.
Our culture statement emphasizes mission, people, communities. We share that with the people who we are meeting with early in the process because that buyin is absolutely critical. You know, in my mind, either you want to be part of who we are or you don't. And it's okay if you don't because I think finding people that are likeminded and aligned. And we have a phrase called like what you do, like who you do it with, and make a difference. That's also part of our culture. And we meet and we emphasize that.
We emphasize that when we meet when we meet as a group either at RDO meetings or this owners meeting that I described before, we actually go through our culture and just reiterate it and make sure people understand what we're trying to accomplish because it is important. A lot of people talk about it. A lot of people put a sign on the wall. Not everybody tries to live it. Yeah. So to me, making sure that alignment from the very beginning is there that you're a fit. This is a marriage.
This is something that we're going to be in together for a period for, you know, some time. And and that's how I think you build trust and you build the right incentives. So if we were to talk to one of those former owners that maybe joined the company, you know, a couple years ago, what would they how would they describe the culture of H2 Health? I heard your description. How do you think a former owner would describe it after being there a couple years? I would say collaborative, particularly at the beginning when we decide we're going to sign an LOI and this is the price.
We're not sitting there trying to nickel and dime every d every penny. What can this do? What can't this do? And we're very collaborative and we work on to building that model together. I think once they join the organization they look at our team as a service organization that's doing giving the resources that they need in order to execute both their existing plan and any go forward plans. We lay out very aggressive growth plans and denovo plans and this year for example I think we're planning on 26 denovos you know in year three so to speak and that includes you know obviously the impact of co and I think access to the people that make decisions right it's not a hierarchy it is not a long time ago one of my mentors said nothing stunts growth by overcorporatizing things, you know.
So, so to me, we want to keep that that entrepreneurial spirit involved. We we obviously are stewards of money, both our private equity partners and our and our lenders. So, we've got to keep that in mind and we do that. But at the same point in time, I'll take the time to explain that to my partners so they understand if there are any things that are limiting our ability to invest here, invest there, that they know they know about on the front end. So I think that's the difference and I think every owner would say those things have happened and they have a trust factor with us.
You know, guy, a lot of owners when they're, you know, kind of getting ready to go through this process, the first thing they point to is their people. If you again kind of looked at some of the acquisitions that you've done, some of your partners, how would their view on the opportunity for their people be, you know, a year or two years into the relationship versus what they may have thought or kind of dreamed it would be when they entered into the relationship? What are the opportunities for their people?
That's an awesome question. I think they're mixed and let me let me get to that. I think in to answer that in two different ways. One, we obviously have a labor shortage here in the United States, right? So it is not our intention and we're not pricing acquisitions if we can cut this out. We make the assumption that there is some element of scale, but our organization, you know, needs people just like everybody else. Billers are very important. Front office people are very important. They're the they're the they're the portal to our patient.
Credentiing is very important. So when we find these people within an organization, we believe we point out that it is our goal that they can grow within our organization and some people have already taken on leave more leadership roles in credentiing on a more corporate basis on a more national basis than what they're doing inside their own organization. I think second and arguably more important Paul is the belief and it's part of our mission statement is I want everyone to feel like they control their own destiny right and there is opportunity here both for PTs that want to become leaders and leaders that want bigger roles in the organization.
We want to work with them and help build their long-term, you know, strategic plan, personal strategic plan. Some people just want to work two or three more years. Okay, we know where they're going to be and they want to move to Florida. All right, how do we find a spot for them in Florida because they may want to downsize at the same point in time. We have a couple acquisitions, you know, I I'll point out without naming names, one in an acquisition we did in Northern Virginia at the end of 2020.
That young man is now part of our merger and integration team and is looking to expand his role into more of a seuite assistant role in terms of scheduling oversight and making sure you know our schedules are filled and our productivity is good. So, we've been able to take key employees out of some of the acquisitions and grow them where I think we've got to do better and we're still a young organization. We're only two years old. You know, building a more standardized org chart. It's important, but at the same point in time, those things sometimes stunt your growth and stunt your opportunist o entrepreneurial spirit.
So, we're trying to balance all those as we grow. So, [snorts and clears throat] so someone can actually see where they can elevate to. But as I spoke to my son just the other day looking at he he's working for a big company and he said, "I don't want it to be too structured because then there's no room for, hey, you're just doing a great job. We're going to move you to this, you know." So, yeah, I follow that. Yeah. And Paul, let me this is probably a good chance to branch off and broadly speak about our long-term growth channels because bringing good people into an organization, we're also going to offer them the opportunity to dive into some of our growth channels, right?
And what do I mean by that? Well, we have a group that focuses just on senior care. Is senior care your passion? Late last year we purchased the pediatric and autism business that I mentioned before. Well that was three clinics but we're branching that throughout the organization. If your passion is in pediatrics your passion is learning the ABA business that can be some another avenue of grow as well while it's a growth channel for us it's an avenue of growth for individuals that have that passion.
The third is, and we have just touched on this, I believe I believe Paul that at the end of the day, we're going to have to work more collaboratively with our with our payers in partnership. And if we think that if the industry thinks that we'll just be able to move along on a fee for service basis forever and ever and ever, I think long term that is probably long term, and I'm talking 10, 15 years from now, but long term that's probably a race to the bottom.
So, we entered into our first riskbased contract, our first capitated contract. I can't name the name, but it's for about 11,000 lives in the state of Florida. And what we've done inside of the state of Florida is create a care management that is effectively supporting the delivery of care in at this point one concentrated region where we have 25 clinics in Northeast Florida, but it will evolve throughout and we're having conversations with other payers to do it in you know more local and regional levels. So if that's your passion, if care management is your passion, if not having the strain of putting your hands on people and taking care of patients because it's this is an industry that wears people out.
We do we have that path too. So I look at all these and then the traditional as you've pointed out the traditional PT business which is still our largest business, right? So our largest channel. So we think we have a lot of channels for growth and when we find good people it's our goal is how do we figure out where to elevate that person where are they going to fit in the organization long term and in some cases we're they don't but make sure they understand those opportunities are there.
Sure. Sure. Guy. I can't tell you how often years ago physical therapy business owners would go into you know these partnerships or go into a large organization thinking that there was going to be an opportunity for them to teach at a higher level or grow to a higher level and bring their skills and it just never happened. It it just never happened. So those channels that you describe I think are very I think it's attractive to folks who are not done that they still want to contribute they still want to be a big part of something even bigger that they can see that path I think is really important.
Yeah. Yeah. You know, you mentioned ABA and for many of our viewers out there who do not participate or have pediatrics as a part of their business. They may not know a whole lot about you know what ABA is. We do we're also very interested in that as an industry. Talk to us a little bit about you know this marriage between ABA physical therapy and how that you know is a big part of pediatric physical therapy that you guys do. That's a great question. I I'm going to take a step back and at least directionally provide with certain statistics that we find interesting and it's in today's world one of about I think 52 or 54 kids in school require some element of ABA services.
In addition, one out of every four pediatric rehabilitation kits requires ABA. So when you start to look at the math and you say, "Oh my goodness, there is such a population and an underserved population here." I mean, I think the thing that will hurt growth is ability to find people and find people in the space because the demand is there. The business that we purchased and again that owner rolled a significant amount of equity with us. The business that we purchased has a 60 person a 60k weight list just to get in his clinics you know and it's only the restrictions are only in our ability to find people so understanding that's important but I also think it's if you go into these clinics there's nobody in our industry because we're compassionate and passionate about what we do will not walk into the clinic and just feel by crying and happiness of what we're bringing to these kids every day.
Yeah. Every day. Because if you're an ABA, you might be getting 20 hours of services during the course of a week. So to me, it just enhances who we are as an organization. And now I'm working with a group in you know in our Kentucky region or our West Texas region or our or our Rowan Oak Virginia region and says there's no ABA services within miles. Yeah. And and the kids are going to need it and how do we take this model and continue to roll it out with the same brand and basically culture.
It's funny if you look at our culture statement and the business that we brought 75% of the items were pretty similar or directionally similar. So, you know, going into the community, you know, there's need, you know, that there's going to be kids that have that need in the communities. And then being able to bring a service that is so important to a community will give our organization, I hope our employees a sense of pride that we're doing something really good. Yeah, for sure. And and for any of you out there that may not be aware, you know, ABA is very specific therapy to children on the autism spectrum and has really become a growing therapy that's out there.
There are ABA certified therapists that are providing this and in many cases as with H2 Health alongside of OT, speech, PT services. So, really it's I think it could be a really great marriage for the future. For sure. Yeah. So, Guy, someone that comes from a background like you, I'm sure, in the other companies you've been involved in, you've looked at geography, and how do you guys strategize around what geographies you'll acquire in, what geographies you won't, what you're specifically looking for in certain geographies? Talk us through that.
That's a great question, Paul. And I, you know, I on one hand want to share with you everything and on the other hand, I don't want to [clears throat] make the world know what how we're thinking. Share what you're comfortable with. You know, on the on the on the broad from a broad-based perspective and we are let's say, let me tell you where we're concentrated. We are concentrated in Northeast Florida. Very concentrated. Nobody has more clinics in Northeast Florida. We we I think we have 25 and I believe we'll be about 30 just in that region, not in the whole state, but just in that region by the end of the year.
That is a benefit both in terms of branding that is a benefit both in terms of concentration that's a benefit and in the aforementioned payer strategy side because we do have a reach that few have so concentration's in important but concentration also leads to okay how do I leverage that concentration into senior living or into pediatrics so that's kind of the goal why concentration to us is so important. It's not about how do I have power over a managed care company. In my opinion, you'll never have it.
So, you shouldn't even have that discussion. All right? They got to be our partners at the end. And that that's how we look at them. And that's why taking risk and going to some sort of capitated care management model with home care with teleaalth I think is really important. Our concentrated areas, like I said, 25 going to going near 30 by the end of the year. In Northeast Florida, we have 45 facilities right down the I 81 corridor in Virginia and West Virginia. We have another 19 right up I 81 into Pennsylvania.
So, we're really right along that corridor. That's our second major concentration. Our third major concentration is in is in southern Kentucky. Okay. We have about 13 facilities that stretch across from Paduka to Bowling Green, you know, and right along the border. We we inch up a little bit in into central Kentucky, but not too much. So, we're highly concentrated there. And then our last strategy has been Oklahoma and Texas. Okay. And we are just touching on Oklahoma and Texas. As we speak today, we have 11 clinics in Oklahoma and Texas.
Talk to me in a month, that number is probably 24 based on a pretty big deal that we have. And we're trying to stay away from cities. We're trying to stay focused on growth areas of the country where the population is either growing or at least is stable and where there is need and underserved communities. You know, I'll tell everybody our strategy in Texas has nothing to do with the words Dallas or Houston, but we're going from Austin and we're going straight up to the panhandle of Texas where we have existing clinics in Amarillo and Lach and the like.
So our goal is to go straight up there and service those in our opinion more underserved facil communities where there is growth where there is positive to stable people flow and then and then lastly where there are abilities to branch off at our other services. [snorts] Yeah. You know, right back to the very beginning. You had talked about, you know, one of H2 Health's you know, biggest values is going into a community and then serving that community. And that seems to then tail right into the geographies.
If you can go into a community and serve that community maybe in more than just one way, that's a community that you will consider and grow into. And like you said, I mean, early on, we recognize when it's not going to work because we don't have that strength in numbers. We had seven clinics that we originally purchased, you know, from the original 60. So in many respects, we've gone from 60 to 118 going to 1335. You know, we really went from 60 to 53 to 118 because we were in southern New Jersey and we didn't have size, we didn't have scale, we didn't have concentration, and we knew right away that this was a better fit for some of the many more powerful platforms that are in New Jersey.
And we sold those seven facilities very early in the very early in the process. So, you know, in our in our from our opinion, if you don't have an ability to make a difference in the community, there's not a whole lot of reason to be there. Sure. Sure. All right, guy. Last question. And, man, this has been great. I can't tell you, this has been awesome. So companies out there that are looking to enter into this market, what do you think is most important as far as them and their preparation? [sighs and gasps] I think you know my advice first is be prepared for a process that you've never gone through before and we try to go on the front end explain to sellers listen the financial diligence the legal diligence process this is what goes into it and this will run very smoothly if you're both prepared and we're doing this collaboratively from the beginning.
It's not us versus you. We're trying to all get to an end game, you know. So, to me, that's important. I think the cultural fit, the alignment of interest is the second thing that they have to think about. And third, and we haven't really touched on this, is infrastructure. I'm a I'm a huge believer that you have to be on one platform. You can't be running this business with two billing systems, three billing systems, a couple payroll systems. You know, maybe we're on we're on, you know, one accounting system and, you know, local office is on QuickBooks or something like that.
That is that that's just a recipe for disaster. My my team laughs at me because I have a phrase and it's my phrase. It's not anyone else's, but we got to make sure our walls are strong. And if the walls aren't strong, everything the house will crumble at some point in time. So the newest thing that we've done in this process is introduce a concept to sellers to entrepreneurs and sellers that says we've gotten to a point we're ready to sign. We want to sign. We are now legally committed to this transaction at this price, but the transaction doesn't close until the following three things have happened.
One, the payroll system and the payroll human capital system has been transitioned to ours. That's the easiest of them all, by the way. But but it does but it does require that people take the time and to understand what is what the new human capital system is going to be. That's about a week long process, but it's important that we can pay everybody on one system. And the second is we transition to our billing and billing system. I don't know if I could say our building system but our billing system and we go through that entire transition and training and make sure things are up and running and then third which comes easier because it's integrated is we're on one accounting system right so everything gets integrated into the accounting system and it's the day that those three things are complete and we've got a seamless transition we close and we move on we close and we move on.
So, it's a little different. I think when sellers are worried about tax issues and task tax risks and there's a race, it's made that more difficult, but you know, we've been finding a way to do it and I think it makes our transition while more hectic on the front end, more seamless on the back end. Sure. Yeah. And you know, many business owners out there look at all that as you know, torture. Torture. But when you put it in those, you know, three things and we're going to work on them kind of one at a time.
We're going to get it all done. 60 days it'll be all done. Then we move forward as you know together. It makes a lot of sense. Really. Well, how many times how many times you end up doing a deal and you say, "Okay, we're going to go to one platform." and you know you close the deal and six months later you still haven't done it because h it's not a priority. We make it a priority as part of the process. Yeah. That this is the timeline that we've got ahead.
Absolutely. Absolutely. Guy, this has been really great and you have given myself as well as our audience a lot of great information about H2 Health as well as how you guys really look at opportunities and a lot about the company that I'm sure a lot of folks really don't know. So, I thank you for your time today and I really appreciate you coming on with us. Thanks, Paul. Appreciate it. And for all of you out there, if you have any questions about the conversation that I had with Guy today, just click below and let's talk. Thanks and have a great day.
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