What Is This New Generation of Acquirer Looking For?
This week, Paul speaks with Michelle Collie, CEO of Highbar, a fast-growing, 21-clinic acquirer based in Providence, Rhode Island. Michelle discusses what she sees as her company's role in the rehab industry and what Highbar looks for in a potential acquisition partner.
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. Really excited to have with us Michelle Collie. How you doing, Michelle? I'm good, Paul. Thank you. I really appreciate having the opportunity to be on your show. Awesome. Awesome. Michelle is a physical therapist and she is currently the CEO of H Highbar, which is formerly Performance Physical Therapy. And Highbar is a private equity-backed physical therapy company based in Providence, Rhode Island that currently has 21 clinics in two states and is growing fast. Again, Michelle, it's great to have you with us today.
Thank you, Paul. I really appreciate it and it's actually super exciting to me because when I think back about my career, one of my first and most inspiring conversations I had in regard to private practice and being a business o owner was listening to you at a private practice conference down in Florida and you spoke so much about KPIs and operations and I'll never forget that and I've taken many of those lessons to where we are today. Well, thank you. I appreciate that and I'm not sure if that makes me feel proud or it makes me feel old.
But I do appreciate that. So let's just start. How does H Highbar differentiate itself from other acquirers in this current industry? Great question and we really see four reasons why we're differentiating ourselves and bundled all together. One is that we're giving financial security. So helping founders, helping business owners be able to realize the value that's been gained through all of their life's work. At the same time, the financial opportunity to continue to work alongside myself and the high bar leadership to grow and evolve their practices.
Some of the other differentiators is number three, we actually are trying to define ourselves as being a solution for our profession. There are many challenges out there for business owners, private practice owners, related to talent, related to payment. So, we're looking at ways to be innovative and look for solutions to support the profession of physical therapy in the long run. And then finally, a key thing that I'm probably most passionate about is taking care of our culture. Really being about taking care of our people. I myself was that founder PT with a practice looking for a way to continue to help more people, the communities, the patients that we serve as well as the clinicians that work in our practices.
And I wasn't able to find a solution for that as I wanted to scale. And so that is probably the biggest differentiator for us. We're really are about taking care of our talent and our people and finding solutions for recruitment as well as the retention side of it. Yeah, it's it sounds like the perfect mix between providing additional support for folks that would join HighAR, but keeping that same private practice, we take care of our people element as a part of, you know, their experience moving forward.
Because as we know, most of these, you know, we call them former owners, but I can't tell you how many former owners are now working for big companies. And some really like it and some aren't as excited about it. And so it sounds like you've really tried to keep that private practice environment. Yeah, I think we've discovered over the years that I believe a lot of health care is very local and taking care of your people. And if you have really happy and good clinicians and administrative staff, they're going to give better care.
And what I've seen is with some of the growth, there's often this commoditization and let's put all the processes in place and just get all of our clinicians to see more patients. And that I don't think is the solution for actually being able to help our communities understanding the value of what physical therapy is and ultimately being able to optimize payment and ensure we get paid for what we do. So a lot about our strategy is about looking at different ways to create value because again I want to look after all stakeholders but finding a way that actually takes care of the people at the same time.
So in addition to kind of becoming a stakeholder and continuing to drive a strong you know beneficial culture let's call it what are some of the other unique benefits that a seller might experience or a partner of yours might experience by choosing high bar. I think key is that we are a new platform and with that it means that we're in the early days. So for any of the any of the acquisitions we do in the near future, there's actually more opportunity for future growth and a higher return on their investment.
So there is a financial component. Being part of high bar, you'll also be part of the high bar WC or the or the high bar committee. This is really a advisory group of leaders from the different geographies that we will have that will be able to come together and actually def help to innovate and support how we evolve our practice but yet still take care of our people. I think we have very much when it comes to our integration approach a do no harm approach. We respect that this is your baby or your life's work.
So how do we ensure that our integrations really focus on providing solutions to challenges that you may have? And one of the biggest challenges we see obviously these days is the people strategy and we do really pride ourselves in being a destination organization for physical therapists. When I look at the look at the industry as a whole, we see our retention rates at much higher compared to industry standards. And that's because we've taken a very detailed approach to looking at not just culture but work life balance at burnout.
What do the schedules look like? What's the professional development? How do we look for employee fulfillment so we can really continue to drive those retention rates? So when a seller is looking at us as an option, we hope that they see this as a means to partnering. That is one that will help their team realize, oh, this isn't scary. There's actually opportunities with this that will support our team. Yeah. Big fear going into any acquisition. And you know, integration, it's just one word, but it goes so deep to what that really that what that integration really means.
And to see that integration really mean opportunities, you know, when integration equals opportunities that equals you know, retention of that staff going forward. So yeah, that that's cool. That's cool. So when you're looking an ac at an acquisition tell us what are some of the qualities that you're looking for in any practice and what are some of the priorities for high bar as it relates to clinical operational and financial aspects of the business all in all what are you looking for I think the number one priority for me is ensuring that there is a talent or cultural alignment and that's really one of the reasons why I chose to work with rally Day who's the private equity partner that I work with because they have the same philosophy.
How do we really ensure that people are getting their financial returns at or beating the what's happening in the industry but also taking care of the culture and the people. So I'm not interested in an acquisition that's just looks good on paper. It has to have the right cultural alignment and that culture has to be seen in the in the actual behaviors. What is the focus on learning, caring for the community, professional development? Is there a growth mindset and is there some joy? People have to have a little fun and create some joy.
Clinically, we do look for best practices, obviously, and certainly looking for NPS and patient reviews, satisfaction, and I'm even more excited when I see people actually looking at their clinical out outcomes to ensure they're ensuring best practices are being followed. Operationally, we look closely at the standard KPIs. From visits per FTE to cancellations and patient drop offs and return patients, all those very traditional KPIs. I just want to look for trends and making sure they're aligned with the industry standards. And if there are outliers, why is that?
So, we can understand why. And then obviously from a financial standpoint, we're going to look at EBITDA. We're going to look at margins. We're going to look at growth. I think it's important to realize that for any acquire or for any seller, we often hear people say, "Look at our revenue. Look at how many clinics we have, but making sure we actually care a lot more about the EBITDA because it tells me how efficiently and how responsible you're being to running a business rather than just adding in more clinics or adding in more clinicians.
How can you actually be able to scale and do that in the right way? Looking at those margins and then looking at the growth of those things. So certainly companies should continue to have a focus on that bottom line which is obviously that EBITDA. You said something else that just hit me dead on and I hear so many companies not just in this industry but so many companies talk about culture. We have such a great culture. We have a culture of change. We have this culture.
But what you said is something that I think rings so loud, which is behaviors. And if we don't match the culture that we have with the actual behaviors, it's so hard for someone, you know, a staff person to really understand how do I be that culture? You know, what is that? And so I think that's very unique that you're looking closely at behaviors as opposed to just a mission statement or a vision or whatever it might be. Yeah, it's been really exciting actually working with Rally Day to really get into this component because you're right, there's lots of people.
Of course, we all have culture and we all probably have a great culture, but the behaviors and how that aligns to the outcomes and how making sure everyone understands what that means. I'll give you an example. I'll show my little card. We have this little thing called a BBO, which is what we believe, what our behaviors are to show that we truly believe it, but then what our outcomes are as a result of that. And it's helped all of our team realize things like I'll give you one.
I'll give you the first example. We care deeply. And yes, anyone can say we care deeply. But what does that mean? It means that you really listen to understand and you understand to connect. So whether you're a patient care coordinator, whether you're a PT, whether you're a manager, you better truly listen to every person to really understand them and connect with them because that's how you're going to show you care deeply. And by doing that, you change lives. So, it's to really help people understand to take responsibility for their behaviors and that's what will drive a culture rather than, hey, we had a fun game of golf together.
Yeah, great stuff. Great stuff. So, Michelle, you know, it's not all fun and games out there right now, right? There are a lot of challenging challenges that are facing this industry. What do you see are some of the key challenges that are faced by small private practices and how can these challenges impact their attractiveness in an acquisition like Highbar? Talent I think is the is one of the leading challenges. We all see that. We all realize there was a what I would almost call an exodus from our profession in 2021 when we had 22,000 of our new grads, not new grads, of our of our peers leaving the profession.
And even now the new grads coming out, 10 to 15% of them only want to work 30 hours a week. So there's a shift in expectations from the next generation. So talent recruitment and retention seem to be the biggest challenges. That are going on and one would actually argue that it's not a workforce issue. It's more of a workplace issue and how do we evolve our workplaces to be a place where clinicians want to be and want to stay. Yeah. So I think that yes, many of the smaller practices are how do we manage this?
I think that's what we're trying to do is really be a solution to that and looking at truly understanding what this next generation of clinicians are looking for and making sure we have the environment for them to be successful in. So partnering with us is about helping to solve that talent issue. The other problems we see are obviously the ongoing administrative burden compliance. How do people keep up with best practices? I feel for anyone in private practice right now, especially a smaller private practice. I'm not sure how you're doing it.
Because I don't know how you keep up with all of those challenges. And I think that helps to tell a story for why I'm trying to do or Highbar's trying to do what Highbar is trying to do is private practice I believe are the sort of lifeblood of physical therapy. They help to show the value and communicate who we are and they do so much. And if we don't continue to evolve our profession so that smaller practices can actually be really successful, I worry about the future for them.
So what we're trying to do is create a platform that actually can innovate and support our profession so it can support the next generation of private practice owners to support the well-being of our profession in the long run. Yeah. And coming from someone who has been a leader in what we call the private practice section of the American Physical Therapy Association, not the large organization profitable business section. You know I can see how you have you know you have taken high bar and you have matched high bar with the values and the mission that I think you've had for a number of years which is for private practices to be able to thrive and to be able to succeed in what is continuing to be a pretty tough market.
Yeah. So, what advice would you have for a small to midsize physical therapy practice? They're trying to increase their value in preparation for a partnership with a company like yours. You know, this is this is I hear actually lots of practices ask me this and I'd rather answer the question that I hear from them and a lot of what I hear from them is should I sell now or should I wait? So I think if you're looking for to sell now because you want to retire, then you absolutely want to figure out how to optimize your EBITDA and that is really focus on your retention of your team.
It costs a whole lot more to hire and than it does to retain. So take care of your people and figure out how you retain your people. Stay lean. I like be really mindful of all those expenses. Be really disciplined with it so that you can yeah invest where you need to but be mindful of that and don't go out starting new projects and making changes and thinking it's going to add value. If you do the basics really well that's going to optimize your eB and you're going to look you know really desirable for many of the opportunities that were that are out there.
Keep learning. Don't sit back and think I got this. I know what I'm doing. The environment keeps changing. So dedicate time every week to keep building your leadership st your leadership skills. What I would say if you're looking at a transaction but you want to stay in the game you want to be part of the solution you want to evolve. I hear lots of people saying well should I wait or should I maximize my EBITDA you know if I maximize my if I don't do that then I'm leaving money on the table.
So, what I would say to that is be really careful with that assumption. Again, if you're looking to retire and leave, that's one thing. But if you're more focused on finding a partner that can help you grow a regional footprint, the upside opportunities for doing an acquisition sooner are well worth seriously considering rather than thinking I can optimize my eBay by sticking this out for another two years. So just be really mindful of that. I hear lots of people say, "Oh, I want to maximize my EBITDA over the next one to two years because last year was not so great." But also realize that you're probably taking on different risks in doing that.
And if you do want to be part of something larger, this if you do a transaction sooner, there actually may be a much bigger upside. So just be really thoughtful and get the financial advice from the right people so you can make the best decision for yourself and your family. Yeah. Yeah. We we usually give the advice is the only time you can transition partner sell your company is when there are acquirers and economic conditions all the things we're going through right now there are still a whole lot of acquirers out there.
I think you know you hit on three big things you know first is you know drive your IDA streamline and get your people you know strong culture on board and then continue to get education on you know what does this look like how are others doing this how have they fared and I think that's great advice great advice so current economic conditions that are impacting your acquisition strategy. What challenges or opportunity does this environment present for you guys as an acquirer? Maybe different from others or simply for HighAR.
I think we're in a really good position. We're in a strong financial position with significant cap capital. We are not overleveraged with debt at all. So, it means we're in a financial position where some of those broader macro conditions that are impacting other platforms aren't impacting our ability to find new acquisitions and actually make a move on them. So, we don't have those debt covenant issues. We don't have cash flow issues with unlike others who may be struggling. So, I wouldn't say these current economic conditions are impacting us.
We're super disciplined and vigilant about our acquisitions and making sure they are going to be the right partners and add value to everyone. The last thing I ever want to do is do an acquisition just because it looks good on paper and ultimately have 50% of the people in that practice leave because they don't want to be part of something larger and that it's not good for that community and it's not good for those people. So being really disciplined about making sure the practices align with us but understanding that economically we're in a really strong financial position.
So as we move forward as of right now it sounds like you guys are in a really good financial position in terms of your capital in terms of your debt etc. As you look forward to 23 and 24, how do you think this will impact HighAR and maybe other acquireers as well in terms of multiples, pricing structures? You know, we hear out there everything from there's a lot of good deals out there to nobody's buying anymore. So, but there is there is something in there that you know, really fits right now.
Where are you looking at in the in the future and how these economic conditions are going to affect multiple pricing and structures? You know, it's such a open-ended question that you could go in so many direction. I love that you say nobody's buying right now. And I was like, well, maybe your practice maybe you think it's worth a whole lot more than what it really is. Yeah, I mean it's unfortunate to say that I think again as a practice owner understanding that what you're valued today could be very different tomorrow and very different to a year ago because it depends on the economics, the interest rates, so many other things.
So therefore, I think it's really hard to say where will multiples be because it depends a lot on what your practice is offering. It it you can't just say EBIT is at this level. So you're at a multiple of six or seven or eight or 12. I mean these are guidelines because there's other variables that need to be taken into account such as your profitability margins, your growth. How much growth opportunity do you still have in the community that you're serving? Where is are your practices?
So for us, our strategy is again, we've got to find culturally aligned practices, and we continue and plan to be aggressive as far as our offerings to make sure they're at the they're at where the economy and what the industry is asking for and saying what it should be. Yeah. Yeah. I've never seen in all the years that I have been doing this, I've never seen such a wide range of multiples out there. And you know, there are some great deals that are being done at slightly lower multiples and there are some not so good deals being done at much higher multiples.
Structure becomes important and so yeah, it you know, all of the additional now economic conditions etc have made it all just a little more complicated. But there I've never seen such a wide range in multiples. So certainly leave out the name and the market that this business was acquired. But give us an example of kind of what a success story for you guys looks like as it relates to an acquisition, you know. Give us just a quick little story of a of a of an acquisition and how that was successful.
Of course. So we did an acquisition. And this is one that happened last year. Two clinic practice. The owner was a gentleman, a great guy, loved his practice, loved treating the patients, the impact he had on the community, all of those things. And as we, you know, again, really wonderful man who wanted to care for his community, but also wanted to be part of a larger community. He was someone who wasn't so didn't love the business side of it. I kind of want to deal with the business side, but I want to make a difference to the community.
And with that acquisition, those two clinics became part of HighAR and he continues to be a key leader with some equity at HighAR and allows for his ongoing growth and doing the things that he's best at when it comes to actually relationships, business development, specialty programs, and being a clinician. So he's able to have the kind of life he wants. He's able to do the things he's really good at. He's able to be part of a bigger platform and it's given him financial security for not just the work that he had done putting every his life's work into this practice but also for the future as well.
Yeah. Yeah. Yeah. They they leave their whole lives in those practices and you know so and nobody can pick up and leave in this environment. So yeah, that is certainly a success story for sure. Is he also then a part of for you guys, it sounds like there's an executive leadership level committee that gets to weigh in on, you know, some of the key decisions that HighAR is making. Is he also a part of that as a two clinic practice owner? Yep. At this stage, yes.
He is part of that advisory committee which we're just building out right now and it's kind of cool having this committee and it will continue to evolve and I think that's the fun thing being in the early days at Highbar is that we aren't this massive organization so we're continuing to evaluate and assess our strategy in these things but allows us even to take that high bar committee and bring in consultants I mean Sharon Dunn sits on our board we have some other key folks that are advisers to us that actually can come in and support and challenge our decisions and ensure we're doing the right things but bringing in the top talent from the different practices that become part of high bar.
Yeah, really cool. Really cool. So again, so much going on in this current market. Obviously there's companies like yours, there's medium, you know, there's the choirs that have been at this for 5 to 10 years. There are choirs that have been at this for 20 plus years. How do you see HighAR positioning itself for the future in this market? We see ourselves as positioning ourselves as I like to call it the founders's choice. And I think of this for the founders out there and I was one of those who I thought had built a really amazing practice that served the community.
And it's looking for we're positioning ourselves as a solution for those folks who are like I grew this practice. I believe in what it did but I want to consider actually how to have a greater impact on not just the communities we serve but even on a practice. I want to be part of that solution. I want to grow and I want to be compensated for my life's work and diversify my wealth at the same time. Essentially kind of de-risking yourself as I certainly was at that stage where I got tired of co-signing or personally guaranteeing every single thing.
So I sort of wanted to back away from that personal stress of that but ultimately be a solution. I went out I just got off on a tangent. I apologize for that. When I was in this position about 18 months ago, I tried to find this solution and try to was trying to figure out what do I do next for performance and I couldn't find the solution. So I thought, oh well, I guess I have to create it. So it really was about trying to create a solution for founders to be actually build a platform that was actually something that founders could be part of and feel really good about.
And with that ultimately being able to help the next generation of private practices at the same time. So I call ourselves the founders's choice. Inspiring. It really is. And there's so much out there right now in terms of you know a lot of the deals that are happening in all healthcare services industries. It's going back to those founderowned businesses where the founders are wanting to stay on in a partnership which bodess right to physical therapy and goes right to opportunities like Highbar is offering folks. So yeah, really great stuff.
Really great stuff. Well for all of you out there today who watched in and listened on my conversation today with Michelle Collie if you have any questions for Michelle or I click below and Michelle I want to thank you. This has been inspiring and I really appreciate you taking the time coming on and talking to us about your journey with Highbar and we look forward to your success in the future. Thank you Paul. I appreciate it. All right. Thanks for all of you as well.
Want to talk about your own business?
Marlton, NJ 08053