Up and Coming Acquirers Offer a True Partnership Model
This week Paul meets with Justin Novinger, COO and Peter Chung, CSO from Thrive Physical Therapy. Join them and learn what their True Partnership Model offers sellers.
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, real excited to have with us we have Justin Ninger and Peter Chung. Justin is the chief operating officer for Thrive Physical Therapy and Peter is the chief strategy officer for Fi for Thrive Physical Therapy. Thrive is based out of Chicago and Thrive is a PE backed firm that currently has 30 clinics in seven states. So, they've achieved a lot of growth very recently. Justin and Peter, it's great to have you guys with us today.
Great to be here, Paul. Thanks for having us. Yeah, thank you. Awesome. Awesome. So you guys, you know, with the with the duo here. This is going to be really dynamic, really fun, and you guys are going to give everybody a lot of great information. So I'm going to let you guys determine who answers what, but let's just start and talk a little bit about Thrive. How does Thrive differentiate itself from other acquirers in this current industry? Yeah. So Paul, that's a that's a great question.
I think, you know, our main focus that I think, you know, sort of drives our northstar in differentiating oursel is the true partnership model that we have. You know, that starts with ensuring that we have a cultural fit and alignment. What I like to call the airport beer test that I tell everyone that I talk to. Like, you know, if I see this individual or person at the airport, am I going to want to go over there and have a beer with them? If the answer is resoundingly yes, then, you know, let's have a conversation here.
But, you know, with that, you know, there's a lot of things that come with it. You know we ensure that we have that collaborative process right to understand the needs of the seller how to best create value and in doing so some would say we have a much more you know drawn out process and that you know the squishy side of things but really I think that's that approach that squishy side is really what differentiates us and gets us aligned with the partners and you know doing so find the right partners yeah so it's a really and truly wanting to get to know your potential partner is that that's what you're describing as the squishy side, right?
Absolutely. Okay. Got it. Got it. And so what are some of the unique benefits that as a seller and becoming a partner of Thrive that you might experience by working with you guys? Yeah. And so it sort of goes that same theme, right? It's that with that true partnership, there's that true collaboration and making sure that there's a two-way approach. There is no one-way top-down approach of here, you know, thou shalt do it this way. Is absolutely not one of the things that we sort of look at you know some of the things that we talk about immediately is you know we value the business we value the business owner so maintaining the brand maintaining that clinical autonomy and then providing thrive as like a support to help that practice get to the next level and so that's sort of like the unique approach of things I'll let Justin sort of get into more of the opsize side of things that regard yeah thanks Peter so as you mentioned like we don't have that sort of topdown approach.
That's our model. We really come to this with, you know, without a one-sizefits-all approach. It's really an understanding, getting to know the partner, as Peter mentioned before, through that, you know, sort of relationship development stage. Understanding what their unique characteristics are and then adapting our approach to help support that. We find that our partners have done a lot of the really hard work of finding what their differentiator is in the marketplace. And the last thing we want to do is come disrupt that with you know Thrive's model.
Come in and put that into place and you have to operate one way or the other. Now we do offer and in and a lot of what partnership brings is getting rid of some of those general day-to-day businessoriented aspects u that most therapists that you know a lot of owners or therapists don't enjoy doing. Payroll, accounts payable, you know, revenue cycle, all those things that don't necessarily align with why a therapist gets up in the morning. So not only do we bring those aspects, but then with our experience in the PT industry, we're able to adapt our approach to really help them solve their unique challenges that they're seeing that help match up what they're doing from a differentiation perspective with what they're seeing in their local marketplace.
Yeah. So, it's like the former owner has been wearing a you know, a weighted jacket with all those administrative responsibilities. You know, they love treating patients. They love being an owner in a community. But they got these administrative burdens, which is the way most private practice business owners describe it. And you guys can kind of shed that and allow them to do what they do best. Is that is that a good example? Yeah. No, that's great. And that's what we hear from a lot of our partners is, you know, they they get pulled away from those things they love doing, whether that's like you said, treating patients, developing relationships in the community.
We hear a lot they want to spend more time with their staff, which we love. You know, mentoring and developing young therapists. But when you're running payroll every couple weeks or you're trying to figure out why a claim didn't go through, you don't have time to necessarily focus on those things and you start to get pulled away. Exactly what you said, Paul. They they sort of wear this, you weighted vest that limits their ability to do what they love. Sure. Sure. When you guys are looking at a potential acquisition, talk to me a little bit about some of the specific qualities that you're looking for in that business and what your priorities are specific to clinical, operational, and financial aspects of the company.
Yeah. So I think this sort of ties into the first two questions to be honest with you right as far as our main focus. So I think it's very easy to dive into the clinical operation and financial aspects as people sort of have a innately think to dive into that. But the main thing we look for is the soft things right as far as like that cultural fit and alignment. So it all ties into that. So you know going back to that airport beer test or if you know is this is this practice owner collaborative as opposed to combative.
Is it evident that they care about their team? Now, we might not ask those specific questions verbatim, but like, you know, there's a few things that sort of come up in the conversation that we like to focus on and we, like I said, we spend a deliberate amount of time on to ensure that we bring on the right folks as we as we try to build this thing here. And so, you know, we often think that, like I said, the financial and operational side, that's easy.
We can figure a lot of that stuff out together collaboratively as long as we have that right partner to work together. Yeah, I like I like your beer at the airport example. I know you guys know Tom Carden who leads our M&A team. He I can hear him in the office next to me always doing the is that somebody that you would have to your house for Thanksgiving dinner? Kind of a very similar example of how that culture match you know a beer at the airport and Thanksgiving dinner.
So you know generally in the market today and there are a lot of challenges but what are some of the key challenges that you guys are seeing are being faced by small private physical therapy companies and how do these challenges impact their attractiveness as an acquisition candidate for you? Yeah, it's a great question, Paul. Like you said, there's, you know, a number of challenges facing all PT companies, but I think especially the smaller companies that are independent, that maybe don't have the resources to tackle some of these in the way that they would like to or be super effective with them.
So, one that comes to top of mind and I think we're all facing right now, almost regardless of industry, but especially in the PT industry, is the very tight labor market. We all know that even before, you know, going back to 2017 through 19, it was a fairly tight labor market with, you know, finding physical therapists and occupational therapists. U, but since co, it has gotten even worse. We see that gap between the number of job openings and the number of therapists available, just continues to grow.
So a lot of times when we partner with an independent practice, that's one of the main things that, you know, they've been challenged with over the years. They continue to be challenged with is how do I find good clinicians especially you know whether that's a replacement or just growing so many times that becomes a little bit of a damper on their ability to grow because they just can't find you know an extra therapist or two to come into the clinic. So that's one that we see a lot and almost like I said every one of them comes in with with some sort of need around that.
The other one is again I think you across the industry we see this but revenue cycle management. You know with the complexities that are now built into collecting you know revenue based on you know the insurance requirements and a number of other you know compliance and regulatory issues. Managing all that just becomes extremely stressful, extremely time consuming for these, you know, these small practice owners that don't necessarily have the experience to be able to do that. So, what we see is a lot of them outsource this.
That creates a number of headaches on its own. You know, if you're outsourcing your billing and your revenue cycle management, you have to then stay on top of that, make sure that they're doing their job well. You also now have this other service that's potentially reaching out to your patients that you've you know spent years developing relationships and you know all it takes is one bad phone call and you know that trust that you've created in the clinic can be destroyed. So so we see that you know that's not necessarily a great answer either.
It's just outsourcing it. So it's it creates a lot of headaches for these u practice owners. With regards to attractiveness, you know, these are certainly challenges that hamper growth. Especially while they're independents, we don't necessarily see that as something that's impacting their attractiveness. You know, that's what we do. We have teams in place, we have processes in place to really come in and help those two items really from day one. So that we can help, you know, find the appropriate therapists, keep them, you know, not only get them onboarded, but how do we keep them engaged?
How do we retain that high quality talent? And then, you know, bringing in the revenue cycle team to kind of uncover all the challenges that go into that and make sure that, you know, everything all the services that are being provided at the clinic level, we're getting appropriately reimbursed for and we're not running into, you know, issues with claims denials and you know, all those types of things that can hurt that revenue aspect. Yeah. Yeah. Yeah. So if you were to give advice to some of the practices out there today on you know yes you can take them and improve them but if they want to get more value prior to you know coming to a company like yours what advice would you give to those on things that they can do to prepare for a potential partnership with a company like Thrive?
You know, it's we get this question quite a bit and it's easy to sort of get sucked up in the cloud of all the things that you can do. But I'll sort of pivot this a little bit and say, you know, this you know, this advice that I like to give won't necessarily increase the value of your business, but not doing it may certainly decrease the value of business. Right? So when it comes to you know as we're evaluating partnerships and a business as a whole you know we're highly dependent on these you know these future partners and owners to sort of give us the insight as to what's going on.
So my advice there is that ensure that you are knowledgeable on all things because in the end these this is your baby that you've grown and spent however many years you know growing and developing into. And so I think that is the best advice I can give when it comes to in preparation for that. Like I said, not necessarily, you know, an increase in value aspect preparation aspect note, but more so a preventative like to ensure that there there's no decrease in value because in the end we're trying to get the most information that we can and if there's some uncertainty or unknown that does, you know, raise some concerns for us.
Sure. Yeah. And to add to that, I think one thing I would add is making sure we're focusing or you're focusing on your core business. Every once in a while we come across somebody that's it's, you know, it's almost like they're chasing revenue and, you know, they're kind of going after maybe some short-term wins that might artificially increase or I should say temporarily increase their revenue, but doesn't really add value to the core business. And, as Peter's mentioned a couple times, yeah, we're obviously going to look at revenue.
We're going to look at EBITDA and those types of things, but it's more in depth than that. So, we're not just going to look at the revenue line and say, "Oh, look, this has gone up, you know, 5% over the past year. This is great." If that's something that's not sustainable for the long term, that's not necessarily going to add value. So, rather than, you know, focusing time on things like that, I would say focus on your people. We all know that, you know, myself being a clinician, that's what makes the business, right?
You got to have those clinicians in the clinic engaged with therapists. And then focus on that core business, whatever makes you special in your marketplace, and just see if you can consistently grow that over time as opposed to, you know, sort of the ups and downs with the short-term aspect. Sure. Sure. Yeah. So, we have some difficult economic conditions out there, right? We hear it on the news every day. And you know it's impacting acquisition strategies for industries you know from healthcare to IT to you know just about every industry.
How is this impacting your ability to do acquisitions? What challenges as well as opportunities does an environment like this present to you guys as an acquirer? Yeah, I think it's, you know, when you look at, as you mentioned, when you look at the news, there's a lot of negative news out there, that, you know, other, you know, some competitors might react a certain way or the other, but for from our perspective, the short answer is that we see this as an opportunity for us, you know, one being when it comes to some practice owners right now, you know, as we're getting over COVID, you know, seeing the rebound there and then all of a sudden some, you know, the recession clouds are looming.
From that perspective, it might be great to have a partner that can sort of weather the storm in that regard, right? But from a purely competitive landscape position, you know, I think there was a previous interview done on this medium actually where he talked about how, you know, some folks are sort of sort of pausing their M&A activity or focusing more on the internal growth side of things. For us, you know, we like I said, we see it as an opportunity and we want to sort of drive forward and continue to grow our partnership network.
So, you know, bottom line, we're not really slowing down too much because we're confident in our business model because we're confident in the partners that we bring on and what we can do collaborating together. Yeah. Yeah. You know, it is interesting and you know, this happens going back 25 years in this industry where you know, some companies have to slow down, pause as you said, look internally, work internally for whatever reason. Maybe they're getting, you know, prepared for new private equity or whatever it may be.
And we see that during those times then companies that are being, you know, fairly aggressive you know, have the ability then to have a little less competition for, you know, the same private practice. So yeah. No, and I see you guys right now really with you know the pedal to the metal and you know certainly no no stop signs. So as you look ahead now to 23 and into 24 how do you think the economic conditions will potentially impact your acquisition strategy? You know what everybody wants to know is you know what's going to happen with multiples?
What's going to happen with the pricing? Will the structures be different? Are there going to be those huge earnouts? You know, what from your perspective will change based on what you see coming in the future? Yeah. So, I think from a competitive landscape position to your point, we probably have to be more cognitive as you know, as things stabilize or they don't just, you know, looking at that landscape of whether or not there's more acquires or not. So, that certainly plays, you know, as a variable in the equation.
But when it comes to the multiples and pricing first off that you know we put a lot of time and effort to see what the market is sort of dictating and so I'm confident that as we go with any these new partnerships we're going to be competitive when it comes to you know how we partner with folks just based on the feedback that we get and just the constant improvement when it comes to that. When it comes to the structure, I like to think that we have a pretty aligned structure when it comes to both the partners and us and the fact that it's structured in the way of cash notes and a little you know equity for now.
And so with that we're pretty we're pretty set especially on you know on the note side of things to ensure that alignment's intact. And so even with the economic conditions whether it's you know positive or negative that won't change for us that is that is something that is a consistent and something that I think is also a differentiator when it comes to the partnership. Yeah. Give us an example if you could certainly don't tell us the name but if you could give us an example of kind of what a successful act acquisition for you guys kind of what does that look like?
Yeah. Sure. So, I think when we start to think about this, a lot of that depends on what you mean by success. You know, and what goes into that because a lot of people will have different different ideas of what that means for them and for the company. So we start to look at what are the key factors to success. And I think number one is, you know, making sure that we find that appropriate cultural fit. And that the partner as well as thrives highly engaged, highly collaborative.
So I think that's step number one when we look at is something you know is an acquisition successful or not because without that we you know the rest of it kind of starts to fall by the wayside. So so once we get through that I think there's you know sort of three things I would look at is you know the professional success for the seller personal success for the seller and then what's what does success mean for Thrive? So one specific example that I'm thinking of, you know, this is a unique example because of how they sort of positioned themselves in the marketplace.
It's not it wasn't your typical just like we do, you know, outpatient orthopedic physical therapy visits and that's it. They had some uniqueness to to what they presented and you know, our flexible model was able to adapt to that. And so we've not only allowed them to maintain their differentiators in their local market, but actually continue to grow that and add, you know, not only visits, but add some team members to to their staff so that they can continue to grow and are on a fantastic pathway from a professional success point of view.
From the personal point of view, u I think it can be summarized in a conversation we had with them recently talking about how things have gone, you know, post partnership. And they mentioned that, you know, for the first time in a long time, they've been able to go to bed at night, without having to, you know, sit down and have some sort of serious business conversation. Yeah. You know, whether that's how do we get going to make payroll this week or whatever it might be. And, you know, spend more time, you know, together with their family.
And I think that's what partnerships all about is freeing them up to really enjoy what they're doing. And and as you said wonderfully earlier Paul you know take that weighted vest off. So then that third aspect is just you know what is success look like to Thrive and I think if we can hit those first two with the way that we've aligned our interest as Peter mentioned earlier you know if we hit those first two things and that's going to be a success for Thrive and we're going to be you know ecstatic to have them as a partner and continue to move forward with them.
Yeah. Yeah. So if you look operationally as well as financially and clinically, what are some of the key qualities in those three aspects that are most valuable to a physical therapy company in the acquisition process? Sure. So you know I'll start with and we've said this a number of times but like it's really that collaborative nature. You know if somebody comes in and whether it's you know operationally or clinically they're willing to be collaborative that's a big key component here. Going beyond that, I think, you know, as Peter said earlier, if they're knowledgeable about their business from an operational standpoint, that really helps and that moves things along.
And that might be knowledgeable in a manner of I know that I could do better here. And have certain aspects or certain avenues where they they're looking to us for some additional support. And that's knowledgeable and this is what I do well. And so that we can, you know, at times get out of their way and free them up to really pursue those types of things. So from an operational standpoint, I think that's the key thing is being knowledgeable about what they're doing well, where they might need some support, and then being collaborative around what that support looks like.
From a clinical component, you know, like I mentioned before, we're not going to come in and say, "Hey, clinically, here's how you're going to do things." you know, we're not going to implement this is, you know, this is the approach we take with patients or anything like that. Like we want our partners to keep their clinical component intact. That's why they're they've been successful in the past. So, we want to support that. But what I will say, repeating what I said earlier, making sure you have a really strong staff, you have team members that are engaged and are providing quality care to your patients and clients, I think to me, at least clinically is the most important thing.
You know, so as we assess different partners and look at that, you know, one of the things we look at is what does your team look like? You know, are you doing a great job of retaining your staff, keeping your staff engaged, and are they providing really great care? And if those are in existence, I think that really sets the stage for a very successful partnership and the ability to continue to grow and achieve, you know, the seller's goals. Yeah, you hit on a on a point there that I think is so key as we look at business owners you know with their businesses in the market, which is to really know your business.
And it's understandable how some business owners may not really know inside and out their business operationally. Most of them know clinically, but operationally and financially because they're just not in that every day, especially if they're still treating a case load. So yeah, we see a very similar I think we see things very similar there, which is boy, they add a lot of value if they really know their business. So given the current market atmosphere, conditions, dynamics, how are you guys positioning Thrive, you know, where do you see your position is in this future market?
You know, we've talked this a few times as far as like being a very competitive market even with the current economic conditions that we're seeing right now. And so the way that we like to position ourselves on the way to approach things is you how to be that partner of choice. And so that can mean a lot of things but for us you know I think it's summed up in these four questions. It's you know one are we mutually aligned with our partners? To and doing so and partnering with them, are we improving the lives of our partners and their teams and are we able to provide value for our partners when it comes to the being the resources provided and then if we can we alter the growth trajectory of our partners being part of thrive for the better as opposed to them doing it by themselves.
I think if we can answer those four things you know we can very much be the partner of choice and that is you know sort of what we are pushing towards how we're positioning ourselves and you know we you know there's those four aspects but we talked about the squishy things we said but I think that is an absolute requirement to be able to then address those four questions and you know that that's really our main approach when it comes to that. Yeah, absolutely. You know, it's it's refreshing.
And I think and I'm my hope is it's very refreshing for our listeners and our subscribers because oftent times you don't really see behind these big companies. It's the logo. It's the, you know, 30 clinics in two states and seven states and you know, or it's, you know, 700 clinics in 28 states. And, you know, when you really see what's behind that is, you know, two guys that want to really connect with people on the squishy side, right? Really get to know those people, make sure that there's kind of a cultural people match.
And then move forward with that. And I think that that's why we do what we do is to bring folks like you out in front of people so they can really understand what it's all about behind the scenes. Well Justin and Peter, you guys have been awesome and I can tell you you've given a lot of value to our listeners today and I really appreciate your time today. Thanks so much Paul. Really glad you had us on. Really enjoyed it. Yeah, thank you. Appreciate it. Enjoyed the conversation.
Awesome. And for our listeners and subscribers out there, if you have any questions on the conversation and the discussions that I had with Peter and Justin today, click below. Let's talk. Thanks and have a great day.
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