Acquirer Uses An Individualized Approach
This week, Paul talks to George Hess, Founder and CEO of Hess Physical Therapy. George explains how his company can tailor the structure and terms of a deal to fit a particular owner's individual wants and needs.
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 are so excited to have with us George Hess from Hess Physical Therapy. George is a physical therapist and he is the founder and CEO of Hess PT. And Hess is a privately held growing physical therapy practice with five clinics located in western Pennsylvania. And George is actively seeking acquisition opportunities in and around that market. As well as Ohio and other bordering states, West Virginia. And he's willing to use a variety of different structures in order to achieve that.
George, it's great to have you with us today. Thanks, Paul. I really appreciate u having the opportunity to be on your show. It's quite a privilege. Well, thank you. Thank you. So George, let's start. How do you differentiate yourself and your company from the other acquirers in the current rehab industry? Well, Paul, I think that's, you know, quite easy for me to do it in a similar way. I It's it's just me. I don't have a mergers and acquisition team going out and doing anything. So, I'm the one that's going out and actually meeting with the owners, talking with the owners, and it gives me the ability to really get to know that person.
Which I try to do, not just on a business level, but on a personal level. I really want to know what that person is about. What their interests are. I mean, I go down to asking about their families, you know, numerous things. As well as asking about their staff, what their staff interests and things that I like and I'm really getting a hone trying to see if it's a cultural fit for me you know more than anything and see if this is somebody that I would like to work with you know along you know growing the practice and growing the business.
So that's been a big thing for me. And then it also gives me a chance to really be an individualized approach to finding out what that person's needs and wants are, what they want to do, and try to come up with a solution to help them accomplish that. And make sure it's a mutual beneficial for the both of us. Yeah. So, a very personal approach it sounds like. And I'm sure that's a refreshing u change in some instances for some companies out there that are that are being hunted.
Right. So, so George, what do you see are some of the unique benefits that a seller might experience by becoming a part of HS physical therapy? That that's a that's a that's a good question. I think, you know, because it's such an indiv individualized approach, for me, really finding out what that owner wants, and just like, you know, what is their goals? Are they looking to exit out completely and or are they looking to possibly just get out of the management side of things and just treat or they look to be a partner and part of something that's growing?
You know the so that's really important and finding out like I said about their staff what their what their interests and things like that are like is really important and taking the time to do those do those things. It it's a time involvement and it's a it takes some work involved to really get to know these things. But I want that I want that person to be happy that they that they chose me. You know, being in being in the trenches and understanding where they came from with their practice.
I know that these people have taken the time. They've got solid relationships within the community. You know, they have numerous patients that they've treated and those families and friends of people and they're looking for to someone to continue to take care of those people. It's really important as well as their staff. They want to make sure that their staff's in place, your staff's like family. So that's another important aspect and making sure that happens. So, putting all that stuff together, trying to find out what it is that PT doesn't want to do anymore and trying to, you know, come up with solutions so they don't have to do that, can still maintain doing what they want to do.
Yeah, it to me, George, that sounds like, you know, because you are very like-minded in relation to some of the smaller businesses that you may acquire. You really understand what they're going through in this very difficult time in our industry. And how you then obviously by joining forces may be able to lessen some of those burdens and have them enjoy what they're doing, right? So, George, when you're looking at a potential acquisition what are some of the specific qualities that you are looking for in a physical therapy practice that you're interested in acquiring?
Well, you know, yeah, of course I look at the, you know, the clinical and, you know, an operational side and financial side. I want to see from the clinical side, you know, you know, what's the skill set of the therapists, what are some of their outcomes, net promoter score, things like that from a operational standpoint. Of course, I want to look at, you know, various KPIs, you know, evaluations, visits per evaluations, graduation rate, you know, what's the referral mix like, you know, numerous things like that.
That and if I see anything that's outline what our industry is maybe trying to find out why from that owner that may be like that and of course you know a positive e but it doesn't have to be 20 25 you know percent you know just a you know something positive in there is good but I can tell you this Paul if all those factors were good if they had a strong operational strong clinical and they had an EBITDA 20 25% if it wasn't a cultural match for me I would not be interested in something like that because to me these acquisitions you are taking part in the entire staff.
It's it's the people of that practice is was the representation of why the numbers are where they're at and where their metrics are at. But if it's completely philosophical difference and completely different way of doing things, if I go in there and I try to change things completely, I can lose that staff and then I have nothing. So that the finding out if it's a if it's a culture match trumps all that stuff in my opinion. George, so you know, I don't want to get off topic here, but you know, when you bring up culture, what would you describe a culture that would be a great fit with HES?
What are some of the traits or the behaviors that we might see in a culture that would match really well with HES physical therapy? Yeah. Well, you know, even like with our core values, our core values are a reflection of our behaviors and so we acknowledge those all the time. You know, I mean, every meeting that we have, quarterly meeting, if I see any of those behaviors, you know, being done, I make sure that I'd acknowledge that ASAP. As soon as I see that from a staff member to reinforce what it is we're looking for, what we're looking for, try to do.
And the same thing if those aren't being followed, making sure that they're aware this is how we do things here. This is how things are supposed to be done. Because in my opinion, if you're if you're doing the things that are important and what you feel is the values and behaviors of your practice should be, the numbers will start to take care of themselves. You know, if you if you see those things and you know, I just, you know, simple things just like being respectful for, you know, to everyone.
What what does that what does that mean? And it's, you know, just a simple thing is whether somebody comes in whether they have nothing and or they're the CEO of the company, that person be should be treated the exactly exact same. They should have the same attention, the same one-on-one care. That stuff should not should not matter. It's just little things like that, you know, and we have a numerous things that we have in our core values. We have six of them. But they're really important to the behaviors that I want to be seen in my practice by my clinicians, by my staff.
And if we can if we can do those things, the rest of the things will kind of take care of themselves. George, I I'll have to tell you know, when I hear a physical therapy business owner of any size company and they're talking about mission, values, you know, all those kind of abstract things, but what I hear you continue to say over and over again is behaviors. Mhm. And I think that is where the rubber meets the road in my opinion and certainly a number of other folks out there.
But that's where I think you can see real positive improvements in overall culture when you're really tracking and monitoring and making a discipline on what behaviors exhibit those values and those you know six values that you have. Yeah, I agree 100%, Paul. And it's and it's not just those behaviors that I want to see towards the patients. It's the behaviors I want to see towards each team members. Like I try to show those behaviors to our team members and come across doing those exact same things that I want to see them do to the patients and each other.
And if everybody's doing those things, it just makes a great work environment, a great atmosphere to be in for the team and for the patients as well. Sure. Sure. Absolutely. What do you see right now? If we kind of shift in a different direction, what do you see as some of the biggest challenges that are faced by small privately held physical therapy companies and how can these challenges impact their attractiveness as an acquisition candidate for you? Yeah. That's a great question, Paul. And I and I have to say that I mean I'm in the practice, so I know what some of the struggles are and I know what some of the other ones are doing.
You know, by far this has been the most difficult time for finding staff. You know, you know, you know, PTS, there's just a shortage out there. And then when you're trying to match your your team members with the culture and behaviors that you're looking for, then it's even more limiting. You know what I mean? Because you want to be super selective in and bringing people in as much as possible. And that that's a that's a bit of a challenge. So, you know, that's one challenge we're facing.
And then on top of when these, you know, some of these therapists are, you know, the labor costs may be a little bit more than what we're used to because of demand there. So I think the second issue is is really having a good pulse on the administrative side of your business from a revenue cycle management aspect and making sure that you know you have somebody handling all the credentiing. Making sure that you have somebody keeping up to date with all the rules and regulations changes and being able to change those and implement those real times and be proactive versus being reactive.
Because you got to maximize the amount. You don't have time to to be fall behind in that category and have revenue missing because you need every aspect of the business to be working. So, you know, those are those are two important things that I think kind of kind of tie in because if you're going to be paying higher labor costs to acquire these people, you better have the revenue cycle aspect of things dialed in. Or else you can fall right behind and get yourself into some trouble.
Yeah, no question. No question. So given those challenges that you know you as well as other you know even larger practices are seeing right now and certainly smaller practices. What would be advice that you would give to a small to midsize PT company that's looking to increase their value preparing for a potential partnership with a company like yours? Sure, Paul. I mean, I can definitely answer that because I'm one of those small practices, you know. So I the thing that that I would recommend and this is something that I have done.
I would say if you're getting if you're even thinking about at any point in time, which we all should be at some point in time thinking about an exit strategy, whether it's now, whether it's three years, or five years from now, is find out what is going to be entailed in selling your practice. So the best thing I would recommend is doing what I did and having someone on the outside like you or you know somebody in your industry actually do a true valuation of your company to see where your strengths are, where your weaknesses are, what you can improve, what you can tweak, and then start to start to dial those things in.
Because sometimes I found through talking to people through acquisitions, it's just they're unaware. They don't necessarily know all the things that are entailed and looking at your business and what might somebody acquiring might be looking at. So, if you have those things prepared and and really work on improving the areas where they're deficit and I believe having somebody outside looking in at your practice and giving you those recommendations and then that way you can just strengthen those areas so when the time comes you're ready to you're ready to rock and roll.
I mean, you're ready. You're ready to move because you have those things in place. And I think just like you invest in learning to be a skilled clinician, you learn to, you know, take the time to learn what it takes to have a successful business for somebody who wants to acquire you to be ready. Sure. Sure. And I think, you know, you might agree with this, but as an acquirer, you're probably willing to pay a little more for a company that comes to you already performing at, you know, good levels.
Versus trying to, you know, do a I guess they call it a fixer upper. Does that make sense? Without a doubt. Yes, without a doubt. I mean, if you can get in there quicker and have a process that's already streamlined and kind of like a welloiled machine and maybe tweak things minor here and there, your return is going to be much quicker and it's just going to be peace of mind for sure. Sure. Sure. So, economically, you know, in this country, we've struggled a little bit.
What do you see some of those challenges and or opportunities do you think in this environment presents for you as an acquirer with these current economic conditions? You know for I see it as opportunity more than more than anything. And reason being is you know I know some of the bigger choirs they like to scale in a much larger volume. You know they're they may be looking at you know 8 20 30 clinics at a time and that's just that's not you know a possibility for me to you know acquire something that size.
So mine's in that you know one to four to five you know location type things. And I think some of the bigger choirs don't necessarily look at that as much as much as they could because there's a lot of work involved in doing an acquisition and doing a diligence process and and I think there's a ton of opportunity for anybody like me or anyone else to you know to reach out to some of these local your local therapists, some smaller clinics. Some of them are looking for an exit strategy looking to retire.
Some of them are just looking for help. Some of them are looking to partner up in some way. And so I think there's a there's a ton of opportunity out there for that market. And it gives that it also gives that type of market a solution to helping solve their problems or partnering up with somebody that has some solid systems in place or they want to be part of something or they just they want they're looking for somebody that's going to be taking care of their patients the way they want them to be taken care of.
And you know, so there's a ton of opportunity out there. You just got to reach out to these people, try to communicate, see where they're at, and and but again, it's a it's a way for somebody like me to grow and scale and team up with some really great people that are like likeminded and just a joy to be around and again help help us help us with our vision and growth strategies as well too. Yeah. Yeah. Again, you know, much more of a partnership than an acquisition it sounds like.
And yeah, I think you know as we continue to look ahead certainly joining forces you know becomes a strategy for small physical therapy companies. So as you look ahead now rest of 23 going into 24 and we look at these economic conditions how do you think that's going to impact your strategy in terms of multiples pricing structures? That's kind of the million-dollar question in this current market. Well, I wish like everybody else, I had a crystal ball and I could kind of look into the future and see what things look like.
And unfortunately, we can't do that. But I think I think for me being aware of what's going on in the market and it just, you know, and trying to understand why it is what it is important just to have that in your background. But my focus and always is my focus is control what I can control and that is I can control you know you know improving my systems. I can control you know our market. I can control our business aspect of things. Making sure that you know that I have a strong EBITDA and that we have solid systems in place.
We're retaining staff. We're developing staff and doing all those things that I can control. So that my, you know, my eyes are dotted and my tees are crossed and I and I and I think eventually if the if the market is great I you know people that are acquiring you're going to stand out if you if you have those things in place then I think you could still demand a you know a nice multiple if you have those things in place because someone again is what we just talked about if somebody's acquiring you if they if you're they're buying something that's already solid and already profitable and has solid systems in place and they can get a quicker return on their investment They may still be willing to pay that more because they may be being more selective at this time, but they will maybe go after the people that have their stuff together and that it's, you know, in place.
Absolutely. Absolutely. So, what does a successful acquisition for you look like? G give us kind of a sample of, you know, kind of what a successful acquisition would look like for you guys. You know one of our most one of our latest acquisitions to me this is was successful. I spoke with the owner you know numerous times and and he wanted to he just didn't like the business side of it, the management side. He he loved he loved treating he didn't like the fact that he had no time.
He had younger kids. They're starting to get involved in things and he was he was missing out on those things. And just wanted to treat, didn't want to have to worry about hiring, didn't have to worry about pay time off, didn't have to worry about the billing and collections, the revenue cycle, credentiing, you know, you know, all the things that go hand in hand. So, we were able to to do that and you know, and acquire his business and and bring him on. And and one part of success that I think is seeing him being able to do those things and him telling me, man, it's nice.
I guess this is the first time I've taken a vacation and in years and I'm getting to go to my getting to go to my kids things and it's been great. And just the entire staff has been really well that office since we acquired it, we've been able to add another FTE to it. You know and so that for us that business has helped out. It's really worked well in our growth strategies. It's it's been a you've been a profitable so it's been a win-win situation for both of us.
And we're both really happy and and it's been it's been a great experience and to me seeing that personal satisfaction of that owner getting what he wanted and the things that he wanted and like the circumstances and the environment that he's in that means a lot to me. Sure. Yeah. You know it so many business owners in this industry as you know I mean we're clinicians and you know we went to school to become clinicians and many of us have gotten advanced degrees as clinicians and so you know you do see a number of small physical therapy business owners that have just reached the end of all the stuff outside of treating patients.
And it sounds like in this success story, this individual had it with all of the other stuff outside of treating those patients. And you were able to take enough of that off of their shoulders that now it's something that you know that business owner is excited to come to work every day. Right. Right. So, George, again, given the current market dynamics, how do you look to now position Hess Physical Therapy for the future in your market and continued markets beyond? Oh, well, that's a that's a that's a good question.
I think you know, we're always trying to look at solutions. What where are some of the struggles at and then how can we you know have things in place that we can help others and maybe take some load or some work off of them is one thing I think that we need to maintain being flexible which I mean the individualized approach that we take with our with our acquisitions and listen to the owners and try to find you know match their needs and wants so that you know that they're happy and we're putting them in you helping them reach their goals.
Also I think maintaining the, you know, the focus on our core business and, you know, making sure that we're continuing to drive performance. I think having a a pulse, a good pulse on every aspect of your business is really important. I think you need to know everything and be aware of everything and and continuously look at things, you know what I mean? And strategize and plan accordingly. You know, you know, you know, if something's falling short or not working, maybe tweaking that system or improving it.
And and lastly, I would have to say that, you know, the most important thing for us to do is plan for success. I've always been a proponent of plan for success. And and I'm always reaching out to people that are, you know, that next level beyond where I'm at and finding out. So, I know what some of the barriers can be, you know, in the next steps ahead and already looking into to having things in place and solutions and I'm the type of person I'll get those things rolling probably a little bit before they should be there, but once they're there, that makes the transition smooth.
I don't want to wait until I'm in that situation. So, I mean, planning for success is what does that look like at this next level? What does what things do I want to have in place? And I think that's really important for us to do for to plan for the future. Absolutely. Well, I think you're going to be very well positioned for the future and in this in this market as well. So all of you out there today who have listened in, we really appreciate it.
And if you are interested in talking further about George's approach of a flexible yet dynamic and as well looking at a way in which you can partner with a smaller business and have some of the same benefits as partnering with some of the larger businesses. Click below and you can talk to George or myself. George, I want to thank you for joining us today. This has been very educational I'm sure for all the listeners here today and we look forward to continuing to watch your company grow in the future.
Thank you Paul. I really like I said I really appreciate the opportunity. It was a truly a privilege to come on here and and speak to you and and thank you for everything that you do and all the help that you provide to our profession. Really appreciate it. Thank you, George. And for everybody else out there, have a great day.
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