Navigate Current Market Trends With Clarity and Direction
This week, Paul gives an overview of the current market trends and what they mean for clinic owners, and discusses how you can achieve clarity for your company's future.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of the Martin Rehab M&A Advisory. I'm Paul Martin, founder and president of Martin Healthcare Advisors. And what I'd like to do today is I want to dive into some of the most recent trends and how they are impacting the current outpatient physical therapy merger and acquisition market. So first let's talk about the economic landscape. Two things drive the economics in this country. Inflation and interest rates. Now inflation's inflation continues to stay steady and there has also been talks earlier this year for a potential interest rate reduction and while that hasn't materialized certainly before the end of the year we could see a potential reduction in interest rates and I think what this has done is it has caused investors who are those who are paying for these deals to be much less concerned about the future.
And what that has done is it has made the availability of capital and the cost of capital significantly improved from where it was back at the end of 2022 and into 2023. And again, it's the availability of capital and the cost of capital that will drive acquisition pricing as well as the numbers of deals either up or down. And right now, we're seeing that as a positive trend. You know, another dynamic that's out there right now is that there are several large private equity-backed companies that they're approaching that five-year mark with their current financial sponsor, their current private equity sponsor.
And this is as you look at private equity, this is a very critical juncture as that five-year mark very often triggers new private equity firms rolling up their sleeves and buying out the previous private equity group and entering into this rehabilitation market. And what we have always seen is that the new private equity firms, they're larger, they're more sophisticated, and they will even be more aggressive looking to build large dominant companies. Sometimes these companies are preparing for the public market. So, they tend to be very aggressive.
And we're seeing a number of these companies coming up on that five-year mark. And I think you'll see some of those companies recap and the new companies that are in will be very aggressive trying to grow. Now, amidst what we're describing now as some pretty positive economic conditions, the rehab industry continues to face some significant challenges. Professional staff is still at a premium and we're not seeing corresponding increases in reim and reimbursement rates for our services making up for the discrepancy as we look at professional staff and the premium that we're paying for that staff.
And this discrepancy makes it even more imperative than ever to operate your business at high levels of efficiency. You know, this year our team has already seen improved performance from our clients over back in 2023. And I think that is understanding how to operate sometimes with limited to numbers of staff, sometimes using travelers. We're seeing in many cases travelers now being replaced by full-time employees, which can certainly drive that bottom line. At Martin Healthcare Advisors, we really believe that despite these challenges, that the current economic conditions will continue to drive a very robust market for outpatient rehabilitation, merger, and activity through 2024 and into 2025.
We have put more deals into the market and have seen more activity for those deals than in the history of our company. And I think that's really positive as we continue to look forward. We're also seeing a lot of strong opportunities for these outpatient physical therapy businesses to partner with larger companies who can provide the necessary scale and resources to thrive in this current environment. So what does this mean for you as a business owner? Well, if you're considering selling or partnering with a larger company in 2024 or early 2025, this is an opportune time to start preparing.
And here are just a few steps to consider as you're preparing your company. First, optimize operations. Make sure that you are operating at high levels of efficiency. And this includes everything from your staff utilization scheduling to your billing processes. Efficiency is key in making your practice very attractive to potential buyers. You know what they are buying is that stream of cash flow and so financial health is also crucially important. Maintain a very strong p financial profile. Buyers are looking for businesses with very healthy cash flows and sustainable profitability.
So, be prepared to showcase your financial stability as well as showing how this financial stability as well as that bottom line will continue to grow into the future. Professional development, invest in your staff. You know, given the premium on professional talent, you don't want to lose staff at this point. So well-trained, stable team can significantly improve your practice's value. You know, sometimes when staff is at a premium and there's staff shortages, we tend to lay off our staff, thinking that if we press them too hard, they're going to want to go somewhere else.
I think it's just the opposite. I think the more information that we can give them on the goals and the direction of the company as well as information on what we're anticipating and expecting from them from a clinical perspective as well as an operational perspective that tends to make the good solid professionals stick to your company. Next is market position. You know, understand, you know, where you are in your market and what competitive advantages you have over your competitors and highlight the things that set your practice apart, especially that bond between your therapist and their patients.
And look and look at that as to how you can continue to succeed at that not just to an acquisition but through and post an acquisition. You know at Martin Healthcare Advisors we offer a really unique service and a product that we call our outside in assessment. And in this assessment, we're going to provide a comprehensive evaluation of your practice from an external perspective, from the outside in. We're going to value your business in today's market. And we're also going to analyze your operations, your financial health, your market positioning, staff efficiency, and we're going to identify areas of strength and opportunities for improvement to that bottom line, which is going to drive your value.
And look, in today's market, this type of insight is absolutely invaluable. It's going to help you to understand your business's true value, and it's going to help you prepare for a potential transaction. And really, in this current environment, whether you're looking to sell, partner, merge, or simply just improve your operations for the future, our outside in assessment can provide clarity and direction. I often say it's from it's like going back to UHF television with the fuzz and it bringing it into high definition. You know, if you'd like to have a discussion about today's episode or anything else regarding your business, click below and let's talk. Thanks for joining in and have a great weekend.
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