This Strategy From Last Year Could Increase Your Value Significantly Today
Paul responds to Carter Schelling's take on Rebecca Springer's PitchBook interview, showing how PT business owners can offset lower multiples by raising EBITDA through preparatory consulting.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Guide to Finishing Well and the Martin Rehab M&A Advisory. Today we're gonna talk about Carter Schelling and his opportunities for action from a interview that I did with Rebecca Springer from Pitchbook. As you recall, Rebecca Springer is an expert from Pitchbook on the bond markets, on private equity, on lending, etc., etc. And she had a lot of interesting facts to tell us about what we should be expecting from private equity moving through 2023 and into 2024.
And what I want to talk about is Carter did a response to that and some opportunities for action for you. So, in Carter Schelling's episode, he definitely did not see and view the interview with Rebecca Springer as good news for companies that may want to be selling their business in 2023 or 2024 in the rehab industry. In fact, he was very much the bad cap. He talked about Rebecca's discussion that the bond markets are down, so it's difficulty getting equity. Debt is expensive, so debt is hard to get and multiples are down.
What I'm here to talk about today is I actually have some good news because despite all of the discussion that Carter very objectively had with all of you, the good news that I have is today, right now in the rehabilitation industry, there are still 20 plus well financed acquirers. And these acquirers are aggressively seeking great deals, not average deals. And when I say great deal, not average deal, I'm not simply predicating that on size. In fact, I don't think it's predicated on size, whether it's a average or a great deal.
There are many small companies that are great deals and there are many large companies that are average deals. So this is not predicated on size, but companies are looking for great deals, great companies, and you can still get the same value as those companies who sold their businesses in 21 and 22. That is the really good news that I have for all of you today. So if multiples are down, how do we get the same value as those companies in 2021 and 2022? Well, we're going to start with just the simple math.
All right. If you take the EPIDA times a multiple, that's going to equal value. So an example, $500,000 of IPA times a multiple of eight equals $4 million valuation. Okay, now we're saying multiples are down. We never used the phrase tanked or significantly down. Multiples are down. So if you take that same $500,000 of ITA and now we multiply it times seven, which is pretty commonly what we're seeing. Multiples are down a turn or two. Now that valuation is $3.5 million. That does not sound like very good news at all.
That company just now had to sell for $500,000 less. The good news is that with the simple math, we can maintain that value at 4 million by improving our EBITDA to 571,000 times 7 equals a $4 million valuation. And that is a 14% increase in IBITA, which might sound like a lot to you. To us it's not. And so again the question is how do we improve our EPIDA by 14% or more? Well you know over the last many years we have been doing something that we call preparatory consulting.
That is consulting with companies to prepare them for the market. And we're preparing them not to be an average company in the market, but to be a great company when they go into the market, which is what the acquirers are looking for in this market. Now, that whole process of preparatory consulting that then leads into taking companies into the market starts with what we call an outside in assessment. And in that outside in assessment, in addition to valuation of the company, showing you who all the acquirers are, we also do an assessment of your key operations volume indicators.
Numbers of visits, numbers of new patients, numbers of units, charges, and your metrics, units per visit, visits per new patient, visits per professional per day, etc., etc. And then we develop strategies to improve in a number of areas. And those areas, as our consultants call it, are the levers that we pull to drive EPIDA up to increase and improve EPIDA. And those main strategy areas. And we're going to go into over the next three weeks. We're going to go deep into each one of these areas as to how you can make these changes.
But the major areas are charge capture. That's what are the units that you are actually charging for the care you provide and how many units are you charging. Professional. Second is professional productivity. We're going to talk about maximums for strategies for maximum productivity and driving successful clinical outcomes. Third, improve patient retention and arrival rates. Okay, so we're going to talk about how many visits per new patient does your company currently do. So, three areas all with a lot of different levers that we can pull and to help guide you into driving additional EBITDA in your company.
And in all three of these changes, notice we didn't talk about improving and increasing numbers of new patients. These three areas, charge capture, professional productivity, and improving retention and arrival rates are all what we call proforma changes. As you know, perform is moving forward. And so once you make changes in any one of these three areas, it's a change that goes with you forward and will change your performance moving forward from now until you go back to the old ways of doing things. We're going to provide you with essential tools to help guide you and your staff to making these changes.
And we really stick with you and are right by your side every step of the way. You know, I'm really proud our preparatory consulting team, which consists of physical therapy former business owners who have led their companies into the market, have sold their companies, but our preparatory consulting team showed an average improvement last year in 2022 of 114%. What I mean by that is from our outside in assessment valuation through preparatory consulting months into the market the final value was over double the initial value from the outside in assessment.
Those are numbers that you don't see anywhere else. So, if you have an interest in hearing more about how we are doubling and sometimes tripling and quadrupling valuations of companies, click below. Let's talk. Thank you.
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