What Can You Learn From These Acquirers' Vision Of The Future?
This week Paul interviews Brad Ulrich and Peter Chung of Thrive PT Partners and asks them for their predictions for the upcoming year and the most important opportunities they see for clinic owners who want to move forward.
Full transcript
Generated from the episode audio and lightly edited for readability.
Hello and welcome to another episode of Paul Martin's Crucial Conversations. I'm Paul Martin, founder and president of Martin Healthcare Advisors. And today we are real excited to continue in our series of how you as a rehabilitation business owner can make the best decisions going into 2025. And I think we have with us today two fellas, two men, two guys that are going to absolutely give you some great advice on how to make those best decisions. We have Brad Ori and Peter Chung from Thrive Physical Therapy Partners.
Welcome Brad and welcome Peter. Thank you Paul. Great to be here. Hey Paul, great [snorts] to have you both. So Brad is the CEO of Thrive Physical Therapy Partners. And Peter is the CISO, Chief Strategy Officer. And Thrive is a private equity-backed company that has locations now in 13 states. You guys have really grown with our home base in Chicago. So guys, are we ready to go? Yeah, let's do it. Let's do it. All right. All right. So, let's start with probably what is on the top of mind for most rehabilitation business owners that may want to exit their businesses or transition their businesses in the next year or so.
With these recent interest rate drops as well as the presidential election, how will these events impact the rehab, merger, and acquisition market? Well, Paul, I think that's the right question to ask. I mean, that's certainly what I think about a lot. And when you just kind of go through, you know, what you just shared, interest rates, you know, starting to move what I think is in the right direction, we certainly are just on the other side of a very important election. And so as a result, to your very good point, there are small business owners that are out there kind of thinking, hey, wow, there's a lot going on around me and how does that sort of impact me?
And so, we feel very bullish, you know, [snorts] about this. Obviously, when interest rates go down, that should fuel and inject the economy. We're excited for that. But it has been an absolute fury of activity here over the last several weeks and I would argue even months. Now, for us at Thrive, we've been fortunate because we've been able to storm this a bit throughout both, you know, sort of the times that were a little bit higher in interest, but also just in, you know, in previous terms with respect to the political landscape.
But I say, hey, listen, you're right to be thinking about it and, you know, we would just encourage you to continue to make those right steps and engage with folks and really listen and understand, you know, potentially how things could be coming around, the environment and obviously these important decisions that you sort of indicate. So, appreciate that, Paul. Yeah. Yeah. And you guys seem to do a really good job of, you know, the 2022 market, which was just unbelievable, highest multiples we've ever seen. You stayed active through that, but you stayed really active through 2023, and I believe that may have been, you know, going up against some of the really big companies that did some really big deals and paid real high multiples in that 21 and 22.
So, you guys have stayed nice and steady. Look, historically, we know economic and political changes will take a while. They'll take some time to fully impact the market. How do you see some of these recent shifts playing out timing wise in the rehab space? Yeah. Well, listen, Paul, again, the right questions to ask. It's so hard. It's really hard to predict how things are going to come through. And you're right, things take time. And people want to make sure they have all of the information. In healthcare, obviously we feel very bullish.
We know we have a great product. Therapy in general, rehab in general is a great product. We are in the US where costs of health care are at the top. They are at the absolute top of all developed countries. And yet our outcomes have a lot of room for improvement. We all know that. We believe in rehab. We serve an incredible opportunity to help in that space. And yet our role is to help try and support small businesses as they do that. So sort of irrespective of the political landscape andor interest rates etc.
We think we have a great opportunity to really help support rehab in general and to your point small businesses. And so our hope is as people start to understand, hey, is now the right time for me? They'll just they're sort of obligated to really explore that and understand, hey, what might be out there that can really help support me and help me continue to serve the patients across the communities that I serve. So, we're bullish, but it is very hard to predict. I'm really glad you brought up 2022.
You know, I think back five years ago, who would have imagined a pandemic that we would go through? I certainly didn't have that plan and yet really proud about what we've been able to accomplish. So, appreciate the question, but, we're here and we're engaged and we're ready to really try and help support people through some of these otherwise difficult decisions. Absolutely. Yeah. I remember when the pandemic first started, I remember getting on a Zoom with our team and saying, "This will probably be a couple weeks, maybe a month.
I mean, let's just all like take a deep breath. We're going to get through this pretty quickly, nine months later, right?" So, are there any very particular policies or some market expectations that you think sellers should be paying attention to as now we move into 2025? Yeah, I think Paul, this sort of is a good continuation from the previous question that Brad sort of alluded to here. You know, from a policy perspective, you know, to try to predict the outcome even, especially in a post-election year, you know, I'd say that's a very half-hazard exercise as far as how, you know, how to sort of predict how things are going to shake out even with the election over, right?
So, what we focus on are some of the controls, right? As far as, you know, how can we best support our partners, how can we best support our partners, support our providers overall. In the event we finally do get some clarity as far as what those policy changes are, then we'll sort of adjust accordingly to continue to support our providers and our partners throughout. Now, you know, that being said, you know, there's a lot of changes that come about and I get it. You have to sort of have some foresight or into what's going on, but again, the focus here is what's in front of us, what we know is going to change, which at this point is still up in the air, and then sort of driving forward that way.
From a market perspective, I think you know to from a seller perspective, potential seller perspective, this is in your favor, right? There's more competition. There were folks more so on the sideline before we were still active during that time, but there's more people coming in. So the competition for these practices are great. But from our perspectives, hey, we're, you know, call it, you know, steady and true, right? As far as the same message, same qualitative message is what we look for. And I think that sort of resonated for us throughout.
But I think from a seller perspective, yeah, you have an obligation to, you know, dip your toes in just to see what what's out there. Now, Peter, I love the answer to that question, but I had asked you guys to have to bring your crystal ball. You didn't bring your crystal ball that sees into the future. You know, I think that's a very a double-edged sword exercise, right? When it comes to podcasts, it could be one year, two years from now and this thing will still be live.
And it's like, oh, they said one thing, it went completely 180 then. Oh, I've been caught there. Boy, have I been caught there a couple times. I find them and then I go back and I say, "Look what I said three years ago. That was so wrong." See, I don't have a crystal ball, people. So, speaking of challenges, how does Thrive help sellers, partners of you guys go about, you know, overcoming these major challenges, reimbursement pressure, staffing shortages, and you know, so what are some of the spec specific resources and strategies as well as innovations that we've talked about with you, Peter, and Brad, are available to companies that choose to partner with you Yeah.
Well, Paul, you know, thanks again. You know, I think Peter's fantastic at this. His team does such a great job, Paul, really going out and understanding what's important to you, seller. You know, we try and think about things that we're big enough to provide scale, but we're also small enough that we can really tailor to the approach. And so, we'll ask and Paul, you know this, but it's sort of like, hey, what's important to you professionally? What's important to you personally? What's important to you financially?
You know, and then we try and triangulate all of those inputs to really help provide the support that's right potentially for Brad as a seller. And that might look massively different from what's important to Peter. Just as a quick example, I'm glad you brought up talent. It's an absolute battle, as you know, Paul, for talent. And there's nothing worse. You know, think about I run a small clinic perhaps in a small kind of rural community, and I have a handful of therapists that are on my team.
They're family. Yeah, we're all family. We work daytoday together. And the next thing you know, you learn that one of your family members is moving across country and they're doing it for famili familial reasons. U whatever it might be and it's just it's so disruptive. It's emotional. It's all of those things. And then they realize, okay, I have a decision to make. I can go out and try and find someone to replace them. I can run the business without this therapist. You know, whatever is right for their situation, their business.
We believe we can provide such a great level of support in the talent acquisition space to really help mitigate this battle. It is so important to really what we're trying to do with respect to at thrive which is help you know obviously support our providers and reinstill kind of that family culture that's in the environment. So as we go out and do what I call discovery sessions with potential sellers and Peter's team do that and we hear talent acquisition is something that I love to do, but I'm focused on treating patients 40 hours, 50 hours, 60 hours a day.
I almost can't pick up my head to breathe and actually just do that. We can take that on their hands. And what is even more important to me, Paul, is when we go back and engage with them six months later, one year later, they're with Thrive. How are things going? You know, that's really important to me to just understand how are they doing, how are they feeling. My hope is they feel better a year post the transition than even a month before. And I want them to feel really good a month before by the way too.
But anyhow, it continues to come up about this level of support we provide in the talent acquisition space. And there's a host of other ways. I know you know Paul, but revenue cycle management is another one. Yeah, it's really complicated. You mentioned reimbursement, the sort of the degradation, the declination. Is that a word, Paul? Of just sort of where reimbursement means. Let's go with it. Yeah, I love it. I say that to say we struggle to keep up with it. I can only imagine what it's like for a small business to really keep up with all the payer guidelines and changes and how they can ensure they're doing the right steps to provide the utmost in patient care and also do it in a way that is really helping, you know, drive the business.
And so we can provide that level of support. And we hear a lot of feedback not only pre-close but also postclo around that support we can bring. So those are a couple of examples of where we believe we bring a lot of value. So we allow obviously the seller to remain branded and relevant in the communities they serve and our hope is we can just bring in some level of support to add incremental value to their business. Hopefully that's helpful. Yeah. No, very helpful. And you know, kind of on the other side of this, what are some of the characteristics that you guys are looking for in companies, especially now going into 2025?
And then on the flip side, what are some of the companies that would drop, you know, one of your targets to the bottom of the list or maybe even a kind of a deal killer kind of thing? What on both sides of that, what are you guys looking for on both sides of that equation? Yeah, Paul, I think you'll recall during our last conversation a year or so back, you know, what I like to call the airport beer test, that test still resonates, right? You know, when it comes to profitability of the business, the financial part, that part in our eyes is very easy as far as, you know, evaluating that, right?
But the qualitative side of like a great partner with a great culture that cares for their providers, that cares for their patients, their outcomes, that's a much harder thing to assess. It sometimes takes a little bit more digging, but that's really what we look for overall. So it's, you know, as unique as it may be, I don't think it's that unique, but it's simple, right? So we're looking for great people that have great providers that have foster that great culture that can provide those services to the patients of our communities.
You know, what sort of leads to things to sort of drop down overall is, hey, if they don't have that, if the if the partner the potential partner for us is less engaged, they don't really care about that side of things. It's more of a an entity or a business, not really like something that they've built to care about deeply. If they have there's level of call it the culture side of things with the providers. Our main focus here at Thrive is supporting the providers and if the culture doesn't resonate there with the providers on the ground already, it's going to be very hard for us to even come in and sort of shape that any way, shape or form.
And so another big thing that can drop it down is if we sense a culture that is not conducive to provider support, conducive to patient care overall. And so again like financials like I said are very easy to look at very easy to you ascertain and determine the harder I think the reason why I've been able to be so successful the past few years even in the ups and downs of the market is because the qualitative focus of finding looking for great people that support great providers who have great outcomes for the patients.
So I'm hearing clin I'm sorry first and foremost it's culture. Secondly, it's clinical outcomes kind of the clinical resonance that they have in their community, the clinical outreach, I should say, that they have in their community. Then it gets to financials, EPIDA, cash flow, etc. Is that is that fair to say? That's that's exactly right. So I think you know obviously the financial outcomes that's a given, right? You have to be profitable to have you know survived the five 10 15 years up until this point.
The difference maker, I think, comes on those non-tangible side of things. And to finish my comparison from before, you could have a $3 million EBITDA practice. But if you're a jerk, you know, am I going to say I see you at an airport bar, am I going to go towards you and try to get a try to get a beer with you or am I going to sort of go away? If the answer is go away, then the same thing applies here. I'd rather sort of steer clear and sort of look elsewhere.
Yeah. Yeah. My partner Tom Carden, he used to say, a lot of the a lot of the acquirers out there when we're talking to our clients, they use the Thanksgiving dinner. If you wouldn't invite these people to your Thanksgiving dinner with your family, they probably are not the right fit for you. So, we might go on to the next company. Yep. I would love to have the two of you guys for Thanksgiving. Maybe not this year, but in the coming years, we should we should look to do that.
Feeling mutual, Paul. Sometimes it's absolutely mutual. I would say be careful what you wish for, Paul. Yep. I'll make a trip to Chicago. So, as you guys are looking 25, 26 and beyond. Especially 25 though. Are you going to be pri prioritizing kind of the larger platform acquisitions? You know, in this industry, we think middle market is like, I don't know, seven to up to possibly 100 clinics. Or are you looking to add some smaller tuckin opportunities? Great question, Paul. I think for us it's sort of elaborating from the previous question is the qualitative side first.
You know, if that part's checked off, it really doesn't matter to us whether it's a call it 10 to 20 clinic practice or to a one to two clinic practice. As long as the qualitative fundamentals are sound and they exist, we will work with, you know, figuring out a partnership that works for the both of us. So you know, I'm not gonna say with the team here that, hey, are we going after is it are we gonna try to get a big splash here with like a big group?
No. I know there's some groups out there that try to do that, but for us, hey, tried and true, steady as she goes, you know, try to support the small business owners regardless of size, just as long as they have those qualitative fundamentals. Sure. Sure. And so if you want to give some advice to those companies, those middle market companies, and you know, every state has about three or four of them, right? You know, 15 clinics here, 24 clinics here, 44 clinics. What would you say would be some of the benefits for those companies entering the market in 25, 2025, and you could compare that to last year or even going out further 26 or 27.
Is there any benefit? I think so, Paul. I think there's no better time than now. We've already talked a little bit about interest rate. We've talked about the election and some uncertainty, but also some pretty clear certainty with respect to the competition. Peter talked about this. The competition we're finding to be a bit fierce. I think that's good. I think that's really good for a seller and Paul, I would even argue it's good for us. It helps ensure that we at Thrive are doing everything we can to innovate, doing everything we can to be relevant to what might be on sellers minds.
So you know whether a 20 clinic practice and you know wherever or 25 or five or one as Peter mentioned they're really important to us and I think it's right and the I guess the advice maybe back to the first part of the question is a bit around just taking some time take some time to really get to know who potential buyers are. I love it was your partner Tom. Yeah I love your Tom's reference to you know would I invite them over to Thanksgiving dinner.
I might steal that if he doesn't have a patent because for me it's all about that. Do they want to engage with whomever the potential buyer is? Just as Peter said, do we want to engage with them? Are they a jerk or are they massively collaborative and they realize that their brand and the way that they have raised potentially what a lot of small business owners do refer to as kind of their baby, right? They've created this great business and now they want to try and help potentially take it to the next level or just ensure that it continues to deliver their brand across the community they serve you.
We believe we're there for them, but there are other folks out there doing the same thing that can deliver that level of value. So, my advice again is to just really get to know the potential buyer. Be very clear. What are the objectives I'm looking for? What is it that I feel like I most need? And then who do I believe can best deliver that? That's what I think is important. And that's what would be on my mind. Sure. Sure. So, are there some common mistakes that you guys see with companies that may come to you or that when you go directly to a company that you see sellers make during the process the merger and acquisition process that you would absolutely advise them to avoid?
Yeah. So, I think the call when we go to them, right? You know, a lot of these folks are not actively on the market. Obviously, if they're working with you, Paul, they they've worked with you quite a bit, and they might sort of have a plan laid out. But for some of the folks that are that we're approaching directly, it's sort of it's always been on their mind, but it hasn't really, you know, the ball the ball hasn't started rolling yet. So, the mistake that we see is that they're waiting for the perfect time.
Perfect time both in the economic conditions, perfect time for both their clinical standing, their financial standing. You know, just like the markets that we talked about everything else, no one has a crystal ball, let alone you. It's for everything else that's going on. And so I would say it's your obligation. It be in your best interest to sort of go out there and dip your toes and see what's out there, right? There could be a you know, especially in today's market where there's going to be a lot more potential suitors here, there's going to be someone that sort of fits what you're looking for if you do the digging, if you do the work behind it.
So that's sort of the pre right for during the call it the M&A process. A common mistake is the lack of transparency at times, right? We try to be very upfront, very clear as far as hey, you know, let's just air everything out there. We're not trying to judge you in any certain way. We're just trying to get the most information possible and then figure out a path to close as far as what that looks like. Now, naturally, I get I get the inclination to try to keep things a little close to chest because, you know, in the end, this is this turns out to be a transaction, right?
But what people think is helping them by keeping that actually turns out to be more of a detriment in the end. Because what's more important to us is that transparency upfront and then we can sort of help the potential seller and partner sort of tackle those things and make it part of the deal process. What's very hard to do is if something is represented to us in one way and then call it two weeks before close, we find out the contrary, right? And we will find out.
We're very good at this. We do this for a living day in day out. And you know, it's just a matter of time. That part tends to sort of not blow things up, but sort of slow things up considerably and you know, there's a there's a there's a pause there for that reason. So, our advice is just be as transparent as possible with all the business numbers, etc., but also, hey, what exactly you want? You know, you tell us what you want, we'll try to do the best we can to sort of hit those asks.
I hear what you're saying is a delayfree process is always going to be in front of a process where again you find things whether it's early, middle or late in the process that say whoa we got to halt and really look at this. So if you have everything from right in the beginning of what is a relationship, you know, once that LOI is signed, you know, you're getting ready for a wedding and you know, there's going to be a the wedding day and there's going to be that final vows given.
That everything is already on the table. Is that what I hear you saying? And it doesn't have to be perfect. It's okay if it's too perfect. If it's too perfect, we start raising our eyebrows a little bit like, whoa, hold on a second here. [snorts] Absolutely. Absolutely. So, last question. If we start looking beyond 2025, and I know you don't have a crystal ball, but where do you guys see this rehab M&A market is heading, and what role do you see private equity, as you know, private equity is dominant in this industry?
What role do you see private equity continuing to play in this space over the next three to five years? Well, I mentioned earlier, Paul, but I'm bullish. I'm bullish. And there's a few factors for that. There's actually quite a few, but I'll just try and narrow down a bit. I think one, the population is living more healthy. I was going to say more long. Again, bad English, but they're living more healthy lives for longer periods of time. That's great for the rehab space. We're certainly that.
I've already talked about cost in the ecosystem. We believe we can lower health care costs. That's good. I believe so. You've got a growing population. You've got folks that are more active. It's funny, you know, I came over to physical therapy. I'm a pharmacist by education. I came over about a year ago. And when that happened, I must have had Paul a dozen of my close colleagues, confidants, folks that I care a lot about, send me various articles. Many were about pickle ball of all things.
What in the world? And it's all around. Hey, people are playing pickle ball. They're getting injured. They're needing physical therapy. To me, I was in some ways I was sort of like laughing about it, but I'm like, oh my gosh, it's real. It's completely serious. Absolutely. And so one small sort of anecdotal evidentiary point I guess but just super relevant to what we're talking about. So all of that to say I believe we have a growing market. You bring up private equity. Peter reminds me all the time.
We believe it's just the incredible opportunity to help normalize the playing field for small business owners. We have the backing. We have the funding. We have the ability again to really provide a level of support that many small business owners struggle with. And so as a result, I think that's why you're seeing a lot of this consolidation in that space. But nonetheless, really bullish from my point of view. Again, lots of fragmentation and we just believe we can be a big part of that. So, no crystal ball, that's for sure.
But if I were betting, I would bet that that rehab is going to continue to really thrive and frankly, I think even be stronger in the out years. Yeah. And I'd say like, you know, when it comes to private equity as a whole, right? I know there's a stigma associated with it at times, but as Brad alluded to, I think it's the great equalizer for all intents purposes for the small business owner that's been, you know, in the trenches, you know, you know, fighting with the regulations, sort of the payer pressures coming down and all of a sudden you have, you know, all this additional ammo for comparison at your disposal to sort of help level the playing field as Brad said.
And so although there is a stigma there, I think there's more if you if you dig a little deeper, there's more pros and benefits to the small business owner especially within physical therapy you know than one might think than what's on the service. Yeah, absolutely. And I and I think that what I am hearing also from many larger groups is you know how do we break this cycle of the demand which is great. We have such a demand for these services as you said. People are living longer.
People are playing pickle ball longer. People are running and lifting weights. You know, I get injured a lot. You know, and they're continuing to do that well into their 70s and 80s, etc. How do we get the supply of physical therapists to meet these demands? Any ideas there, guys? Yeah. Well, I would say, you know, it's like a three-pronged stool, you know. First is like, how do you attack this thing at a very early age? And we met a partner the other day that's out in their community going to elementary schools and talking about what they do.
I love that. Now, Paul, you, Peter, and I know that's not going to solve this problem tomorrow. That's for sure. But what it can do is it can, I believe, create a really healthy pipeline into the future. For the more immediate, I think it's really doing everything we can to facilitate, to pay it forward. The clinicians that we're lucky enough to partner with talk to me about mentorship. They want to understand, listen, I'm now a graduate. I'm out in the professional world and I am overwhelmed.
I am absolutely overwhelmed. And so I think we all as health care professionals have an obligation to try and pay it forward, help provide support, give confidence I think to students that might not otherwise have it. That's going to make retention I believe of physical therapists, occupational therapists, rehab in general much stronger. And when retention remains in place, we help to start to solve this supply versus demand that you're sort of talking about. So again, no silver ball. This is not a new challenge for sure, but I believe you have to kind of approach it from multiple angles.
We've got to keep folks that are educated and trained in the clinical setting. That's sort of point one. We've got to create a new awareness for people that aren't otherwise considering it to inject themselves into that setting and a whole host of other opportunities that exist. So, not easy, but also hey, anything that's easy to do isn't really worth doing, right? So, so we're thrilled about the opportunity, but it's on my mind for sure. Sure. No, when you look at the needs of young physical therapists in these current markets, they're so different.
You know, I was a physical therapist, so different from you know, 25, 30 years ago. And I think where we see companies thriving with staff and fully staffed is when they have and they've looked to do some innovation to cater to those needs as opposed to just looking the other way and saying no it's an 8 to5 it's a 12 to8 this is you know we don't we don't bend a little bit. We do see some companies getting some more push and then those folks are going to say hey this is a pretty good career.
You know these companies are really giving us some flexible ways to see our patients and do what we need to do and so the hope is that lots of companies will continue bolstering that because you know it could play a big role in the future on whether or whether or not we're going to meet that supply. Yeah, and I'm glad you mentioned that, Paul, because to your point that, you know, call it the new generation of physical therapist coming, flexibility means a lot, right? If anyone is still stuck in the archaic ages of the 8 to five, they start seeing the effects of it pretty soon.
If it's not there now, it will. I guarantee you that. And so, you know, I think just to highlight here as far as, you know, this goes back to why we focus on the qualitative for Thrive overall. It's because hey the partners that have attuned to all these things of the new generation new generation of physical therapists and everything else they already have those that flexibility of scheduling in there. They already have the flexibility of you know call it the balance of you know work life balance and how it comes about and all we're doing in the end is sort of helping support that even more with more resources.
So I think you know to your point in order to thrive in this environment and beyond because as you know there's a there's going to be for the foreseeable future a delta between the demanded services and providers coming out of grad schools. We have to be the best when it comes to that flexibility and that cultural excellence that people want to work there. It's not just throwing bonuses at people or anything. It's the mentorship. It's the development. It's is it fun to be there? Absolutely. Yeah.
Yeah. Hey, you guys have been absolutely awesome today. I thank you, Brad. I thank you, Peter. You guys have really given our listeners a lot of great information and I really appreciate you joining us today. It's been an absolute thrill. You know, Peter, I'm not speaking for you, but I will absolutely take you up on the Thanksgiving opportunity, Paul, and but in all sincerity, thank you for this opportunity. It's been great partnering with you. And we just appreciate all the support. Awesome. I echo what Brad said, Paul.
Much appreciated for everything. Thank you, Peter. Thank you, Peter. So for all of you out there today who have listened in on this episode, if you have any questions, just click below and let's talk. Thanks and have a great rest of your day and a great weekend.
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