An Acquirer Offers His Viewpoint On Fast-Approaching Market Factors
For our first interview of 2025, Paul welcomes back John Gallucci, CEO of JAG PT. John offers his perspective on recent changes, as well as anticipated developments that could have a major impact on the rehab M&A landscape.
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're going to continue in our series of how you as a rehabilitation business owner can make some of the best decisions in 2025 and why that is so important. And we have here today somebody who's going to tell us why it's important. We have John Gallucci from JAG Physical Therapy. Welcome, John. Paul, thank you so much. Appreciate the opportunity to be here. Always good to talk to you.
And for all of you or some of you that may not know, John is the CEO of JAG Physical Therapy. JAG is a private equity-backed company that has over 150 locations. Feel like it was yesterday that I was saying they're over 50, but no, they're over 150 locations. They're in New York, New Jersey, Pennsylvania, headquartered in Bridgewater, New Jersey. John, are we ready to go? Ready to rock. Let's let's get into it a little bit. All right. Yeah, we got some good topics. So, the recent interest rate drops and the presidential election right off the bat, how will these events impact the rehab M&A market?
So, I think in any M&A market, decrease interest rates always gets the the businesses churning and looking at opportunities to be able to borrow money and be able to grow their platforms. I think what we have to be worried about is a lot of equity backed companies or equity partners we should say really the bankers sort of got gunshy a little bit with health care over the last several years especially coming out of COVID. So I think we'll still see a little bit of gunshy from the equity partners that are out there.
But I do think the interest rate drop is definitely going to help nurture a stronger market into 25 and 26. I don't think we'll see it in the first quarter of 25. I think people got to get used to it and see where borrowing gets to. But I think as we get into the second, third quarter and going into 2026, we'll see more opportunity. I also think the new administration coming in is very business savvy, very business positive. And and I think everybody in business, no matter what the industry is excited to see what's going to happen in the third and fourth quarter of 25 going into 26 because that's when you really see the administrative changes kicking in.
Exactly. We know economic political changes. It takes time to fully impact the market and yes I we're seeing the same. How do you see timing of some of these recent shifts playing out you know continuing forward? You had said I think I think I heard you say maybe third fourth quarter you think we'll start getting some real traction. Is that is that your final answer? Yeah I think I think people are going to get want to absorb what's happening. First of all, as we see all the appointees who's complaining about this, who's positive about that?
At the end of the day, I think once everybody is in seat, gets a full quarter underneath them of their initiatives, of their goals, again, you do have an administration that's very business, pro business, pro-American business. Healthc care is American business. I mean, so at the end of the day, I think once you get into the third quarter where you'll truly have six months under some of the new secretaries and administrators is where we'll really see some positivity coming out in the health care market, but also I think in all industries, we'll start to see those changes implemented.
Yeah. Yeah. So, are there some policies or market expectations that you think sellers should be paying attention to most as we move into 2025? And of these changes in the market conditions, government policies should sellers pay the most attention to in 2025 and why? So, if I'm a seller, I'm looking at the marketplace. And as you and I both know, we owned mom and pop businesses and we're opportunistic to grow those businesses. As we know, there was a huge consolidation of the market where there was a component that equity jumped in and strategic equity jumped in and ultimately there was a large consolidation.
I think the mom and pop mom and pop market is a very difficult market because of the way the insurers have navigated the component of how they treat their participants and their and their catchment areas of what they're doing with participants. So if I'm a mom and pop and I'm not in network with good contracts, I'm very nervous of what's going to happen in a very businesssavvy administration because I think equity is going to have an inflection point and strategic equity is getting more and more savvy in all aspects of healthcare, not just physical therapy.
When we look at physical therapy, I think we should be very proud of ourselves that we're finally getting a voice in Washington DC. You see that with the positivity of the outcomes of the smart act. You see congress considering the safe act which is unbelievable for risk fall assessment. So I think we finally have our place in DC. I think the APA and the APQI lobbyists have done a great job in finally giving physical therapist a voice in DC and I only see that growing over the next two years.
I also think some positive things that the new administration is looking at, I don't know if they get to it, but they're looking at, is truly putting providers in positions of decision-making. And there's nothing better than having a provider that understands outcomes, research, data to be able to make decisions as opposed to some political lawyer that was appointed because he may have played golf with someone's cousin. I think it's very advantageous to have providers truly getting into DC and I think that's where all of health care will see an advantageous opportunity.
Yeah. John, you have been a big push with that. I remember talking to you many years ago and you had you had told me how you really, you know, embrace the payers and if you don't get to the payers, you're never going to get to Washington and you get to DC to make any of the big because you hear what their challenges are as well. And you guys have always done and you especially have always done such a great job at really looking at the payers as partners as opposed to our foes.
And I always talk about that when I speak of you, because I think you were at the forefront of that. What are some of the unique qualities and characteristics that you're looking for in a potential acquisition? Let's talk a little bit about JAG, especially in 2025. So when you're looking at 2025 and beyond, our biggest thing is our base of what we've done in the last seven years, which is truly find outcomebased, evidence, researchbased companies that have the culture that it's the patient first and ultimately unfortunately and you and I both know this, there's a lot of health care providers out there that put the dollar first.
And and what we've been able to do is build a culture that it's patient first. Treat everybody like you'd want to be treated. I always tell people, treat everybody like you'd want your mom and dad or grandparents to be treated. And and we've built that culture. Sometimes it gets difficult in a marketplace where you do have a unit or a company that may be four or five units that have lived in this world of I'm going to get in a catchment area that can give me great fee for service or add a network.
Out of network is going away and ultimately the marketplace becomes difficult that we're getting calls all the time by out of network sellers that don't understand the equation of an in network fee schedule and JAG Physical Therapy is very proud to say that we're 21 years we're going into our 21st year and we've always been in network and as you said we've partnered with the payers to understand their obstacles with their participants and realize Their participants are the people we're taking care of and ultimately payers need to understand what is outcome, what is research, what is evidence-based.
And I think we and my team have done a very good job in partnering with all of our payers, let it be a workman's comp payer, let it be a private payer, to really understand where outcomes are, research, evidence bases, and ultimately when you're going to partner and bring in another company under our flag, they have to understand it's got to be about the patient and the patient outcome. Absolutely. Absolutely. And so as you look at sellers and obviously some of the sellers out there have some major challenges in the industry as you said reimbursement pressure, staffing sort shortages.
What are some of the resources that JAG brings to a seller who is considering JAG as a partner? What what are some of the resources that you bring to your partners? It's a great question Paul. One of the biggest things that we hear from all the people that we talk in the industry is this component of human resources. In the last 10 years, human resources has taken a life on its own. And and we have a robust human resource. We actually call it our people operations department.
And really, that's what it is. I mean, you live and die based on the success of your people. And we've spent a lot of time on infrastructure, a lot of time on people to really build that. And when you're meeting with a potential seller that's interested in joining the JAG family, you really get the opportunity to say, "Oh my god, I don't have to be in the weeds on all of this anymore and that I could really truly be a clinician or I could really truly be someone that's can going to develop young clinicians." So, that's one thing right out of the gate.
The other thing is market power. As you know, I love to market, let it be in an inexpensive grassroots component. And as you and I have always toggled, putting a billboard with a brand out there. I know you and Iggled about that over the years. You know, at the end of the day, we have done a very good job as physical therapists across the country. If you remember vision 2020 on letting the community of the United States of America know that we are the experts in rehabilitation medicine for illness and injury.
Now we have to be able to be staffed appropriately. The schools have to catch up. Capy has to catch up. We can do a whole segment on that Paul one day that and we're starting to see CAPY and the educators understand the marketplace needs physical therapists. We need to graduate more physical therapists because we did such a great job with vision 2020. We made it a doctoring profession, but we also marketed the community that we are the experts in rehabilitation and we need to be able to be staffed appropriately to take care of people.
The other thing, think about if the SAFE Act does get passed, you're talking about that every Medicare participant is going to have the opportunity to get a risk falls assessment. And ultimately, that's you're going to find a large population of people that are at risk to fracture a hip or fracture a femur. So, we're going to need more physical therapists out there. And I think there's some studies coming out in the next 12 months that's going to show that the profession of physical therapy is a place that students should be looking at to jump into.
John, you make a really good point in regards to our professionals. And you see many, you know, young people coming out of school and going into other professions. And our professionals should be rewarded for the care that they're providing, which is exactly what you're working is working on the payers working in Washington for us to get reimbursed at a rate that on what this industry is truly giving. This is the greatest value in health care in my opinion. And I think until we're able to enable therapists to see what a impact they're making and to reward them for that, we're going to continue to have staffing challenges.
I would agree. I would agree 100%. I think our biggest issue is that we forgot that we're a handson health care provider. And I think I would love to see our exam go back to have a hands-on participation component. But I understand that you know technology took the lead on that. But I do think in the schools and some of them are doing a much better job in preparing the students to treat when they come out. But too many of the schools are preparing the students to basically be schooled by us for yet another year.
Yeah. Before they're truly carrying a full a full shift in treating patients. At the end of the day, you wanted to be a physical therapist to care for, provide, and help patients get better, let it be illness or injury. And I think we have to get back to our heart and soul of what the profession was. And and I think we're slowly starting to see that turn academically. And I think CAPI is finally starting to listen to not just the education institutions, they're also starting to listen to the environment of physical therapists out in the communities.
Yeah. Hallelujah. Hallelujah. Right. So John, what are some of the unique qualities that you guys are looking for in a potential acquisition, especially looking into 2024? And then on the flip side, what are some of the things that would be, you know, that would drop a company to the bottom of the list or would be somewhat of a deal killer? As you can imagine, as a provider-based company and realize, I'm an anomaly in our industry that out of 12 executives that surround me, eight are licensed treating physical therapists.
And ultimately we believe that our culture and why people love joining us is that reason that we are providers first before we're running a business. I think it's very important when we're looking at a potential opportunity out there that we're looking at people that understand retention of patients understand what is their image in the marketplace and their catchment area. What is their impression by their referral sources. So, when we're talking to potential partners to join us, we'll literally go into the community and speak to referral sources to say, do you utilize this facility?
What are the positives, the negatives of the facility? The other thing that's really important is what is the vibe of the community? And you can tell by looking at the numbers. If you're looking at a company that may have last year had the opportunity to have 5,000 visits and all of a sudden this year they're looking at 3,000 visits, there's a lot of questions that go along with that. And some people like to chalk it up, well, I lost a provider to another company, which is the easiest answer.
But sometimes you may have the same amount of providers and you're just not getting the referrals. And when you dig into their outcomes, you see their outcomes just weren't getting to where they needed to be for the physicians. And the physicians realize they're starting to be paid and their contracts are based on outcomes. Think about all of these total joint programs throughout the country that we're seeing. And all of the health care systems and joint physicians that are doing agreements to get outcome scores for their patients, they don't want return back to the hospital.
They don't want return back to the emergency departments. So, I think that we're starting to get more savvy in utilizing the data and a lot of mom and pop companies, onesies and twsies companies that have been out there don't realize where health care has evolved. The biggest thing I try to tell anybody that's interested in joining us is understand let's spend some time together for an hour and an hour and a half and understand where was health care five years ago, where is healthcare today and where is health care going in five years and where are we going to sit together in the health care environment of the catchment areas we're serving.
And when you talk to the potential partner about that, they're like, "Wow, you've opened my eyes to really what's happening in the industry, not just in physical therapy, but in healthcare." I mean, think about just what we're seeing in the news right now on appointments going on in DC. You literally have the opportunity that HHS is going to be overseen by a secretary that truly is a medical provider. We haven't seen that in a while. And that could be very advantageous especially where we have the visibility currently as physical therapists with the American Physical Therapy Association and AP and APQI's leadership leading that front making sure that we're constantly in front of the Congress and the Senate.
So I think we've got a lot of great opportunities for the profession. I think we're going to see the profession of physical therapy in the next five years become the forefront of being firsthand providers and being that primary care component especially with the shortage of primary care physicians in the country which is another thing could you imagine that's happening in our country. Yeah. Yeah. You know, John, it almost sounds like what you've done regionally, nationally, you're looking for physical therapists that have Yes. They they run a great business, they give quality care, or they give good care with good outcomes, but you're also looking for somebody who has become a staple in their community and really stands for something, you know, in regards to what they're doing for their communities.
As opposed to simply you know bricks mortar physical therapy and a service being provided. Agreed 100%. You know at the end of the day the unfortunate thing is and you see it in every graduating class. Everybody wants their own business and everybody listen it's America. You should you should shoot for the sky and have the opportunity but you have to understand what it is to run a business. You know, everybody likes to say, "Oh, John, you grew so quickly." First and foremost, I had one clinic for two and a half years before I ever got to the second clinic.
But everybody forgets for 15 years before I ever opened up my own business. I worked for three of the largest health care systems in our country, being NYU, New York Presbyterian, and Barnabas Health Care System. I also worked for Madison Square Garden and New York Knicks. I worked for Red Bull, one of the biggest companies in the world, but at their sport side. I worked for the New Jersey Devils. So, I had 15 years of clinical experience. I had 15 years of experience watching healthc care business being run.
I had opportunities in other industries. Everybody likes to say, "Hey, you opened up your business and look how successful you are." And I'm telling these 25 year olds graduating school, I opened my business at 38 years old, 39 years old. So I had 15 years of true treating patients, working for other people, understanding marketing, understanding budgets, understanding Excel sheets, understanding how to work in a compliant component. And a lot of people have to understand it. I'm not telling you can't ever open up your own business, but be prepared.
And I could tell you, Paul, in the last five months, we've had six businesses call us that are open for 18 months or less asking us, can you take over our lease and buy our equipment and hire us? Think about what I just said. Yeah. No, it is amazing. And I feel like it at times you know it's so hard for some of the small business owners to kind of pop their head up and look around at really what's going on around them because of many of the challenges that are, you know, those day-to-day challenges.
John, talk to me a little bit about as you're looking, you know, into 2025, will you be prioritizing kind of the large platform acquisitions or middle market, you know, middle market in therapy? I think it's kind of 7 to 50 clinics. Some would say it's up to 100 clinics. Or are you looking and are you still looking for some of the small more tuckin opportunities? I think all of it is on the table. You know, healthc care consolidation in physical therapy is something especially in the northeast based on the payers vision of not dealing with 2,000 different companies and possibly dealing with 200 different companies is a lot easier to manage for them and a lot easier for them to have relationships with their participants.
I think that the consolidation in a lot of different facets of health care is going to continue to roll over the next five years. I mean, you're seeing it in imaging, you're seeing it in ambulatory care, you're seeing it in dialysis. So I definitely see you're think you're going to continue to see it in physical therapy. I think for us, anything strategic that makes sense, let it be small, middle, or large, is very advantageous as long as they have those thresholds that we talked about. You know, being someone that is respected in the community, being in the catchment area, making sure that the participants and the referral opportunities are there.
And being able to be synergistic in our culture, putting the patients first are very opportunistic. I think that anything is on the table and any conversation will be had. I do think different than what we've done in the last two years because of interest rates where we have tucked in clinics that are five six clinics. I mean we tucked in a 12 clinic company with us but we've also tucked in some one clinics and two clinics as well but a lot of that was based on where interest rates were and we were using cash on a balance sheet.
So now that interest rates are coming down, it's definitely advantageous to look at bigger opportunities. So for some of those middle market companies, let's say 7 to 10 clinics and up, what do you think are some of the benefits for entering the market in 2025 compared to your crystal ball last year or 2026 and 2027? I think if you're a middle market company, the first thing you really need to do, and most companies don't do this, and listen, you're a great asset to our industry, right?
You you know, Martin Healthcare is a great asset to the industry because people don't realize before you speak to a JAG physical therapy or an Ivy or a pro or whoever you're talking to out there, you should really get some guidance and understand what's going to be looked at. Too many companies are trying to do it and navigate it on their own and they don't understand at the end of the day. Yes, it's important to have those synergies, but there is a transaction that has to be made and to have guidance from a company similar to you kind of working with that company is very important to help get to the transa transaction.
You never want to waste anybody's time. We don't want to waste time. They don't want to waste our time. So, it's very important to do that. I also think it's important that before anybody thinks about doing anything, even partnering with you, they need to sit down with an accountant that understands health care and understands transaction. And many of us, including me, when I opened up, I hired a friend to be my accountant because what are we all worried about? Just paying our taxes. That's all we were worried about.
I had to pay my taxes. At the end of the day, before you're really interested, let it be if you have one clinic or you have a hundred clinics, you should really talk to a healthc care-based accountant that understands transaction and will a be able to navigate and make you understand what is a company like us looking at? What is a company like you have to offer? And I think that's what people have to do. Really spend a little a couple of dollars on investing in a conversation.
And again, they're not gonna they're not going to bang you out economically. It's an opportunity for you to be as educated as possible before you go to marketplace. Yeah. No, absolutely agree. And I think that John, you know, we always say to companies when you do finally get to that stage where you're ready to make that move, you don't want to be the only one in the room that's never done this before. And I think that as you just said, you know, many business owners believe that they can, you know, it's very simple and it's not complicated.
And as we do know, it is very complicated. So yeah, no, I appreciate that plug for sure. So what additional advice would you give rehab business owners who are considering selling or partnering in 2025? And are there some common mistakes that you see sellers make during the process that you would advise them to avoid? Anything kind of, you know, more deep into the process? I think just as you have and I have, we've all sold our babies. We've created this. We've created our brand. We've we created our infrastructure.
We created who we are in the catchment area that we're in. And this is something you develop. But at the end of the day, as long as you're providing that outcomebased care, which is who you really are, you want to partner with a company that understands that component of provision of care. That's the first thing. The second thing, at the end of the day, it's very important to understand that when the transaction is done, whoever you're partnering, make sure there's a strong integration plan. Too many sellers don't think about what happens after they cash their check.
And ultimately, they should really ask those questions before they do the transaction. But not only that, they should meet the integration team, understand the steps of integration, understand what it really means to be partnered and collaborated with other people that are living in the same industry as you. And I think the best advice that I could possibly give anybody that's considering going to market, let it be joining me or anybody else, you really need to understand what does it look like from day one after transaction and moving forward.
And a lot of companies don't really want to don't even have integration offices. I mean, I've got a whole integration department that from the day of introduction, I include them in the meetings. From the day of introduction, I include them in meetings and I think your team knows that and several other investment banking groups out there know that and it's a very important component because you've got to know again who you're marrying. Sure. And and what does it look like when we're married? John, as you we look at integration, I think it's a really interesting topic and I think it's something that as you just said a lot of business owners are not planning for.
What is the where do you guys prioritize in integration? What are kind of the first priorities and then what is kind of left you know as something that can wait? You can't do everything at one time. One of one of the biggest things is we're a people driven company and human resources and integration of people and making sure employees understand they're safe and making sure they understand their growth is opportunistic. If not now a larger component based on the company that we are. It's really making sure the retention and making sure that the people understand on day one you're the most important thing to this strategy of opportunity because you're the one treating the patients.
You're the one interacting with the patients and that's got to be the priority on day one and it's got to be the priority moving forward. Then as you can imagine there's the payroll component, there's the human resource component, there's the benefit component. Many many sellers love the component of the benefit packages actually decrease their employees overall out-ofpocket costs because we're buying it at a larger marketplace than if let's say you have 30 employees and we have 1,500 employees. We get it at a little bit of a discount.
There's also opportunities on 401ks and matching programs which a lot of small companies can't do. So we look at those things and then of course it's marketability. It's grassroots. It's global component. Where do you fit in? What is it in your region? So all of those things together are important steps. But the most important thing is the people. We're a people driven profession. We're people treating people. I can't say that enough. And it's not just the clinicians. It's from your patient access people at the front desk.
It's from your billers and collectors. Anybody that's going to interact with the population that you're treating needs to understand that we need to have happy employees and we have need to have happy people that are treating our patients because let's face it, people are in pain. They're ill. Some people don't want to go to physical therapy and we've got to make that environment very positive. John, help me to ease concerns of potential sellers out there in the market today that if they sell their business to one of the larger companies that they're certain they're going to lose staff.
How could you ease some of those concerns? So, the bottom line is be transparent with your staff. Too many times people hold their cards close to the chest because of nervousness. But the more you include the staff on the rationale and the goal and what opportunities are there for your staff and opportunities of growth, you actually see the retention go higher and higher. It's usually the sellers that don't want to say a word until they cash their check. That's where you lose the bigger percentage of employees.
It's the it's the sellers that truly engage their employers. Let them know the reason. Let them know the opportunities that you're trying to put on the plate for them on a benefit component, on a retirement component, on a growth component, on an education component. There's so many advantages for a seller to collaborate with their employees to help them understand the rationale of why you're doing this in the marketplace and even engage us in the conversation from the early stages. So this way there's a comfort. You know, it it's funny.
We just had JagFest a couple of weeks ago, which is our biggest party for all our employees. It's a celebration of our employees. We do it every year. We call it JagFest and we have a blast. And literally, it's a big party and it's a blast and we have a great time. And and it's amazing when you meet new employees that have joined us through a transaction. They were like, "We have no idea. You're so personable. You know you're a regular guy. Yeah. I'm a clinician.
I'm a physical therapist. I'm an athlete trainer. I've covered high school sports to professional sports. I've treated everybody from every culture and walk of life. And I want everybody to be comfortable. And and that's the biggest thing that JAG Physical Therapy is proud to say and the reason why we've been able to get 29 transactions and opportunities of people to partner with us because we are a people first company and we're excited about it. And that was a pitch for Jack. Oh, you keep going. You keep going.
No, that was great. That's great. John, anything else you think that sellers in this market should know as they're starting to prepare for opportunities, making decisions for 2025? And what's the one piece of advice you give to somebody who wants to position themselves at the top of your list? The biggest thing I got to tell you is we're going to come in and we're going to ask about your outcomes and your retention. And it's not when everybody talks about retention, they actually think it's just patient retention.
We want to see employment retention. We want to see that you're a leader that's got people believing in your leadership and your opportunities to lead. You know, the last thing you ever want to do is get into an opportunity and when you start to dig in and you're looking at and you've lost nine clinicians in the last nine months. Yeah. That becomes a problem. So, when I use the word retention, everybody's like, "Oh, he's just talking about patient retention." When I talk about patient retention, I want to look at your outcomes and I want to understand that a we're not leaving people in program just to generate dollars.
We're trying to get people back as quick as possible in an efficient way where it's healthy and safe and pain-free and full range of motion and living their life to the fullest. As we like to say, get back to life you love at JAG Physical Therapy. And ultimately, we want people to be able to do that. So, when we look at who's at the top of the list, who's at the bottom of the list, we definitely look at retention of staff very high. The other thing I tell people all the time, conversations are free.
You want to have a conversation with me, look me up at drpt on Instagram. There's a couple of tools there that we give people. Shoot me an email at info@jagpt.com. I'm always available for people that just want to learn about our marketplace and learn about JAG. A conversation is free. Pick up the phone, send an email, let's talk. And again, I could care less if you're going somewhere else, but let me help you be the most prepared person to go somewhere else. There's plenty of patients for all of us to treat.
You know, a long time ago, my mentor told me, "At the end of the day, if you're good at what you do and you provide great outcomebased, evidence-based physical therapy care, you'll always have patients." So, there's plenty of people out there for all of us to treat. Hey John, this has been great and you have given our audience an abundance of information and I think you certainly have helped us to guide them in what are some of the best decisions they could make in 2025. First, I just want to thank you for your time.
I want to thank you for your input and until next time, I really appreciate your time and input today. Paul, I can't thank you enough. I appreciate the opportunity and more importantly, I appreciate you. Thank you. Thank you. So, for any of you out there, you just heard how you could get in contact with John. If you'd like to talk to me about any of the information that we discussed today, click below and let's talk. Thanks for joining us and have a great day.
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