This Acquirer Shared The Market Factors That Indicate Future Trends
This week, Paul talks with Kurt Baumgartel, CEO of CORA Physical Therapy, who identifies several key market factors that could give an indication of where our market is headed.
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 rehabilitation business owners can make the best decisions. It's going to be crucial in 2025. And today to guide us on that journey, we have Kurt Bombgard from CORA Physical Therapy. Kurt, welcome. Thanks, Paul. Thanks for having me this morning. Great to have you. Great to have you. This is a mouthful, but Kurt is the CEO of CORA Physical Therapy.
Kurt is also a physical therapy. He received his master's degree from Dukane University, but he also graduated from what is called the University of Pittsburgh cats graduate school of business where he studied in the institutional institute for entrepreneurial excellence and it's a fellowship program. So congratulations for all that Kurt. Thanks, Paul. And as far as CORA, Corora is a private equity-backed company, 250 locations. What's that? That's right. Okay. 250 locations in 10 states. Their corporate office is now in Charlotte, North Carolina. Their roots are in Ohio.
Kurt, are we ready to go? I'm ready. All right. All right. I'm going to start firing questions at you. Really interested at your response to many of these questions, but with some of the interest rate drops now we have the presidential election behind us, believe it or not, how do you think these events are going to impact the rehab merger and acquisition market? Yeah, you know, Paul, I think it's a great question. I think it's going to positively impact the merger and acquisition market within our space but really in many parts of healthcare and just the economy generally speaking.
And I think we see that so with the interest rate drops that's really spurred more activity. It's given more stability to the investor market. But then since the election is now behind us you've seen kind of investor confidence with the stock market up. So, I think all of those factors are going to contribute to a more active M&A market in our space moving into next year. And we're already seeing some of those activities already. Yeah. Really exciting. And you know, sometimes economic changes, political changes take time to fully impact the market.
I know we've been I feel like we've been stuck in the mud in the second half of 2024 here. How do you see the timing of these recent shifts kind of playing out in the rehab space? Yeah. So I agree with you. These things take time. I would say, you know, I'll look at it, I'll talk about it in two buckets. One is kind of what's going to happen over the next 6 to 12 months, do we think, and then beyond 12 months. So within the next 6 to 12, I think, you know, with declining interest rate interest rates, hopefully another one this week, that's going to certainly spur more activity.
It it you know, many of us have been spending the past few years building our balance sheets, but with the interest rate drops, it just makes financing deals easier. You know and there's a lot of money as well not just with private equity but other in investment groups that are on the sidelines waiting to invest and people are really attracted to our space. So I think over the next six months that'll be the biggest impact. And then beyond that you're looking at you know we'll see what happens with deregulation.
So will there will we get some relief from just our day-to-day regulatory oversight that we all deal with? Hopefully the answer is yes and hopefully it's positive. You know, the Federal Trade Commission and their oversight with more, you know, the larger company deals may make it easier in that respect for those deals to get approved. May not affect us directly as much, but I think any of that activity could trickle down and help us. Are there any specific policies or market expectations from private equity etc and some VC etc that you think sellers should be really paying attention to as we kind of move into very soon into 2025?
Yeah, I think we're all keeping an eye on Washington and what might happen with you know Medicare cuts, for example. You know, we we've withstood a number of reductions in our reimbursement over the past three plus years, whether it's reductions in and how PTAs or codas are reimbursed and you know, other cuts. So really at this point, we're all watching that. So hopefully we get some relief by the way by the end of this year. So, I would encourage everybody, all of your clients and listeners to be advocates for legislation and regulatory changes that support what we do in rehab.
So whether it's with APQI, APA, AOTA, you name it, have your voices heard. Absolutely. Absolutely. So let's talk a little bit about CORA. Have been following CORA for a long time. Man, some great operators you guys have at CORA. How does CORA help sellers address some of the major challenges that we have in this industry today? You know, specifically reimbursement pressures as you just described as well as staffing shortages. Yeah. Yeah. So, there's a number of ways that we do that. I would say first and foremost, you know, companies that we buy or that join CORA, we believe in a win-win and you know, we are primarily a single brand, but we take the best practices from everyone to make the collective better and to make sure that we're supporting companies and what makes them successful locally.
But with our size and scale, that's part of the advantage is we can invest in resources that smaller companies can't. So when it comes to you know dealing with the headwinds of reimbursement and dealing with companies you know we've got centralized resources with a payer contracting team credentiing team and we're just able to negotiate you know better terms within payer contracting. So we take all of that burden off of the clinic clinics as they're operating. We've got a full suite of, you know, payroll, accounting, just all of those back office functions that they don't need to worry about.
And then, you know, specific with the challenges we see with talent and just finding and retaining talent, we've built a great talent acquisition team centrally. So, we've got professional talent acquisition teammates and tools and they're able to leverage different sourcing tools and strategies to just help support our clinics with finding talent. We find that is a huge barrier right now. Yeah. It's amazing as we talk to companies 20 years ago, marketing, we got to get more referrals. How do we get more referrals? Now it's how do we have the resources in has the assets in inhouse the professionals to treat these patients and I think you know staffing seems to be you know as we look out one of the number one challenges for most physical therapy practices.
Yeah and it's no different for us. So, so we're really putting and have put a lot of resource into that and it and it's coming to bear and really bearing fruit for our clinics and you know we'd love to offer that to others as well. In addition, Paul, we do have sales and marketing teams that you know we bring to bear to a new group that joins us, whether it's in-person salespeople, you know, hitting the ground. There are markets where, you know, staffing stable and we need our name out there.
Both from a ground game sales and through digital marketing as well. Sure. Sure. Yeah. We we love it when we're doing marketing for a company because we know they're fully staffed. It's really tough when they're not fully staffed. So, looking out at the companies you know into 2025, are there some particular qualities or characteristics that CORA is looking for in terms of acquisition targets in this upcoming year? Yeah. Yeah, absolutely. You know, number one with for us at CORA is we want to make sure there's a good fit that we're choosing the right partners to join CORA, right?
Where there's we're really a mission focused company. We believe in serving and providing access to highquality rehab services for everybody in the communities we serve. So, we take lots of payers that maybe others don't. So we really want good alignment and good mission values with with a potential partner. So culture alignment number one, Paul. Then we're looking for, you know, a company that's hopefully has a history of growth or at least that growth mindset and they've got good thoughts around, you know, how can they continue to grow their business, whether it's within their current clinic or clinics, but beyond that, maybe they just need capital to do that.
Compliance is really important, too. We're going to want to make sure that, you know, a company's fully compliant, etc. And then, you know, workforce, you know, are is there a stable workforce? It's not to say that, you know, if there isn't, you know, no company's perfect. We're going to look through all of those things and it'll be kind of a balanced view. But those are some of the things that we're looking for. And it sounds like from you and you're at the top of CORA that there's a real focus on local market sizzle, let's call it, you know, you know, a real focus on that.
Is that is that correct? Yeah, 100%. Yeah, we view and I view healthc care is local, right? So, you know, we're a larger company. We've got a great brand, but at the end of the day, we're really people caring for people in our local communities and that's what we reinforce and you know, we want folks and partners to join us that align with that as well. Yeah, very well said. Are there things on the opposite side that would just take a company from the top of your list and just drop them right to the bottom of the list?
Yeah, one would be compliance issues, right? If there's, you know, compliance issues or you dig in and you just can't come to agreement with how to resolve those. Yeah. You know, sometimes there's valuation expectations that are not aligned. So, one of the things and I think that's great about you and your organization is you can help clinic owners and business owners understand maybe what the market will bear, you know, now and in the future. Sometimes people have, you know, different expectations of what their business may be worth or the timing of what the market will bear and you know, it's a lot of work to sell a business as you know.
Sure. And so I think them getting clear up front as to kind of a range of outcomes and having an advisor like you all will really help set expectations for them. Yeah, I appreciate that. I appreciate that. So, as you guys are looking into 2025, will you guys be prioritiz prioritizing more platform acquisitions? You know, we think the middle market of physical therapy is like between seven and 50 or so clinics. And are you still looking at smaller what we would call tuckin opportunities? Yeah, the answer, Paul, is we're looking at all like we are open to any deals.
We're looking for companies that honestly are a good cultural and strategic fit for CORA. Got it. So, so we're really open any whether it's a single clinic or a 50 plus clinic platform. We're open to any and all opportunities. So, there's nothing in the economy economical conditions right now that would drive you towards larger transactions or smaller transactions? No. No, we're open. We've been focused on the past few years of getting ready for 2025 and beyond. So, we're excited about the opportunity to grow. And speaking about those larger companies, and we all know them, there's about five or six of them in every state, 25 clinics, 50 clinics, 30 clinics.
Do you see any benefits of them entering the market in 2025 compared to last year or 26 and 27? Yeah, I that's a really good question, Paul. I you know, as I think about the future, and I'm not Nostradamus by any by any means. It's really hard to tell what the environment will be like in 26 and 27. But what I can tell you is the markets and are setting up to be a really good time in 2025. I believe and we believe you know just based on the fact that you know there's not been as much activity for the past few years there's a high desire by many of us to grow not just organically but through acquisitions you know with the interest rates dropping you know it's just setting up well I believe for those companies to take a serious look in the upcoming 6 to 12 months.
Absolutely. Absolutely. And are there some, you know, critical factors that owners should be paying the most attention to when they're deciding whether to sell this year or partner? I mean, everybody's a partnership now, right? Or hold on to their business again in an everchanging and pretty challenging market. Yeah. No, I think it's number one, I think owners need to really understand their goals because you know there there's just a lot going on, right? So where are they personally and professionally in their journeys? What is their risk tolerance for the headwinds that we're facing whether it's from payers or you know adjusting to the labor dynamics that are happening?
You know we certainly have tailwinds in our industry which you know we provide a great service people want to come to get therapy you know it's proven the outcomes but there like you said there are challenges so I think it's it's understanding what owners want personally and professionally do they want to continue on with a business is it time to retire or time to go do something different you know our goal certainly is always to have those business owners continue with CORA, right? And not only to help continue to grow and evolve the business that we buy but opportunities where they grow with our business.
Many of our executives are former owners. Sure. So, it's understanding that and then you know the pricing we already talked about just understand what the market will bear and then just their risk tolerance for dealing with all of the potential headwinds and some advice for those rehab business owners that we have out there right now. Are there any common mistakes that you see sellers make during this process? It's a long process as you know. And is there a way that you could advise them to avoid some of these mistakes that they make?
Yeah. There are and I've been on both sides of it by the way. So, so I've made those mistakes. You know, one that I think oftentimes folks don't think about is, you know, going through a process is very involved. It takes a lot of time and energy and hours and emotional energy and, you know, going through that process, make sure you understand that that's coming and that you or someone has an eye on the business and keeps the business running and growing. Great advice and I've done that myself where you get distracted and maybe the business starts to slip and you know that can jeopardize certainly the transaction but you know your business.
So that would be one piece of advice and I think that's Paul where I went back to saying you know talk to Paul, talk to us, talk to somebody about what you know your expectations are so that you don't get through this process and it's not maybe what you expected. Sure. Sure. Yeah. Great great advice. Great advice. So now I'm going to ask you to pull out your crystal ball. Great. So let's look beyond 2025. Where do you see this rehab M&A market heading? And what role do you see private equity continuing to play in the rehab space over the next three to five years?
I think there's a lot of confusion about that out there from private companies. I'd love to hear your response there. Yeah. Yeah. Again I don't have a crystal ball but you know I do see private equity 3 five years down the road continuing to be a leader by just their ownership of platform businesses like CORA and others to allow for you know consolidation. They have the capital to allow us to invest in things like talent acquisition, payer contracting. You know, we didn't talk about this, but we've got our own technology platform at CORA, and you know, it takes a lot of dollars to invest to innovate.
And private equity groups provide that capital to allow for growth and innovation. So, I see them playing a large part continue to play a large part just through their ownership of platform businesses like Quora and others. And and I think sometimes there's a you know folks are misled thinking that when they partner with a company like CORA that they're partnering with private equity and you know it's like they that they picture themselves sitting down and talking to a banker every single day. Kurt just for the audience on your you are the CEO you are a physical therapist now.
Yes. You have the entrepreneurial fellowship program and years and years of experience, business experience. How many others on your leadership team are physical therapists? A lot of them. So, you know, Javi, our COO, is a therapist, has been with us 20 plus years. Kessum, our chief clinical and compliance officer, is a physical therapist. You know, our CFO is not. He's an accountant. Shocker. But lots of folks in our in our management team, the executive team or physical therapist and that's the team that when somebody partners with you, that's the team that they talk with and run ideas off of, they're not talking to the CEO of the private equity group that is backing you, correct?
Or sponsoring. No, no. The the And and I think that's a good clarifying point, Paul. We the management team run the business. You know, the private equity or the investors backing the business. So, you know, there's boards, there's strong governance in place, but Sure. Yeah. Who you're working with is the management team of the platform business. It just happens to be owned by private equity instead of, you know, a public company or, you know, a private individual. Sure. Sure. Great stuff. Great stuff. Kurt, this has been absolutely awesome.
I think you've done a great job at helping the business owners out there today. Hopefully enable them to make better decisions and great decisions in 2025 and beyond. Hey, I really appreciate your time today. Yeah. Yeah. Thank you for having me, Paul. And for all you business owners out there who joined us today, if you have any questions for myself or Kurt, just click below and let's talk. Thanks for joining us today and have a great rest of your weekend.
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