Financials vs Culture: Learn This Acquirer's Perspective
This week, Paul welcomes back Michelle Collie, CEO of Highbar Physical Therapy. Michelle discusses how her company evaluates acquisition partners, and the kinds of attributes that could potentially make a company less desirable.
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 going to continue in our series of how can you as rehabilitation business owners make some of the best decisions for you and for your business in 2025. And we have with us today, I'm very excited. We have with us today Michelle Collie from Highbar Physical Therapy. Michelle, welcome. Thank you, Paul. It's great to be here and great to see you again. Happy new year.
Great to see you as well. And happy new year to all of you out there as well. I forgot to mention that. So Michelle is a physical therapist. She is also, Michelle, you have a position with the private practice section as well, correct? I did. My term as treasurer at for the APA private practice section just actually ended. Well, but thank you for your service. Well, thank you. Thank you very much for your service. We need folks like you driving that private practice section because we all get so much great information.
But Michelle is a physical therapist and she is also the CEO of Highbar Physical Therapy. And just briefly, Highbar is a private equity-backed company that operates 37 clinics across Rhode Island and Massachusetts. So Michelle, if you're ready, let's jump in. Absolutely. Let's do it. All right. All right. So Michelle, recent interest rate drops. We're hoping for more and doesn't seem like recently, but you know, we had a presidential election and the outcome of that. How do you think some of these events are going to impact the rehab, merger, and acquisition market?
It's a great question and I wish I had a magic ball to tell you what the answer would be. Despite the decrease in interest rates, I do think that there's been a lot of headwinds in our industry, I do think that operators are becoming more efficient and more disciplined in how they operate and with that more savvy, more aware of the financials and with that and they need to be because obviously reimbursement rates aren't going up significantly. So I think it's actually a beautiful thing seeing a decrease in the interest rates but yet maybe an increase maturity or awareness from a business standpoint for the clinic owners and smaller practice owners to be able to actually understand and respect how interest rates can impact the opportunities out there.
And who knows? I mean, I think now as a potential buyer ourselves, of course, we look at interest rates, but there's so many other things that we have to look at very carefully before we'll lean in, even if the interest rates are more appealing. As far as the election, I'm not sure how to even comment on the impact of that. I'm it's unknown to me how potential tariffs, immigration, all of those things will impact our profession. I'm a little bit like clueless at this stage. Yeah.
No, it's without knowing the future obviously it's really difficult to predict but you know again I think there seems to be some positivity from you know yourself and other acquirers in terms of where things are going. It's when is that positivity going to turn into and I think expectations from sellers you know also needs to come into play and if there's you know some good solid financing from acquirers and there's you know again an understanding of where you know these deals make the most sense and looking at structures you know we're hoping for a good 2025 you know and historically what we've seen economic and political changes I think you know the general public out there thinks well we had an interest rate drop so everybody should have all their capital and all their debt now is at lower interest rates immediately just happens there's political changes so all those positive things should be should be coming but it takes time and how do you see the timing of some of these recent shifts kind playing out in the rehab space generally.
Again, how do I see that? Well, it's a challenging time as well without knowing exactly what's going to happen. My sense is this is that people are getting a little more eager to can figure out how to join a larger practice, when's an exit strategy, what the right time is, and everyone seems to be getting a little bit more open-minded to different deal structure. What is an earnout look like compared to in the past that may not have been an opportunity? How do you actually work with an advisor or work with a potential buyer as a seller to actually create the environment to have the optimal a win-win or optimal returns for everyone?
So, I think it's evolving in that there's stronger relationships being created. It isn't just about a seller going to market and finding the best deal. It's about finding the sutor or finding the buyer who can actually structure a deal that works to meet the needs of the seller. And depending on the seller, what they're looking for, whether they want to cash out, stay out, whatever they want. There's no right or wrong. It's more about being a little bit more curious and finding the buyer that's going to be able to meet the needs.
So to me the volatility over the last couple of years has evolved the strategy that goes into what mergers and acquisitions look like because to me it is a little bit more on hey who's going to pay me the most money. It's about how do we work together and collaborate to f get the best outcome for everyone. Talk to me a little bit more about structure. You know and you can be as specific as as you would like but you know it sounds like yourself and Highbar seems to be somewhat flexible in the structure to work for the particular seller or partner that you're looking to engage.
Walk me through just a little bit on how that looks. Yeah, I would say that we certainly want to look at capital and look at the size of the practice and really understanding the goals of that seller. The seller is wanting to actually stay on and be part of high bar. Of course, we want to provide those opportunities and gladly take them for folks to be able to roll over their equity. One of the things that is different about HighAR that may be different to other players out there is that we all are under one organization.
So if you come into Highbar, you don't keep your equity just at your clinic or your practices. We actually believe that we if we all come together, then we're all going to collaborate and work together for the greater good of the entire organization. Yeah. We did a we created a great partnership at the end of last year with Peak Physical Therapy and Sports Medicine, a multi-site practice in Massachusetts. Same with them. Great brand, great organization, staying peak physical therapy, continuing to grow and evolve in their marketplace, but they are considered a high bar practice and we've all merged under sort of one umbrella.
So we've definitely got flexibility as far as rollover cash but also looking at opportunities for earnouts and so I think it depends a lot on h creating those relationships helping that seller understand where in the journey they are at because different sellers are at different places and want different goals and being able to figure out if we can align on a structure that works for everyone. Yeah. So kind of staying with the sellers partners sellers you know same thing but how does high bar help their partners address because as we know there's some major challenges in the industry today.
You got reimbursement pressure which seems to we've been talking about it for 30 years. You got staffing shortages. We have not been talking about that for 30 years. Are there some specific resources and or strategies or innovations that are available to companies that choose to partner with Highbar? Yes, and I think that's one of the reasons why H Highbar was developed was to be an organization that provided solutions to those smaller practices so they could continue to actually grow and provide the great care they give in their communities.
Those would be recruitment of course and hiring. Those are the evolving the efficiencies using technology using AI supporting revenue cycle management obviously compliance and all those areas. So depending on the practice what we do is once we've closed like spend a lot of time looking at optimizing integration in a way that does no harm. This is certainly not a transition that is, oh, you we bought you today and tomorrow you use this EMR and we paint you this color and we change your name. This is very much like, what are you really good at and how do we support you to continue to evolve and grow?
I don't know if that means changing your EMR. It likely doesn't involve rebranding you. What is it that we can take? What are your pain points that we can take and actually support you with? And I think all being under the high bar model means it's a win-win for everyone. We're all strategically aligned to ensure that it isn't like well you do this for me and I do this for you. It very much is like how do we all align with each other to support our people and our product.
Yeah. And it sounds like there is some flexibility in those resources too. Absolutely. Like you just said, you might have access to a really good sign company, but that doesn't mean that Highbar is going to be put on their sign the next day or ever. So it sounds like there there's definitely some flexibility there. What are now let's stay with the partners. What are some of the unique qualities or some of the characteristics that you guys are looking for in acquisition targets moving now into 2025?
And then on the flip side, what are some things that would drop a company to the very bottom of your list? I think the attributes that we're looking for is first and foremost, it's really about the people. We are really looking for engaged owners, founders, lead leaders, those who are passionate about the profession and that they've actually worked to develop a culture that supports learning, professional development, curiosity, accountability, all of those things. And those things we've found are the leading indicators that support your ability to recruit and retain staff and provide clinical excellence in a great approach.
We of course want to look at financial performance. So we look for practices that have shown a certain amount of discipline and over a period of time have s sustained healthy margins and the ability to continue in that direction. And with that as well looking at the different RCM, operational KPIs, compliance, risk and finally we care about the market position. What is the brand of this practice? Are there what are the relationships they have in the community with referral sources? What's the payer mix? What are those locations?
But I think at the end of the day for me it is always about making sure we've got a real connection with the people because we do have a more intim intimate approach to integration and sort of curiosity and doing no harm and collaboration that we do all need to be able to get on and want to figure this out. I think for the seller who's looking to be like, you know what, I I'm ready to go to market and step away and put as much money in my bank account and retire.
We're probably not the best person. We're probably not the best partner for that because we're looking to hold on to the brand and the culture of the companies that we acquire or partner with and support their ongoing growth rather than just go in and take over. Yeah. So you're looking for partners, not sellers. And looking for those partners that can really truly become a part of HighAR. You know, you when you went through those qualities and characteristics, you started clinical and then down towards the bottom it was financial and then I think after that it was some oper you know.
Is that intentional? Is it is that the top of the list or was the bottom of the list most important in going to the top because you know which side of that is most important to you guys? It's a great question. Now I mean I'm a physical therapist and I love our profession and I've been wanted to be a PT since I hurt myself at the age of 15. So I certainly, you know, it's would be very difficult for me to lead and be in this position and truly be able to flip and put financials as number one.
However, you know, it's been a pleasure for me because I've, you know, been introduced to the world of private equity, which lots of people, you know, get nervous about and I've been partnered with Rally Day for three years and I've had the opportunity to learn a tremendous amount. So I think I have an a new respect for the financial side. So some people might call me a fool, but I still actually really believe that the people in the financials can really like align with each other.
And again, I know it's it I think it makes it harder, but if we're looking for long-term sustainability and supporting our profession and long-term financial success, maybe it is harder. And if there's more conversations and having to ask harder questions and making sure you've got a financial partner, who I'm lucky that I have that believes the same thing, that we will have to like, you know, knuckle it out. How do we look after our product and our people and the financials and do it both? Absolutely.
And you know, I'm sure you've heard this, but I think you know, a lot of business owners, they see the private equity folks. It sounds like you've really been able to grow and learn from the private equity folks that you're involved with. It's almost like, you know, it's the Wizard of Oz and it's the wizard behind the curtain and it's this bad person and but you know, in many ways they're just like you and me. They are just like you and me. And I think that's the thing, you know, we've got I always say for our organization, we have multiple stakeholders and one are our financial investors and one's our patients and another one of our staff and another's our profession and how do we bring all of those together?
Yeah, that's a very good point that I've never heard it quite delivered that way. So in our eyes, we've we consider middle market rehab companies with, you know, let's say seven to 10 clinics up to maybe in some cases 50 to 100 clinics, right? They're the middle market. What are some of the benefits of those companies entering the market in 2025 compared to 2026 or 27? And are you guys looking for those larger platform acquisitions or are you looking for more smaller tuckin opportunities? So, kind of two questions at once.
I'm throwing it at you. Yeah, I'll start with the second question first. Okay. I'm not I'll we're always very careful with the tuckins because I think if you're one single practice and get pulled in to be part of a bigger practice, it has different challenges and different opportunities compared to an established practice that has 5, 7, 10, 13 clinics. With that slightly larger practice, you tend to have developed some more procedures. You've got some more structure. You've got more systems in place. You've got an underlying culture which actually provides some more some more value to an organization like Highbar.
So I do think that this is a great year. Of course I'm going to say that. I've actually I forget where I read it, but they always say if you're considering selling, there's no time like the present because we can have all these thoughts about all these great things that are going to happen. But if you get the timing right and understanding the partner who you're going to align with and looking at what your returns are and what your opportunities are, I would say it's really important and I've said this to many folks out there to explore the opportunities sooner because you will learn a huge amount from it.
Sure. I think that's great advice. So I say like jump in as a way to learn if the time is right for you now. If mentally it's not then we can't change that mind. But the more you learn about the process and understanding the key drivers to support not just what evaluation but what the whole process will look like will help you in the long run. Do you see some factors out there in the industry that owners should be paying the most attention to when they're making this decision on whether to hold onto their business or potentially go out and partner with a larger company?
I think owners have to make sure that they're willing to be really curious and humble and realize that this is like a new chapter in your career. And so be open-minded and learn through it because how you're running your business now, you probably don't realize there's different opportunities and different ways you can do things that will support the future of your organization which are a little bit different than what it is today. So I see many owners out there who are great people and they're rock stars and they're doing a great job.
But I'd say to them all, spend time with Paul Martin, spend time with whoever, like understand the process and understand these other drivers that will impact your value and also impact your life after a transaction so that you are fully knowledgeable in that rather than having preconceived ideas. It's a great point, Michelle, because you know, many of the business owners out there, as you know, many of them are treating patients and managing a business, and then when they get to the point where they can, you know, kind of shift the treating the patients to some others, now they're full on in running the business.
And so for them to, you know, really take the opportunity to kind of look at what is really out there, you know, it It's it's a challenge. It's a real challenge. So I think that that's a great point. Really good point. What other advice would you give rehab business owners who again they're considering going out and partnering with someone in 25? Are there some common mistakes that you see that sellers make during this process that you would say, "Hey, stop sign, avoid this." [snorts] mistakes that sellers make.
That is a great question. I'd say for sellers, I think it's obviously a wonderful opportunity to work with an advisor or a broker to ensure that you can show up and look the part because if you can show yourself and a sophist sophisticated probably isn't the right word, but I'm going to use it anyway. If you can show up and a buyer like me, you of course we're going to look at financials, but it's only one piece. And if you show up to me and you show me where your patient satisfaction is, show me some key operational, you show me what your retention is and your recruitment strategies, you show me you've got job descriptions and policies in place, or if I can see that, my understanding of what you're capable of and what this could look like is very different to when someone calls me and says, "Hey, here's my EBITDA.
What multiple will you give me?" Because when you say that, I just think, "Oh my god, you have so much to learn. And I don't know where to start. Yeah. Yeah. And so, yeah, be careful how be aware of how you show up. Now, I would say I assume other buyers are like this. We're fine with people who are naive. We're fine with people who don't know this process. We get it. I've been there. It can be very scary and very intimidating. All of those things.
But also be humble and be curious. And don't just go out there saying, "Hey, what multiple are you giving?" Because it's just it doesn't help tell a story of what you're looking for. Sure. Yeah. We get asked that question a lot. And I think, you know, and a point that I was trying to make that adds to the point you've just made is it's so important and as I said previously, business owners are buried in what they're doing, treating patients, etc., etc. But to really know your business, yeah, is more than just knowing what relationships you have, knowing like you said, they may they may know their EPA, but they probably don't.
But to really know your business is so important. And I believe then is very impressive to someone like yourself who can look at that and say, "Wow, this owner really knows and understands his or her business." Yeah. Completely and it's not that much work or not that much you have to show but it is understanding like for us like what are you doing to show the quality of your product. Okay. Now you can show the quality of your care in lots of ways but make some effort to show me how you're ensuring that you're providing evidence-based great care.
Now tell me about your people. Give me something to show that you're measuring or caring about your people, recruitment, retention, feedback, whatever it is, but something. What are you doing to innovate and show that you're willing to be curious because going through a transaction, no matter what the seller's role will ultimately be? You're going to work with lots of different people. You're going to go through due diligence, which isn't the most pleasant thing to go through. You're going to work with different attorneys and lawyers who are going to ask you all sorts of sometimes what feel like very stupid questions and sometimes questions where you don't know what they're even talking about.
But but show that you're curious and show that you're innovative in the material you're presenting and show that you're aware of where your locations are and there's opportunities for growth. So you don't have to show everything, but things out there that in each of those categories can be extremely helpful and show that you want to be part of the bigger picture for supporting a profession. Sure. And and as you said before, seeking help there, wherever that comes from, I think is really important. So if we start looking beyond 2025 looking at the industry in general as well as the M&A market where's this industry and where's this M&A market heading and what role do you see private equity continuing to play in this space over the next three to five years?
Crystal ball. Crystal ball. Well, obviously with the aging population, the awareness of opioids, preventative care, all of that, there's still a huge amount of fragmentation in our industry. Those are all front and center. So, investors, private equity are continue going to continue to look at opportunities to invest in rehab and physical therapy and that continues on. I do think what investors private equity can bring is some more innovative different ways to look at things. How are we really using AI? Are there better ways to navigate insurance direct to employer payment methodologies?
So I think for us as PTS is to consider not just private equity as the bad folks who come in with money and want to make money. It's like that actually provides us with an opportunity to be innovative and resourceful. So it will help the next generation of even brand new startup PT practices. So I think it is very much like how do we especially the PT leaders in the industry now to actually lean into the private equity folks and be leaders and be good at explaining what we need from the private equity folks who have different resources, different contexts to say how do you can you help us support our profession?
Michelle, that is a really good point because what I hear you saying is that you're wanting to reach out to private equity and not certainly just your group, but private equity in general as we're talking to and saying we need more. Yeah, we need more of you. We need more of those resources that you bring, not just money, not just capital, not just but we need some of the innovation that you bring. We need some of the streamlining of growth strategies, etc., etc. And I think that's a really good point.
I think it's too for all of the other folks out there who have private equity backing like we need to as leaders say to our partners, our private equity partners, like here's where we're struggling. Here's where we know there's an opportunity. We should be better at this, but it's a pain point. How do we what resources? How do we collaborate? How do you help us? Sure. Sure. Maybe I'm just dreaming and they're not really willing to do that. I actually think they're out there. No, I think they absolutely are.
I really do. And I don't think it makes any difference whether it's a smaller private equity or Blackstone. I mean, I think they have these resources and let's look at putting them towards outpatient rehabilitation and making our industry better for the owners on the front line. Michelle, this has been absolutely awesome. You have given an enormous amount of value to our listeners today and so I just want to thank you for your participation today and for having this conversation with me. Well, I appreciate it, Paul.
It's always a joy to speak to you because when I first became an owner of a single practice well over 20 years ago with my newborn baby and I dragged myself down to Orlando and I sat in a conference room with my notebook writing down everything you said. It's makes it fun to be here today having these conversations. Oh, thank you. I don't know if that makes me feel good or makes me feel old, but I'll take the good side. Exactly the same age you look like.
Oh, that's awesome. That's awesome. And for all of you out there that listen to us today, if you have any questions for myself or Michelle, click below and let's talk. Thanks for joining us today and have a great rest of your day and a great weekend.
Want to talk about your own business?
Marlton, NJ 08053