A Different Kind of Discipline, The Kind That Gets Deals Done
Bill Leitzel of Ivy Rehab joins Paul Martin to reflect on the current M&A landscape, and what separates those who move from those who wait.
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 and today's episode is titled Clarity Amid the Chaos. What rehab owners need to know and they need to know now. And I am thrilled for the first time to have with us Bill Leitzel. Bill, welcome. Thanks, Paul. Nice to see you again. Great to have you. Bill is a physical therapist. He is also the senior vice president of business development for Ivy Rehab. And Bill has been with Ivy for over 10 years.
And just a little bit about Ivy, most of you know of Ivy Rehab, but they are a private equity-backed physical therapy company with their headquarters in White Plains, New York. And they currently operate over 600 close to 700 physical therapy clinics throughout the Northeast, Mid-Atlantic, Midwest, and Southeast. Bill, I feel like I was talking to Michael Rucker just weeks ago, and you guys were just breaking the hundred clinic mark. So, I'm not sure how all this has happened, but it's real exciting. And let's dive in.
Yeah, it's been a fun run. I joined Ivy when we were 28 locations just up in North Jersey as a regional player. So, it's been a it's been a lot of fun here in the back half of the career to be with Ivy. Wow. Wow. That that that's crazy. That's crazy. So, what we won't do is get into politics. But, you know, just your judgment here, you know, now that the election is over, Trump is back in office. How would you describe the M&A outlook for outpatient physical therapy here in 2025?
Are we more optimistic or are we cautious? And why do you see either one of those? I'd say cautiously optimistic. I'm not sure that the new administration has much to do with my opinion on that. I think the core fundamentals of what we're looking for from an M&A perspective. Those things haven't changed, right? We have demand that's out outpacing the ability to be able to deliver care. We still have an aging population. So, the tailwinds all remain the same. Some of the macroeconomics. Rate volatility I think is at a higher level than we've seen in the past.
Higher borrowing costs so carried interest on doing deals. Workplace shortages all these things may hamper aggressive valuations. But I don't think it changes the desire for deals to get done. Maybe just being a little bit more selective in how you're doing those deals and being a little more disciplined. Yeah. And so you know some of the big companies the big private equity back companies out there you know we're hearing they've gone into the market they've stalled what do you think that is kind of telling us about the current investors that are out there and their appetite for either bigger deals right now or are they looking for smaller deals right now?
I think it does indicate a little bit of investor fatigue maybe in the industry as a whole, specifically at super high valuations. I'm not sure that this is a completely totally recent trend. I think we've been seeing this for a number of years. So you know, I think the quality is out quality of ibida is outpacing just the size of at a much more scrutinized level. Interesting. Yeah. Interesting. And so I'm going to use the T word that everybody's been talking about since liberation day, right?
And you mentioned inflation, but you know, with tariffs in place in place, how are and inflation as well, how are these pressures impacting deal volume or deal structure as well as you mentioned higher debt costs changing the way buyers are approaching acquisitions in this current market? Sure. I'm not sure we saw any we're seeing any impact from an inflation perspective or from the tariffs directly, at least not at this point, but there definitely is some concern in the future. You know, you have co- insurance co-pays deductible that may affect whether or not people are going to prioritize, you know, their ability to seek out care.
I think highly leveraged buyers are going to slow down very significantly because of this. I think that you may see over the next few more earnouts than we've seen in the past. Maybe more contingent notes. A higher seller rollover into a parent or a local entity to mitigate like cash out outlay and risk there. Maybe you'll see a little bit in lower multiples, but I haven't I don't I don't think you're going to see a huge change or huge impact there overall. So I think things are relatively stable, but interesting to see what occurs over the next few, you know, months and the next few years.
I think that the bill that they're currently looking to get through the House could create some stability for people to have and to know where we're heading and if we can get it through the Senate by July, I think that'll probably give us a lot of information. Absolutely. Yeah. And our guys are talking a lot about that as well. You know there's with the corporate tax cuts potential lower capital gains how are you think how do you think that's going to change seller timing decisions and the overall M&A market and I know you mentioned you know some of these companies that may not be as aggressive right now they paid 10 11 12 13 multiples back in 2122 maybe coming back to bite them a little bit right now talk a little bit on that.
Look, I the dollar realization value is important specifically when you're talking about big deals. So, lower corporate tax gain or tax rates I think would definitely incentivize sell more sellers to come to market whether they're big or small, right? Because you're realizing more you know cash at the end of the day. But I don't know that would really influence the overall desire to either exit from a seller or buy from a from a buyer perspective, but it's definitely advantageous if you can you know realize more cash for your business because you're paying less in taxes.
For sure. Yeah. 28% versus 40%. I'm doing the 28% deal out of 40%. It looks very different, right? And do you sense the deals are taking longer right now or are they being fast-tracked in anticipation of some future changes and whether it's rates or tax laws and what advice would you give sellers when you know considering timing right now? So, I don't I don't see anything I don't see any indication of things being you know fasttracked. I don't think that there's anything specing around a deal is very specific to the organization and what they're trying to, you know, do with what they're trying to accomplish here.
So, I don't know that there's a huge impact on speed based on this. Advice overall have clean financials, strong KPIs, you know, resolve any huge red flags previous to coming to market, secure your staff ahead of time. The biggest thing that a buyer is going to look for and or an investor is going to look for in any level is insurance of continuity, right? You want continuity of culture. You want continuity of staff. You want continuity of referrals, of revenue alto together. So those are the main things to be thinking about.
And I also wouldn't wait until everything is perfect. There's never going to be a perfect moment. You're never going to say this is the exact time. Don't be fearful of looking at doing a transaction even in the midst of heavy or fast-paced growth. Yeah. And are you seeing that Ivy Rehab for one as well as other acquirers, do they seem active right now? Are they pulling back a little bit? And you know, is there kind of an ideal acquisition profile that you see out there that you guys may be seeking or your competitors?
I think the pace of deals right now has been similar over the last 24 months. Not seeing an increase or a decrease. I guess a difference in different se sectors and service lines. Probably seeing more ABA, more early intervention on the pediatric side come to market than I've seen in the past. But from an adult muscular skele, you know, pure outpatient neurologic practices, I don't think there's been a change too much there. You know what's attractive is probably very specific to a buyer and situationally is specific but overall you know strong referrals strong referral network is great a diversified pair miss mix is always huge therapist retention absence of any singular point of failure I.e E is or you have concentration risk from a specific referral source or concentration risk from a specific payer that's coming through.
Strong culture you know again kind of going back to that continuity piece even the durability is going to I think have more impact than growth potential or you know levels of market density that we've seen in the past. And do you find that companies that come to you or are brought to you with those strong found or the strong financials, the strong foundation of a leadership group, all the attributes that you're describing, do you find they get pushed to the top of the list and the others may fall to the little lower on the list?
100%. 100%. For from and it's also top of the list from a valuation perspective. Sure. Yeah. Absolutely. Absolutely. Bill, I can't do an interview with someone like yourself, you know, out in the mix every day without talking about multiples. Sure. Sure. Sure. You know, but valuation multiples, are they holding up or have expectations kind of cooled down? And is there are there deal structures that you guys are utilizing to kind of gr bridge that gap between you know buyers and what you guys are looking to do and sellers and their expectations.
Yeah, I think multiples are holding generally strong. I think there is some softening, some slight softening particularly maybe because of higher interest rates and carry costs and that has an effect on your, you know, realized cash on cash returns and somewhat on your ROI. But when I say softening, it's one or one. Two turns. You're not talking about softening back to go to, you know, mid 90s where you're seeing somebody in a multiple million be a 5x multiple. That's not occurring out there. I do think you're g, I said this a little bit earlier, I think you're going to see more, you know, contingent based turnouts, whether it's based upon, you know, retention, another KPI growth.
I do think that you'll see more higher levels of rollover, and tiered rollover. Potentially you know there are some structural things you can do on exit for retained equity those types of those types of things I think would mitigate a lot of the upfront outlay of cash as well as decreasing risk right and absolutely you know and if a and if a seller has confidence and they have found the right acquirer like an Ivy you know they have confidence in the future so it works for everybody yeah I don't think any buyer out there is trying to be cheap right now.
So, nobody's trying to get it on the cheap and so forth. But if you have a seller who's willing to go along and take that risk along with you and participate right alongside you as a true partner, that's a good part. Absolutely. A good way to mitigate things. And the other thing we have to talk about is the shortage of physical therapies the physical therapists as well as physical therapy assistants generally. How do you think it's affecting the M&A market? I think it's one of the largest headwinds.
I mean, you know, there is going to be some level of n natural attrition in any business. Sometimes you see a little bit of a spike with that in in a deal. So, if you have a high vacancy rate, meaning you know, we sometimes get I see sellers that say, "Well, this is what it would be if I had therapists." Yeah, agreed. You know, you know, frequent turnover. Well, there's a reason why somebody left. Yeah, there's a reason. And those reasons will always remain, right? They're always going to stay.
So, you know, having some level of you know, focus on retention, I think, is hugely important. And I think that some sellers could think about that in retention bonuses, in secession planning, etc., etc., ahead of time before coming to market would put them in a much better position. Yeah, we find the same, you know, and as you said, that culture that's built and never thought of retention bonuses that that's a that's a great idea. Yeah, absolutely. Teammates that you say, hey, look at this is the person that's holding the glue together and if they left, then you know the probability of this business being the same 6, 12, 18, 24 months from now is low.
Somebody comes and says they're already locked in. They're in. They're sad. We've had transparency. We've had the conversation. They're on board with it. They're not going to learn about this at a town hall. Oh, and by the way, they're also financially incentivized to remain on. Boy, that takes temperature down in the room a lot. Sure. Absolutely. Absolutely. And so, we're talking a lot about retention. How do you see, you know, the best potential sellers, the best small companies out there? What do you see are the most effective ways to recruit to find therapists?
Is it professional recruiters? Is it an internal team? What do you guys find is going to keep some of these companies from coming to you and saying, "Well, look at what we were doing when we were three therapists up. Now we're three therapists down and we can't get new therapists. And we want, you know, what's what those three therapists would be would be generating if they were here?" how do you how do you come to those companies that are fully staffed and they're constantly, you know, being able to find and recruit new physical therapists?
Yeah, I mean, some of this is difficult depending on your size and how much capital can you put towards talent acquisition. That being said, regardless of the size, you should sort of the ABCs, right? Always be closing. I think you should always be hiring on some level and have a talent acquisition strategy. Are we spending time in schools? Are we spending time on, you know, platforms like LinkedIn to, you know, connect with other folks? Or or are we selling the the culture of that organization in a way that people are looking to come and work there?
Or is it one of these reactive moments, you know, and Mary just resigns and now we're going to be stuck for the next three or four months? Having a good talent acquisition strategy is super important I think at any size because just relying upon you know third party recruiters is tough to create stability. For sure. For sure. Yeah. Yeah. Bill, this has been great. You have provided to our listeners today a lot of really valuable information and thank you for coming on for your first time.
You did such a great job. We're going to bring you back. I appreciate that. I look forward to the next conversation, Paul. And for any of you out there that have a question for myself or Bill, click below and let's talk. Have a great rest of your day and a great weekend and we will come back to you soon. Take care. Thank you.
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