ATI: What To Watch For Next
ATI's next moves could send ripples through the rehab M&A market. In this episode, Paul reveals what industry leaders should be watching for as the evolution of a key player in our industry continues.
Full transcript
Generated from the episode audio and lightly edited for readability.
Hello and welcome to another episode of the Martin Rehab M&A advisory. I'm Paul Martin, founder and president of Martin Healthcare Advisors and I'm again excited to be here today. I am on a vacation but I had to come back and talk to all of you. We have received so much interest in our last ATI going private episode that I could not take a week off from coming back to you and talking about what I think is a really important subject for us now to begin talking about and monitoring.
And we're going to call today episode ATI, what to watch for next. You know, so today we want to kind of take that next step. We know the deal is done. ATI is private, but the real question now is how will we know if ATI is actually on the road to recovery and on the road to back to success as a privately held company? Well, you know, we can't just blindly speculate. Instead, I want to give you today some concrete things to watch for, things that are measurable, visible actions that will really tell us whether ATI is moving in the right direction or if the turnaround may be stalling.
And again, this is not about rooting for or against ATI. As all of us in the industry and as the industry as a whole, I really think we should be at some level rooting for their continued success. If you have ATI clinics all around you may feel differently and I perfectly understand that. But what I'm talking to you about today is more understanding the signals. Because when a platform of the size of ATI makes a comeback or if it does not succeed, that will be a ripple through the entire outpatient rehabilitation market.
It impacts valuations. It impacts buyer behavior and overall the competitive landscape for all of you running your own businesses in this industry. So, let's get into talking about some of the signs and signals that we should be watching for making this become a success for ATI. First and foremost, and we talked a lot about this last week, is are they actually converting debt to equity? And this is a big one. Look, ATI's debt load was massive. Over $500 million with only $ 38 million of EPIDA, that math just doesn't work unless something changes.
And now that Nighthead and Marathon, the PE groups have full control, one of the fastest ways to create, you know, breathing room is to begin to convert debt they already hold into equity. And that's not easy and it doesn't happen overnight. But when it does, you will and we will see signs. There will be press releases. There will be lender updates out there because I believe that it's really important for ATI to show that they are making these balance sheet returns, these balance sheet changes. And you know why does this matter so much?
You know, ATI reducing their leverage and ATI by using too much of its cash flow to be servicing their debt and not be growing the business is really not a good signal. But if you see announcements about restructuring or converting obligations, that's a strong signal that they are what I would call kind of clearing the runway for growth. Next one. Are we seeing new startup clinics? Historically, ATI grew aggressively and boldly through denovo expansions, opening new clinics and targeted markets where they had and had seen previous success.
You know, if they could return to that playbook, it means that they're confident in their financial position as well as their operational performance. So, how will we know this is happening? Well, if you're in the market, you're going to see new openings. But, you know, for us, we're going to watch for job postings for clinical directors in new markets by ATI. We're going to look for local news articles announcing openings. And watch for some of the marketing and social media channels. I believe they're going to want to make some noise if they're back in growth mode.
Just not sure how soon we should be looking to see that, but that's what we should be looking for. Next, are they doing acquisitions? You know, acquisitions, I think, are a double signal that they're not only showing that ATI has the capital to buy, but also that they're confident that they can integrate new clinics into their system successfully. This is where history, I think, really matters. ATI used a and have a very straightforward integration process. Former owners knew what to expect. They would they were able to fit in quickly and the company maintain its operational consistency.
If you see ATI back in the acquisition game, whether it's single clinics or multiclin, and doing that with the same structured approach, I think that's a really positive sign that they are away on their way back for a comeback. What would be a next signal? Well, are they rebuilding their brand? You know, let's be honest. You know, ATI's brand over the last number of years took a big hit, but it wasn't always that way. Looking at this from our perspective, you know, we're looking at all the acquirers, we're looking at all the private companies.
For a long time, ATI had a very strong national identity in the PT world. People knew the name, they trusted the model, and they understood what it stood for. So rebuilding that brand means more than obviously just marketing campaigns and what may being may be now being said in press releases, but it's going to mean consistency in clinical performance. And most important, it's going to mean consistency and strong patient experience. It's going to mean getting back into spending on community engagement and professional relationships across the board.
So, we're going to be really watching to see if former owners who sell to ATI are still proud of that brand that they got that badge after they sold their company many years ago. And that pride used to be one of ATI's biggest strengths. So, if ATI can restore that pride, that's a huge step. And I think it's a huge step towards a true and all-inclusive turnaround. Next, are they preserving their integration culture? This is really about people, and it might sound like an operational detail, but it's always been a strategic asset.
NTI was very good making acquisition smooth for former owners. They had a very clear process. Their expectations were consistent markettomarket and people didn't feel like they were kind of being thrown into chaos, but into very much of a systematic kind of paint by numbers approach. And if that's still in place, sellers will notice that and it's going to make ATI a much more attractive buyer. If they change that drastically or abandon it, I think that could be a red flag for, you know, that there may be a little bit of desperation creeping in, I think that maintaining that structure and system in what worked before, I think will be a huge asset for ATI moving forward.
Certainly they're going to work to fix what may not have gone right and they're going to have a look back period now to when they were acquiring but generally I think if they keep that same approach that's going to be a signal that they are on the comeback another one are they balancing growth and stability right and you know we can see from companies and their balance sheets that not is not always being balanced you know turnarounds can sometimes fail if leadership now swings too far in the other direction and that would be either chasing growth too fast or cutting so deeply that they lose momentum in this current market and it's you know that sweet spot that's measured by growth backed by solid operations you know so we should watch whether ATI is making disciplined strategic moves rather than big splash announcements that could look good in the press but may not deliver sustainable results.
They always had a methodology in the past of be being able to deliver those results. So finally, I think the old AT model, it worked well for a lot of sellers. And as I told you in the last video, we did a lot of deals with ATI very successfully. And I believe that there are still many owners out there who could thrive inside that system. And these are new owners that are looking to sell now. And that's they could thrive in that system if ATI continues on the move to get it right.
The proof will come in execution, reducing that debt, opening clinics, making smart acquisitions, rebuilding the brand, and maintaining a culture that works for both patients as well as providers. And I think that is the recipe and that's what we should be looking out for. And as I said, I believe that there's a lot of sellers out there that are ripe for that kind of an approach. So, I believe it's not going to be a quick response to getting all these things done. But over the next year or so, we should all be watching for these indicators.
We certainly will and we will continue to update you as we see movement because if ATI does not, you know, make this successful turnaround, it's not just good for them. This successful turnaround is not just good for ATI. We truly believe that it's good for the entire rehab M&A market if they can make this turnaround. Lots of folks will be watching. Lots of large PE groups who have the money, want to make big investments, are going to be watching this turnaround. So for all of you out there today, if you have any questions about the content that we t discussed today, just click below and let's talk. Have a great rest of your day. Have a great weekend and thanks for tuning in.
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