A Practical Review of the Rehab M&A Market in 2025
In this episode, Paul Martin looks back at 2025 with a grounded perspective of what truly shaped the outpatient rehab M&A market.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good morning and welcome to another episode of the Martin Rehab M&A Advisory. I'm Paul Martin, founder and president of Martin Healthcare Advisors. Today we're going to look back at 2025. I want to do something a little different. These are not predictions. This is certainly not marketing, but this is a real grounded review of what actually moved the outpatient rehab market in 2025. So, if you own multiple clinics, you probably already know the headlines. What really matters now is understanding what changed underneath those headlines. So let's kind of do the big picture reset here.
The the biggest misconception about 2025 is that capital came back. Not the case. It never left. What changed was buyer behavior. In prior years, capital chased growth, but in 2025, capital demanded proof. What actually slowed deals down in 2023 and 2024 was not a lack of money. There was money on the balance sheet for most of these acquirers. It was uncertainty and risk. And that shift alone explains most of what we saw this year. So, we definitely had a little bit of a reimbursement reality check, I'll call it.
Medicare finally stopped being, and I'm going to use a private equity word here. Medicare finally stopped being a headwind. Now, I certainly would not call what Medicare did a tailwind, but look, stabilization matters, especially from the eyes of the acquirers. And after years and years of cuts, threats of cuts, the market saw a very modest increase heading into 2026. Plus, we are seeing continued teleaalth extensions and a lot more clarity around RTM. You know, the takeaway is not that reimbursement solved your problems. It's the disciplined operations stopped bleeding while undisiplined ones continued to struggle.
Discipline in your operations is extremely important. So the other area that I want to talk about is cost pressure. And trust me, let's be really clear, costs did not come down. Labor is still the single biggest variable as it relates to enterprise value and EPIDA and it's the number one complaint that we hear from business owners in today's market. Although I will say at the private practice section conference in Orlando, there was definitely more positivity than we had heard in the past. And that's promising moving into the future.
And we'll talk more about that in our 2026 predictions. What changed is that buyers got much sharper at identifying who actually controls productivity of their staff and who does not. It's not uncommon to talk to a business owner and they are saying they need at least two or three more therapists, but when you look into the productivity of their existing therapists, those are not at levels that are allowing them to continue seeing the patients they need to see with the staff that they have. And what we find with this is revenue growth without margin discipline and margin growth really became a liability in 2005.
Certainly not a selling point. Let's talk about technology. You know, for years technology was optional as it related to due diligence. In 2025 it was not. AI documentation, outcomes tracking and real revenue cycle analytics stopped being the kind of we should have, it would be nice to have maybe someday, but it started becoming evidence of operational maturity. This is not because buyers love tech or PE companies love tech. What buyers and PT PE companies love is efficiency and productivity. Because buyers despise uncertainty. Uncertainty is what caused the slowdown in 2023 and 24.
They despise it. Let's talk about 2025 mergers and acquisitions. It really was somewhat of, you know, let's call it a tale of two markets. You could see this most clearly at the top of the market. You know, a big occurrence in this year was ATI choosing to go private. You know, this was not a failure. It was a recognition that public markets and outpatient rehab don't mix well when volatility is high. Athletico's challenges showed the other side. Leverage amplifies mistakes and in this environment leverage without real discipline can very quickly get exposed.
So who was actually buying in 2025? You know going back the long-term solid buyers were still very active. US physical therapy stayed disciplined and active making a large acquisition towards the end of 2024 and multiple acquisitions in 2025. Later in the year we started seeing Ivy Rehab, Confluent, H2 Health, PT Solutions, they began to re-engage later in the year and that's extremely positive as we move into 2026. Regional private equity platforms quietly rolled up strong 3 to 15 clinic groups and they were very disciplined with their valuations, very disciplined with their structure and that pattern was really consistent through most of what we saw on these regional PE rollups.
You know, they're looking for density, they're looking for leadership, and they're looking for clean numbers. And when they found it, they pounced on it, and they paid very well. There were some really good deals that got done this year from the regional platforms. This is where 2025 really separated owners. This is what we're saying. Buyers kind of underwrote differently. What did they underwrite differently? Buyers cared less about how large, how big that EPIDA was and much more about how repeatable it was. They dug deep into future projections.
They dug deep into visit mix, clinician utilization, recruiting pipelines, forecasting accuracy, and management depth. If you ran your business like an asset, buyers then treated it like one. I think that's really solid ground. When you run your business like an asset, buyers will treat it like an asset. So, what does this mean? And we're going to not get too far into this for sure today, but what does this mean for 2026? In short, 2026 is shaping up to be more competitive, not looser, not easier. There will be more buyers.
There will be more capital. But standards are not coming down. Selectivity is not significantly changing. Prepared sellers will create leverage. Unprepared sellers will feel that pressure. I assure you do not want to take your business into the market if you are not very well prepared. So in closing, this is not a market to kind of test casually, have some conversations. It's a market to enter deliberately with a story. We talk about this all the time, how absolutely important that story you have and how that holds up under scrutiny.
Story of the past, story of the present, story of the future. And numbers that buyers can trust. Strategy will beat timing all day long. Preparation will beat optimism all day long. That lesson is what defined 2025. And you'll hear more on this, but I believe it will define who will win in 2026. So if you are a business owner out there, whether you have one clinic, five, 10 or 50, and you are looking to potentially test this market or test what growth can be achieved in this current market, click below and let's talk. I look forward to seeing you in 2026 and thank you for your time today. Take care.
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