The Five-Year Question Every Owner Should Ask
John Gallucci has built JAG into a clinician-led, private equity-backed platform across the Northeast. In this candid discussion with Paul, he explains who JAG is looking for, who they avoid, and how they think about long-term partnerships.
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 I welcome all of you here today. So over the past year, my team has had more conversations with multi-site rehab business owners about partnership opportunities with larger companies than we have ever had in my entire career. And many of them are hearing very similar language from the book of acquirers that are out there. And yet, as we have witnessed, the outcomes five years later can look dramatically different depending upon who they choose.
So, finally today, we are launching a new very competitive limited series on our crucial conversations. This is a series that's focused on acquirers who are actively completing transaction in this market right now. So, we're going to talk directly with CEOs about how their models actually work. And because at the end of the day, valuation is visible. Long-term alignment and ultimate success is not. And serious deserve clarity before they make really one of the most important business decisions of their professional lives. So, I can think of no better way to kick off this series today than with John Gallucci.
John, welcome. Great to be here. Thank you, Paul. Appreciate it. I know that was a long intro, but now we got a nice intro on you as well. John's the CEO of JAG Physical Therapy. JAG is a private equity-backed outpatient rehab company that has 180 locations. Those locations are located in New York, New Jersey, Pennsylvania, and later this year, folks, they're going to be in Connecticut. Their headquarters is in Bridgewater, New Jersey. John, are we ready to jump into this? We're ready to go. I'm excited.
I saw your prep questions and I think they're amazing. I think we're going to have a lot of fun with it. I do too. I do, too. So, John, what's the most common reason that founders in the past have chosen JAG? And even when they may have two or three good offers on the table, I think the biggest thing is JAG still offers owners and as you know, most of the owners out there that are selling now or thinking about selling are clinicians and they've built this community base.
They've built this relationship of referrals. They've built this brand in a community that they're serving. And they want to continue to be relevant after a transaction. They want to continue to be the physical therapist to the community. They want to still have the contact with the physicians and the referrals, the community leaders. They want to be relevant. And the biggest thing that we've been able to do with over 32 transactions in the last eight years is everybody gets to be themsel gets to continue to operate their physical therapy center or centers.
Yes there's a overarching corporate process that we all go through. And yes there's a branding component based on efficiencies and cost. But the individual owners who have built their careers 15, 20, 25 years love that JAG physical therapy is about evidence-based outcome patient centric care. And we have no goals of going public. We have no goals of being in 30 states overnight. So even our integration model becomes easier for the seller because we're in catchment areas that we've operated for years where with great partners with great reputations.
So our company sort of sells itself to the sellers. Again as we've discussed offline and I don't mind sharing with the audience we look at other opportunities throughout the country but it's got to be the right opportunity. It can't just be an addon company or clinics. It's got to be something that is driven towards a patient centric evidence-based outcome physical therapy occupational therapy company to join the JAG physical therapy family as we like to say and we've been very lucky you know I mean think about it the catchment area that JAG started was in New York and New Jersey.
The catchment area that JAG is still in is New York, New Jersey, Pennsylvania, and Connecticut. And we've been able to in eight years quadruple in size. We've been able to build great relationships. We've been able to build on top of great foundational relationships. And people joining us love that. They love that you're stable. You're not looking to again go public in an hour. You're not looking to tag on a hundred other clinics in the same time frame that you're joining the JAG family. So I think that's the easiest answer and realize we started our company in seven counties of New Jersey, three burrows of New York City, and one portion of Westchester County.
We are now the physical therapy company of all 21 counties of the state of New Jersey. We are the only company that touches 21 counties. We are in all five burrows. We are New York City's physical therapy company in all five burrows. We are in Westchester County. We are in Rockland County. We are in Long Island. We're about to jump into Orange County, New York. So, still keeping our New York roots. And as you said, we're about to jump into Southern Connecticut based on the synergies we have and the relationships we have.
So, I'm so excited to be born and raised in this demographic and be able to build with my passion and my team's passion in our in our demographic. John, it sounds like a value that you guys bring is that if I'm a physical therapist and I'm invested in physical therapy and the way in which my clinic does physical therapy, whether it's hands-on, a lot of exercise, different tech technique techniques, h how do you make sure that three to five years down the road, I'm still invigorated by what I come to do every single day?
You hear a lot of stories where people say after three years it just wasn't the same anymore. How do you guys make sure that for these former owners that in some ways it's being kept the same? That's an awesome question, Paul. And and we actually build an integration plan that isn't just about like most of these big companies, these big conglomerates build 60 to 90 to even six month integration plans. Our integration plan, yes, in the beginning is getting everybody to understand the processes of human resources and the processes of marketing and that may take place in the first six months, but we build a plan for the owners that goes five years.
Our plan for the owners joining us is a five-year plan. What are their goals with the JAG family and what are our goals in the catchment area that they're in? And what are we going to do together? And if you look at many of our owners that have joined us, many of them had goals of, hey, I couldn't really take the risk. I wanted to go from here to here. And ultimately, that's part of the plan. We take them from here to here. And they're still in charge of that catchment area, and that demographic, and it was their vision.
So, they're bringing more vision to the JAG physical therapy development team by joining us. And we built five-year plans. Again, out of the transactions we've done, we've only lost three owners, and this is pretty entertaining. Those three owners all retired but two of them till this day, one is 78, one is 80, still work very closely on consulting on chart audits and developing young physical therapists for JAG physical therapy. So out of the three that retired, there's only one that's truly officially retired. But he keeps calling me every 3 months to say, "Hey, I'm going to be in the city.
Can we grab dinner? I've got some ideas." So, I think I might go three for three on my retired guts. So, very lucky with that. What a great story. What a great story. And most owners say, "You join JAG Physical Therapy. John always takes you to a good place and we're going to eat well." John, if and let's call him a partner, not a seller, but if a partner took the same business and ran it through three different acquirers, where would your model produce a meaningfully different outcome five years later?
We offer to every single partner to be the opportunity to be a shareholder on day one. So the opportunity of growth is there on day one. It's not just in reference to you know what your salary in comp is on day one. It's truly about being part of the growth and being part of the development team from day one. And many owners love that. Think about it. We all opened up business as founders as entrepreneurs and it gives them that entrepreneurial spirit. We've got a program going on down in South Jersey, which was something I never thought of.
And all of a sudden, it developed from one clinic in South Jersey. It's now in 12 clinics throughout our company and growing. And that was all based on the entrepreneurial spirit of a of a of a founder that joined us and her passion in pelvic health. And now JAG Physical Therapy is leading the charge on pelvic health. So much so that we are the only company in the tri-state area in the northeast to offer residency programs. Everybody across the nation does orthopedic and sport. We are also doing pelvic health residency for clinicians that want to get certification in pelvic health.
So very proud and that's a perfect example of a founder with passion, entrepreneurial spirit and had a marketplace that JAG physical therapy was not in and now it's in 12 clinics to date growing to 18 clinics by the end of this year. And it's absolutely amazing how that seed has grown with her passion and we see stories like that every single day. As you know, I'm in sports medicine. My background, I still oversee and work with Major League Soccer as the associate chief medical officer at Major League Soccer.
So, I'm engaged in professional sports each and every day. And to see pockets of Jack so focused on movement science and prevention of injury. It's not just about the treatment, it's the prevention. And again, entrepreneurial spirit just joining JAG each and every day. So, very excited. Yeah. No, great stuff. Great stuff. What is something that you offer to your partners that most acquirers cannot truly offer? The future. Everybody is everybody is strapped to the term. Everybody is strapped to the next execution. JAG on day one basically tells the shareholders this is how your distribution based on our growth is going to be over the next five years.
So we don't have to wait for a transaction. We literally have opportunity. As long as the company is growing, the shareholders money on the table will grow. And many of them love that model because it's sort of on this date I'm going to have an opportunity to sell or roll to my next date. And at that date, I'm going to have an opportunity to sell or roll till my next date. So, we set that up on day one so people aren't anticipating a transaction and people understand that their money comes in at one share value every year.
And again, talk about eating well. We have two shareholder meetings a year, great dinner, great engagement. What really comes out of those meetings are three to four hours of shareholder entrepreneurs all saying, "We got to do this next. We've got to do this next. We want to we we're think and there's nothing better and we have 42 shareholders now. There's nothing better than having clinicians that are entrepreneurs that all started their own business and now collaborating as a group at JAG Physical Therapy. It's it's actually great to see.
You should come up and see it. I invite you Paul do it at Denino's. Here's a plug for my buddy in Staten Island. The best pizza place in the five burrows of New York City. So, I'll meet you there. I'll tell you when the next one is, but it's so engaging and you walk out of there with your blood pumping just as the first day when you started your business. Yeah. Sold. Sold. And that is very unique. That that is very unique. What now? Now, if we're looking at who you're acquiring, what are some situations where you intentionally avoid even though it may cost you a deal?
So the biggest concern we have, especially being in the city, the five burrows of New York City, Westchester, Rockland, and Long Island, is there's still this concept of in and out of network or completely out of network. So it's on a completely out of network component. It's very difficult to get a deal across the finish line because the seller just doesn't understand where the industry is going in network. A lot of guys have actually come to us and we've counseledled them how to get in network and literally 12 to 18 months later we're able to do a transaction and it actually is a great educational experience for the seller to understand because once they realize that they were the last Indian standing so to speak and they realize, oh my god, I would have been crushed if I didn't learn this process.
And so that's one thing that's more of an education. I don't want to say it deters us from deals. But it it's definitely gets the deal to be a little bit longer on the evolution of education. I would think that's something that I've done since the beginning of my career is I feel that, you know, a surgeon, a physician, they're the artist and a physical therapist, an occupational therapist is the frame that truly makes the art look good. Yeah. And ultimately, we do stay away from, and you know, the terminology pops, we stay away from physician-owned practices because again, you can't really get a deal across a finish line if 99% of the referrals is coming from one physician, right?
So that's difficult to do. So, I would say those are that's probably the biggest one that scares us. Everything else, listen, we're open. We have conversation with multid-discipline practices all the time. We we like it. We've done a couple of multid-discipline practice deals which has been great. But we we'll look at any opportunity as long as it's patient centric. We we've walked away. Listen, at the end of the day, if I'm walking into a business that's has a clinician on for eight hours and they're expected to see 40 visits per shift in a day, you know, there's no quality of care there that there's no opportunity of improvement.
And and to be quite frankly, the clinicians are very burnt out. The other thing too is you have practices out there that will have one physical therapist and five aids. Not physical therapy assistants, they'll have five aids. And and what scares the seller is when you value the volume to a visit per shift model of a clinician, all of a sudden you realize you might be seeing 50 patients in a day, but we need four therapist, four and a half therapists to be seeing 50 patients in a day.
So those things are far and few between, but those are the fear factors. The other thing that I think is great and Martin Healthcare does an amazing job with this. Your team does a great job on educating sellers before market and I think there's a couple of other companies out there that's doing it. I think that sellers have to understand the process and understand the calculations before they have the her first meeting. Everybody's going to tell you the grass is green on the other side, but at the end of the day, you have to know what your valuation is.
You shouldn't even be talking to a company to acquire you unless you and your accountant have put a value on the practice and you understand what you want to be able to move on and partner with one of the other companies or JAG Physical Therapy. Absolutely. Looking specifically at the owners, is there a type of owner that is just not served by your model even if the valuation may be strong? I mean, we were talking more about the practices, but what about the owners personalities and what they're looking for in the future?
So, we look for everyone to be engaged, to help integrate, to build the five-year plan, and to ultimately understand our goals and our mission in our five-year strategic plan. And very early on, sometimes you'll see that this is someone that hired a couple of physical therapists, not a clinician. It's all about a money deal to them. And we've been able to get deals across the finish line with those folks. But ultimately they exit they they'll exit immediately. But what's nice is you'll get a very strong clinical director who who's been really operating the business.
Sure. And and making a lay person money. So ultimately it brings it back that a physical therapist, we are a physical therapist owned and operated company. The 42 shareholders are all physical therapists and occupational therapists. That's one thing that makes us different to a lot of the national brands. As you know, we've got colleagues sprinkled across the country at some of the national companies, but what makes us different in our region is we are a clinic a clinicianowned and operated company with the vision that we want everybody to be treated the way we want to be treated or the way you'd want your mother and father treated.
And we've been very successful on that model. Absolutely. Absolutely. So what's one of the promises that partners, sellers will commonly hear in this market that is in fact fundamentally unrealistic once the deal would close. And I'm sure you have a lot of these conversations with potential sellers. I love our colleagues out in the marketplace that tell people that nothing's going to change. And usually when you're telling people nothing's going to change, everything's going to change. Yeah. So we try to prepare our future partners to understand we have a very centric marketing plan and as you know in my marketplace we're very successful.
We have a very centric human resources plan and we educate our partners that are joining us before they even sign on the dotted line to understand our human resources, how it operates, how it functions, how you're going to be able to get acquire new physical therapist and new teammates to the family. So, we try to make sure that we explain that. Yes. On a clinical provision of care. We never tell a clinician, owner, partner how to treat patients. You've been successful for 10, 15, 20 years.
That's why we're having this conversation. But our colleagues love to do the sales pitch and say nothing's going to change. I come right out of the gate and explain to them what's going to change is if you want to continue to treat patients, you're going to have more time to do that. That's definitely going to change. If you don't want to deal with human resources anymore, don't want to deal with operations, don't want to deal with landlords, don't want to deal with payroll, don't want to deal with banking, don't want to deal with marketing, that all changes.
Our colleagues love to say nothing's going to change and then all of a sudden, oh my god, what did I walk into? We try to prepare our future partners and teammates to understand on day one, this is what's going to happen. Yeah. And I'm sure that you know that honesty and that directness, let's call it. As we do the same, too. If you think nothing's going to change, you you're going down the wrong road here. But as I said, some of these changes are very positive and will make your life better.
So we did a trans we did a transaction a year ago and the owner owned two clinics and literally after three months he came out with a beautiful Italian wine and it was at the end of my day and he goes I brought it for the end of the day so we can toast and enjoy this bottle together because you don't know how happy I am I don't have to go into ADP and worry and worry if I have enough money in the checking account. I don't have to worry about RCM.
He goes, I get to treat patients, manage people, develop people, grow people, which is what my passion is. And literally, he bought me. It was an amazing wine. So, that's awesome. That's awesome. It was a good baro. Here you go. So if you look back at the most successful partnerships, what did those founders do that made them so successful with JAG? I think as long as you stay engaged and understand from the education component before transaction to the education and integration posttransaction and understand that the fiveyear integration collaboration with the strategic plan of JAG is ultimately what we're all producing towards and I think that a lot of the owners success is they really buy into the Strat plan.
So much so that, you know, they go out and find opportunities for us because they have a colleague that's looking for the same opportunity. So, we've been very fortunate with that. But I think our biggest success is communication continually, especially the shareholders, making sure they're up to date, making sure they know what's going on. And listen, nothing ever is 100% in works. You've got to deviate. Like we had a great opportunity here in New Jersey with a municipality. Unfortunately, the it didn't work out. It just didn't make sense for JAG to move forward.
We had a shareholder that brought it to us. It was part of his five-year plan. When he sat down with me and our development team and we explained to them what the municipality expected, I basically said, "We can't deliver it." And when he saw what they wanted, he said, "Well, I appreciate that we didn't jump in blindly." And and ultimately, he was very appreciative. Now, I'm going to make you laugh. He took that information. A year later, was able to get us a negotiated deal with that with that municipality, and it's been very fruitful and very rewarding.
Again, they're in it. They want to be part of it. They don't want to know, "Oh, I'm done." I mean, everybody has access to everybody at Jack. There's there's no closed door policy. There's no hidden executive policy. I mean, if you look at today, I'll be in eight clinics. As soon as I get off the phone with you, I go on the road usually on Wednesdays and I'll hit eight to 10 clinics just hearing not just from my partners, but also hearing from clinicians and patients.
I'll sit down next to a patient for 30 minutes and just have a conversation while they're going through therapy to hear the good, bad, and the indifferent. So, very happy that all of my executives are that hands-on. John, you've mentioned the five years a number of times in different aspects of our questions. Why five years? And, what if somebody says, you know, I went out early. I just I' I've been doing this so long. Is that a deal you don't do or are there some variations of that?
We basically if and we've had partners say, "Hey, John, I don't know. I mean, you know, this is my swan song. I don't know if I want to stay five years." Again, there's our agreements, our employment agreements are evergreen agreements. So every year they roll over and the only thing we ask is three months if you don't want to if you don't want to roll it over and it gives them the latitude. I will tell you except for the three I mentioned that are two in semi-retirement and one that wants to come into semi-retirement to get out of full retirement, there hasn't been anybody that has officially left JAG within five years.
Yeah. You know, we're very fortunate. But again, you know, my team, I mean, Paul, you've seen my team. Rich Bodian and I who started JAG Physical Therapy, of course, he was one-on-one. I was JAG Physical Therapy. We came together and we run JAG physical therapy together. If you look at his original 30 clinicians and my original 30 clinicians and you look at his top five executives and my top five executives, all 70 of those people are still working at JAG Physical Therapy with our model, with our mission, with our goals.
And for Rich and I to sit there, I mean, some of these people came in as aids when they were 16, 17 years old, and now they're vice presidents overseeing 30 to 40 clinics. So or regional directors overseeing 10 clinics. I could tell you story after story of people that grew up at JAG. And when the partners join us and they're bringing their team and they have the opportunity to engage with people that have been around Rich and I for so many years, they're like, "This is where I've got to bring my family to your family." And proof for why you don't hesitate to say that, you know, we're we'd really love a five-year commitment.
Because you've had so many that have done that. And that's Yeah. Very com I mean really congratulations on that for sure but we don't scare people away we'll tell them it's an evergreen agreement and after two years a year if you feel this isn't the direction you want to go we understand it we only ask for three months notice that you want to move on sure I'm gonna make you laugh one of the retirees that are semi-retired he gave us six months notice that so he was with us.
He was with us for six years and he wrote me this beautiful email and gave me six months notice that he was officially going to retire. When we got to three months in with three months left, he wrote me another note extending for six months. When we got three months in, he wrote me another note extending six months. So finally I called him up and I said, "Why don't we just do this? When you're ready, when you're ready, you and I will go to dinner and we'll determine what that date is." So funnier story, four years later, he still works 30 hours a week in semi-retirement for JAG Physical Therapy.
Good for him. Good for him. That's good stuff. That's good stuff. Well, John, as always, you have you are just a wealth of information. And today, not only the information that you provide us with on the market and what the where the market's going and the economics of the market, but today you got to do what I think you do best, and that is to talk JAG. And I cannot tell you how much I enjoyed this and how much benefit all of our guests today got.
So, John, thank you. I really appreciate your time today. Thank you so much. Appreciate it. This was a lot of fun. And for all of you out there, if you have any questions for John or myself, just click below and let's talk. Thank you and have a great rest of your day and have a great weekend.
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