Why Sellers Who've Done Their Homework Care Less About Valuation
Most sellers fixate on valuation. Justin Novinger and Peter Chung of Thrive Physical Therapy Partners argue that owners who go deepest in their research consistently shift focus toward fit, culture, and long-term alignment.
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 am Paul Martin, founder and president of Martin Healthcare Advisors, and I welcome all of you here today. This is exciting. You know, over the past year, we in our company have had more private conversations with multi-site rehab business owners about partnership opportunities with larger companies than at any other time in my career. So, today we are going to continue our competitive limited series on our crucial conversations. This is a series that's focused on acquirers who are actively completing transactions in this market right now.
We're talking to directly to CEOs as well as COOs as well as csos and how their model actually works because as you all know at the end of the day valuation is visible but long-term alignment and ultimate success are not and so serious owners which is what are watching this today you deserve clarity before you make one of the most important decisions of your professional lives. So today I am really excited to be joined by Justin Novinger and Peter Chung. Welcome guys. Thanks Paul. Thank you.
Thanks for having us. So Justin is the chief operating officer and Peter is the chief strategy officer and chief development officer at Thrive Physical Therapy Partners. Thrive is a private equity-backed company and it is building a comprehensive network of top tier physical therapy practices across the United States. Their corporate office is in Chicago where everything happens. And so Peter and Justin, are you guys ready to go? Let's do it. All right, sir. All right. So let's start with what is the most common reason that sellers founders have chosen to join Thrive even when they may have had two or three other very credible offers on the table.
Yeah. Yeah, Paul, that's a great question. You know, as I answer that though, to your point, you mentioned that, hey, most folks go through this experience once in their professional careers. Sometimes if they're lucky, two or three times. But the way that Thrive has been able to win on some of those competitive processes is based off of fit. And I know it sort of sounds cliche but I think we spend a lot of time trying to understand you know one what the personal professional and financial goals are for the seller and on top of that you know does that culture stand to benefit from a thrive partnership overall to then be able to grow the practice and maintain stability altogether you know as a partnership moving forward.
So, I think fit is paramount for us, you know, and I get it when it comes to financial concerns. That's sort of the ticket, you know, ticket to the ball here when it comes to financial security and what you're looking to do post transaction, but oftentimes those things are, you know, a lot of times pretty similar, maybe some changes here and there. And I think the really differentiator for us is the fit side and sellers see that in our questions, in our approach, and even when they get a chance to talk with our existing partners of what our focal points are.
And I think we'll dive into a little bit of the conversation here later, but one anecdotal data that I've seen the folks that I've interacted with that are fortunate enough to have to be on their second or third call it transaction of sorts, I think you'll find them that they are way more laser focused on the fit and culture side more so than the financial because they've had that experience to sort of learn of it. If somebody asked me what is the culture at Thrive? What would I tell them if I could only give them kind of a couple sentences?
Yeah. So, from my perspective on that, Paul, especially kind of postpart as we get into a lot of the operations component, it really is around collaboration and joint decision making and, getting to know each practice and what their culture is at their individual location, you know. So, we're not a company that's going to come in and try to override or change the culture that's worked for them for so long. It's more about us understanding them. So it's a, you know, from a Thrive perspective, our culture is based around collaboration, understanding so that we can best support what's worked well in their local market.
Yeah. And that really ties into what you say right on your website, which is a network of top tier physical therapy practices versus all joining together under one culture. So yeah, we're very and I like fit as well. That's new. That's new. That's good stuff. So, what do sellers come to appreciate about Thrive after they have kind of gotten to know Thrive? You know, kind of the six months to one year in, what do they what do they appreciate about Thrive? Yeah. So I mentioned the culture of collaboration and I think that's discussed a lot during the process when people are talking to Peter and the business development team and even going through sort of the onboarding component.
But what I think people really appreciate is all of that messaging and what we're talking about them really comes to life postpartum that it really is that culture of partnership and collaboration. And so when decisions are made, it's not a one-way highway, right? We're having constant conversations. You know, the first three to six months of our partnership really is around understanding the practice and what makes them tick and what makes them successful. So we go in without the approach of we know what's best for you and more the approach of we want to understand what's working well and where you need support and what support might look like from that.
And then from that perspective, I think the other thing that we hear frequently is once we earn that trust from our partners, they express the almost a relief of no longer having to make all the decisions for themselves. So I think a lot of small business owners at times are in a little bit of a bubble, right? They're constantly having to make day-to-day decisions. Are have to make having to make long-term strategic decisions and do it all on their own maybe with a few trusted confidence.
But ultimately once they you know get to know us and get the experience the expertise we have within the physical therapy industry they tend to lean on us which we love and work together so that decisions are sort of a joint decision as opposed to having all that stress to make that decision and then worry that maybe I made the wrong decision or I missed something from that perspective. So, I think that's something we hear a lot from our partners with regards to something that was underappreciated or maybe not talked about during the deal process, but they really come to love.
Sure. Sure. So this is hypothetical but if you take a single seller and you take that business and you run it through three different acquirers where would your model produce a meaningfully different outcome five years later? Yeah. So I think a couple points on that. Number one is we work with every partner throughout the entire process pre pre-deal post deal to come up with a value creation plan and again I talked about all the work we do to understand their practice and that work really goes into creating that plan that's going to work for them.
So it's an individualized tailored plan for them. Very consultive in nature as opposed to just here's the five things that we always do with every practice. You know throughout that process we really look to understand their culture and especially around how is their provider base, how are their physical therapists, how are their occupational therapists taken care of, what are the different cultural pieces, things they've put in place to help support them. The reason we look at that so much is we truly believe that's where the value creation comes in a partnership with Thrive.
So we've invested heavily in the ability to take great care of providers and support providers and creating value through that provider growth compared to, you know, some other businesses out there that maybe just look to increase productivity or, you know, squeeze some out on the margins. We're looking to actually grow our providers and put more people in good clinics, right? Take really good care of therapists, put them in good clinics, and let them do the work that they love to do. That we've seen create higher results from a financial perspective than just trying to get a couple points on the margin.
And so that's really where we've leaned into and created really strong processes, invested in infrastructure to support that component of our practice. And I think that really is coming through. One important data point here, our latest provider engagement survey, across the network, we're at 92% engagement for all of our providers, which was absolutely fantastic. The survey we use to do that creates benchmarks and we are 21 points higher than national benchmarks on that and I think that speaks highly to our approach of putting the providers first and really growing through taking good care of providers as opposed to some of the nitty-gritty operational things that sometimes people focus on when they start talking about financial results.
Is there something specific that you guys offer and you offer your partners that most acquirers just can't truly offer in this current market? Yeah. So, I think there's, you know, it sort of goes on to what Justin talked about and how everything is structured from the start that sort of reinforces that when it comes to collaboration, right? So, you know, when I when I talk with folks on the market, there's a few things different structures out there of sort of call it overall transaction, but the one thing that I'm finding that's consistently that we are unique or a rarity on the market is the fact that as part of the purchase price, you get equity and overall thrive the th overall Thrive company as a whole as opposed to what I'm seeing that's more common where it's like local equity that's limited to your walls within your geographic footprint in whatever city that you may be operating out of and so I highlight that a lot because I do think it's a unique opportunity right because the upside is that much higher you know now there's an entire call it development team who's who gets up you know myself included who get up on a daily basis whose main directive is to grow shareholder value and in this case our partners they are our shareholders right because they have skin in the game and so with that that's sort of leaning into more so from a structure and economic perspective to that collaboration ation aspect that Justin just talked about.
And I think Justin can talk a little more as far as that difference as well. Yeah. And I think the other thing that you know other groups wouldn't be able to match. Again, we we've based our entire company around this idea of supporting providers and growing providers. And that's not just something you say or it's not just standing up a recruiting team. It's it's really the entire inner workings of the company to be able to support that. So, you know, I've worked for other large organizations that maybe that's written on the wall, but they don't have the infrastructure in place to support that.
And I think that's where we can really set ourselves apart. And then that plays, like I mentioned before, handinhand with where we see that value growth. Going to Peter's point, if we can do that across the organization at a high level, then everyone is benefiting from that. Even those locations that maybe aren't able to add providers and grow providers within their single location, if our other partners are doing that, everyone's getting the broader benefit from that. Yeah. So, let's flip to the other side. Companies out there that maybe not be a great fit.
Is there a type of owner that would not be well served by your model even if the valuation may be strong? You know, I think, you know, going back to the qualitative aspect as a whole, we're always looking for the right quality of partner, right? And that could mean a lot of things, but some things that come to mind is the desire to want to continue truly to want to continue and collaborate with us moving forward. Right? So, for example, there are plenty of deals out there and sort of practices out there where someone's just looking to transact and get out, right?
For us, you know, from a from a BD perspective, of course, I look at the numbers and I'm like, "Yeah, that's very attractive." But as Justin and I work together, what's more important is the growth overall as a whole. And so if that seller, you know, is wanting to leave or is looking to disengage and really just take a passive role, that is not the right partner for us because as we sort of saw, everything is tied to this being on the same boat, rowing in the same direction, being able to collaborate together.
And so, you know, what I like to say is that there's always like, you know, quality is a is a tripod. You know, sure what you know, you can only go so far with one being better than the other, but overall we want to make sure that we're all aligned together, we can collaborate together, and then ultimately we can grow together because and everyone's going to benefit from that. Yeah. To add to that, Paul, I think one of the unique things with Thrive is, you know, Peter being on the business development side, myself being on the operations side, within when we discuss potential partners, you know, we work through that together along with, you know, our CEO, our CFO, and it really is a full scale assessment, right?
It's not just trying to do deals, it's also trying to find those right partners. So we all have sort of an equal voice on, you know, who we're going to partner with and what's the plan to help support them and help them grow. And I think that again from some of my other experiences as a differentiator, how we approach some of these potential deals. Is there a deal structure for an owner that wants to retire rather quickly if they have a strong bench of leaders? You know, I think you know there there's the potential, right?
But the threshold is a little higher, right? Because because you and I both know that anytime there is a leadership transition, even without an outside party being involved, there's always a risk that I would argue becomes a little bit more elevated when there's a third party involved as well, just because the potential for call it negative narratives that are out there. So I the big thing to answer that question is like it's possible. But we'd have to probably look into, you know, potential long-term ramifications what that might look like.
And I don't say that lightly, right? There has to be a call it, you know, call it leadership and structure that's already in place. There has to be some call it development opportunities that already there for folks that understand it. And and I say that to say that, you know, this, you know, I'm a little struggling here because this is a little bit of the rarity. I don't want to say that it's completely eliminated. But when we do approach those things, that threshold is that much higher to really look into it.
And ultimately it's not something that we prefer, but if that's the case, you know, we'll for sure take a look. Yeah. No, that's fair. That that that's absolutely fair. And you know, we get it. We get it for sure. I can't wait to hear your answer on this one. We're two for three on the on the big answer, but what's one promise that sellers, former owners commonly hear in this market that is in fact fundamentally unrealistic once the deal closes? Yeah. So, I think a common theme amongst a lot of groups on the market was is sort of this notion that nothing will change.
You know, I think in principle, I think I understand where they're coming from with that, but I think in actuality, there will be changes, right? You know, when it comes to call it payroll or some of the administrative burden of operating a business, there are certain things that have to change in order for us to provide the best support possible. And so I think this, you know, that's the common theme. But we try to you know get ahead of that on the BD side for and working with Justin too is you know communicating what those changes are and how they benefit you in a partnership moving forward because you know without you know one without the other sort of like okay this is just let's chalk it up to whatever change it is what they're going to do.
But I think that the narrative that you know my team tries to go out and ensure that we call it assuage our sellers on is realism along with the benefit of it. Yeah, very well said. Very well said. So, if you strip away valuation and structure, what operational or leadership capability would make an owner say, "Hey, Thrive actually makes my business better?" Yeah, I think a couple of things there, Paul. It's number one, I mentioned the value creation plan kind of up front. So it's really understanding and doing that discovery process which is you know sometimes lengthy you know we'll get people will be like wow you guys are really asking me a lot of questions and those questions are aimed at that understanding so we can help put together a plan that's going to help everyone achieve their goals u and then through that as I mentioned it really leans on this idea of provider growth and again anybody can stand up a recruiting team I would argue that we have you know the best talent acquisition team, you know, in the PT space that has, you know, significant experience within the industry and has created a team and a culture and a process to recruit and hire people that match the culture of the individual clinics.
Which is very challenging to do and I think they have taken that upon themselves to ensure they can excel at that because hiring a PT in downtown Chicago for a practice here may look very different than what a practice looks like in Texas or in Tennessee. And so to hire the same PT for those practices is not necessarily the right move. So, I think the ability to hire, not only go out and hire people, but hire people that are the right fit for the practice and do that at a fairly high clip in a market where, as we know, you know, talent is at a premium.
And there aren't just PTs falling out of the sky looking for jobs, right? You got to go look for them. You got to do the right things to not only recruit them, but retain them. So, you know, I mentioned before our entire organization is structured and focused on that growing provider aspect. So, even when you look at our revenue cycle team, they know that our number one goal here is to grow providers. So they're going to do whatever they can to help support that goal. And it's not just something that the recruiting team or the talent acquisition team is looking at, but it's really that entire organization from the top down.
So, if you look back at any one of your most successful partnerships, and hopefully that has been one that we've offered to you, but what did those founders, former owners do that made them so successful with you guys? Yeah. So, I think a couple things come to mind when you say that. Number one, we we've mentioned this word collaboration a number of times. I think the most successful founders that we work with are very collaborative in nature. And they're not only open to ideas, but just as importantly, they're bringing great ideas to the table as well.
And I think where the magic happens is they're many of them have these great ideas and either haven't had the time or the resources to execute those ideas and partnering with Thrive has allowed them to unlock the potential within those ideas. So when they bring great ideas to the table, collaborate with us around that and then we can bring whether it's you know capital resources whether it's you know functional expertise or you know any other experience to help them unlock those and really go execute those.
Those are the groups that we have seen just that have had exponential growth and have really blown it out of the water with regards to their success over the you know multiple years they've been partners with us. Yeah. And sorry and Paul. No, no. I was I was just going to say it seems like many owners have lots of great ideas within their market, just outside their market. And then under a company like yours with that collaboration, they can finally execute on those ideas. Yeah. Yeah.
When we you know, you unbburden somebody. So on instead of doing payroll they're thinking about hey how do I go and implement this new service line or instead of you know worrying about some HR issue they're able to get support with that and then they can go focus on you know a new relationship within the community. I think you start to see, you know, and again, the really good owners have already they, you know, they they've dreamed of a day where they have time or they have resources to be able to go and do that.
And it's really cool to see from our end, of seeing them light up when they talk about some of these great ideas and then being empowered to go act on those and not just having to, you know, sit on them and not be able to really execute. Yeah. And and so Paul, I think, you know, we enjoy working with you and your team, right? I think you guys do a great job advising your partnersh and you know as Justin mentioned like trust and collabor collaboration is paramount right it's easy to sort of put that aroma or like that persona out there pre-close but the real difference makers of success are those that actually open themselves up to actually allow for that ability of trust and collaboration to take place postc close because you know I get it we have to earn that trust we do on day one all the way through but you know that opportunity has to be there for us to sort of demonstrate that and I think our best partnerships are the ones that we've gotten to that point sooner and then you see that in the results relatively quickly.
Absolutely. Well, look, you guys both it's amazing what you've been able to accomplish and in not that long of a period of time. When did when did Thrive launch? I believe it was call it you know end of 21 so you know you know November December time frame of 21 and so you know we're coming up on the fiveyear mark here. Yeah. Yeah. No. Okay. Just just a phenomenal job. So I really appreciate it Justin. You guys you guys did a phenomenal job. I really appreciate you gave so much information to those who have joined us today.
Peter always we always appreciate your help and the information you provide. So really I really appreciate it guys. Thanks. Thanks Paul. Thank you Paul. Always good to work with you. And for any of you out there that have a question for myself, Justin or Peter, just click below and let's talk. Have a great rest of your day and a great weekend. Thank you and I'll see you again soon.
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