How to Get to the Top of Every Acquirer's List

They're hoping to cut rates this year, but now they've bumped their inflation forecast up to 2.7% on the personal consumption expenditures index because oil prices are flowing straight into everything. The International Monetary Fund says there's little room to cut rates in 2026. That's not great news. Some are calling this, as we've heard before, stagflation. Slow growth with very stubborn inflation. That's the economic picture that we are dealing with right now. Here's why this matters for health care and the outpatient rehabilitation industry. When oil goes up, transportation costs go up, supply costs go up, utilities go up.

So, your general overhead is probably climbing. And meanwhile, Medicare just gave a 1.75 bump in the fee schedule, which in real terms, adjusted for inflation, means you're still down since 2020, you're down 14%. So, that math is definitely not working for you. It is working against you. So what does this mean for mergers and acquisitions in the outpatient rehabilitation market? Let me give you a current picture first. The big headline in outpatient rehab, and this happened, you know, a little ways back, but Select Medical went private in a $3.9 billion deal.

They are absolutely one if not the largest operators in the country. Nearly 1,900 outpatient clinics and they went private because they believe there's a more value through consolidation without the scrutiny of the public markets. So what does this mean? It means that they have confidence in taking more control of their outpatient physical therapy clinics. They see the long-term value even if it may be a very bumpy road in the short term. Multiples are staying consistent with the past year. Although it is concerning that the select valuation was 10.9 a 10.9 multiple which is much lower than a typical platform would be expected to get.

Typically platforms at this side will, you know, in this size will trade somewhere between 12 and 16. So 10.9 was not great news. Here's the real issue. Private equity platform buyout activity, brand new platform deals basically hit zero in 2024 and 2025. So the big market where private equity companies are looking to get bought out by bigger private equity companies hit zero in 24 and 25. But add-on acquisitions, those are alive and well and many companies are jumping in and continuing to grow. Ivy Rehab just partnered with practices in Brooklyn and Pennsylvania.

Arite Health acquired clinics across three states. Professional Physical Therapy's made eight acquisitions. So, the buyers are still buying, but they're being much more selective and they are looking for businesses that are prepared. I promise you that. So, this is the real question I get asked. Is this a good year to partner or sell my business? Well, here's my answer. It depends on where you are in the stages of preparation. If your practice is clean, profitable, growing, and not dependent on you only, this could be a good time to test the market.

Why? Because buyers are still active. The long-term thesis, okay, the long-term look in outpatient rehab is still incredibly strong. And the current uncertainty actually creates a little more urgency for the current consolidating platforms to acquire now with the uncertainty of the future. But if you're not prepared, if your financials are not in really good order, if you're if you're if you're the one treating the large majority of your patients, if you want to leave and get out right away and you don't have anything in terms of leadership behind you, if you haven't invested in systems and your team, then selling your business or trying to partner right now, you will be leaving a lot of money on the table and may not be able to even get a deal done.

The spread, I will tell you, the spread between a prepared practice and an unprepared one isn't just 10 or 20%. It can be literally double or triple the multiple or no multiple at all. So, here is the question. Should I sell this year? Well, the real question is not if you should sell this year. It's this. How do I get to the very top of every acquirer's list so that when I'm ready, they are literally fighting over me? So, where do we recommend that you should be focusing right now?

Whether you want to sell six months, two years, or just build a business that runs like a machine, I'm going to give you six things that you need to do right now. First and foremost, and you know this sounds a little old school, but it's reducing owner dependency. This does not mean you are not ultra important for your practice and your business. But what you have to ask yourself is if you were to go on a three-month vacation starting tomorrow, how well would your practice and your business run?

Who would be in charge? Are they skilled at being a manager as well as a clinician? And as a larger practice, what does your leadership team look like? Are they aligned and focused on driving value in the business? I just went out to dinner here in Florida with a company on the East Coast and literally they said that they go on many vacations every year. They do not worry about the performance of their business even one bit. That's real impressive. They are very close to being ready.

Number two, get your financials in order. Are doing much deeper due diligence in this environment because capital is more expensive. So, your profit and loss statement needs to tell a very clear story of your business. Get your accounts receivable under control. Normalize your EBITDA. Folks, I know it makes tax sense, but if you're running a ton of personal expenses through your business, you really want to clean that up and you want to clean it up. Now, number three, diversify your payer mix. Wait a minute. H how do we do that?

So, if there's a large percentage of your revenues that are coming from one payer, that's a real red flag to a buyer. You really want to try to spread your risk with your payers. Consider adding some specialty services. Pelvic health, vestibular, sports performance, dry needling. Broader services attract broader patient populations and they reduce singlepayer dependency. And you can actually gear your marketing efforts towards those physicians that will send you patients from the payers that pay the most and that you want the most. Number four, invest in growth even now.

And I know it sounds counterintuitive when costs are rising, but buyers pay for a company that is proven the ability to grow. A practice that grew 12% last year and is on the pace for another 10% this year and is worth is absolutely was absolutely worth exponentially more than a practice that has been flatlined. Even modest consistent growth moves your multiple up significantly. Number five, identify what levers you can pull that would significantly improve your operations. This can include schedule optimization, charge capture, and a more fluid model that includes the use of physical therapy assistance as well as other support staff.

If others that are trained and are able to do it at a level that you believe is consistent with what you would do, use that support staff. You may have to in order to make a margin in these current environments. Also, consider taking a close look and look to renegotiate some of your vendor contracts. I know that's one of those things that most business owners just shy away from, and I don't blame you. But it's something that unless you continue to go back and knock on the door, they're never going to open it up with open arms.

Also, optimize your scheduling to try to reduce gaps and cancellations. Work really hard with that front desk. And then number six, get to the top of the buyer's list. How do you do that? Be able to tell the story of your practice so that it inspires the acquirer to want to become a part of your future. That's why I left this one for number six. And this is how I really believe you get to the top of that buyer's list. Plan ahead so that you are able to give another three to five years after you partner or sell to an acquirer.

Those are the businesses that will always get the highest multiple as well as the greatest financial outcome. So trust me, the longterm picture for outpatient is absolutely a good one. We still have a lot of really good things going for us. Aging population, it is growing. Valuebased care is pushing It's away from surgery and into conservative treatment. So the shift from less inpatient services and more affordable outpatient services is definitely a shift that we are seeing in healthcare. Direct access continues to expand. These trends just don't go away because oil's at $100 a barrel.

If anything, the move towards costeffective outpatient care accelerates in a tight econ. We have shown over and over and over again that we do really well in a tight economy. Remember payers and health systems need lower cost alternatives even more when you have a troubled economy. And here's the key signal. Look, the big money still flowing in will go private at 3.9 billion. I've adding clinics. Private equity firms still doing add-on deals. They're not running from outpatient rehab. They're simply running to it. And the firms that do this for a living, the ones who spend millions on do on due diligence, they see the long-term value.

And you absolutely should see it, too. So, yes, the Iran conflict is creating real economic issues. Inflation is someone Right now, interest rates aren't coming down as fast as we had hoped. Your operating costs are going up while reimbursement still lags behind. But here's what I know. The businesses that win in uncertain times are the ones that they clean up their operations, reduce dependency, diversify their margins, and position themselves at the top of the buyer lists. So when they want to test the market, the market is ready and they are ready.

I really appreciate you joining us today. And if you have any questions or would like to chat about chat about anything that I've discussed today, just click below and let's talk. Thanks for joining me today and I look forward to seeing you next time.