Paul Martin

Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. I welcome all of you who have joined us today. And today we are really excited because we have with us Steve Chenoweth.

Steve is a physical therapist and he is the CEO of Therapy Partners Solutions. Therapy Partner Solutions is a company that is private equity backed; a physical therapy company based out of Indiana Beach, Florida.

But this really does not give the full picture of the company. Therapy Partner Solutions has a very unique model, and they have aligned Therapy Partner Solutions in the areas of compliance, rehab, billing and collections, contract management, clinic development as well as recruiting - all the must haves for a physical therapy company.

Steve, it's great to have you with us today.

 

Steve Chenoweth

Thanks, Paul. It's great to be here.

 

Paul Martin

And you guys have been busy with all those partnerships. Amazing in four years. You guys have been really busy here as Therapy Partner Solutions.

 

Steve Chenoweth

Yeah. For this iteration of our company, we really kind of reinvented ourselves back in about 2016 actually. And have grown through that time.

 

Paul Martin

Yeah, well, again, remarkable having those partnership alignments and those solutions because all of those are much needed for an acquisition.

So, Steve, you know, our clients often ask us three specific questions when new acquirers like yourself enter into the market. And the first one is:

Is your strategy for Therapy Partner Solutions to become a successful company in this industry very different or different in any way from the strategies that some of the larger legacy companies have followed?

 

Steve Chenoweth

You know, I'm not sure our strategy is different. I mean, there's really only so many ways that you can reinvent the acquisition and partnership model. But I think our perspective and our approach is very different.

My founding partners and I have been where your clients are today on the sell side, the business side, and the operator side of the transaction. We sold a 17 clinic platform of outpatient clinics back in 2010 to a large national provider.

So we fully understand where your clients are coming from, including the struggles and the victories that they've experienced over the years. When we enter into a partnership with a new group, we really enter into that partnership from that perspective.

Each one of your clients has different motivations for even exploring this process. And we've got to understand those motivations first and foremost. We don't believe in a one size fits all type partnership.

That one size fits all usually means all the sellers fit into an acquirer is one model. And there are some real advantages to that model, but those advantages are usually all on the buyer side of the new partnership.

We really invest heavily in the future success of our new partnership. Our partners have to get more out of the partnership than what they would otherwise achieve on their own without Therapy Partner Solutions, or any buyer for that matter, as their partner.

 

Paul Martin

So the other question we get is what is Therapy Partner Solutions looking for? In other words, what are some of the characteristics of the companies that you guys are seeking that would really thrive by joining with you guys?

 

Steve Chenoweth

Yeah, that's a great question because not all partnerships are great partnerships. And I think first and foremost, a seller should know that, that not every partner is going to be a great partner, and that includes Therapy Partner Solutions.

We like a history of previous and current success in their current business model. We like a practice to have a reputation of being among the best, if not the best clinicians in their markets. We love a company that's got strong employer-employee culture that really embodies a trust between the owners and their employees.

We like folks that are better than average operators. Just because you're a great clinician doesn't mean that you're a good clinic operator. So we like folks that are better than average operators, and we like folks that have an openness to a new and complimentary way to increase the success of their current business.

You know, at the same time, we've had some great success stories of practices that were filled with great clinicians, but the industry's just kind of rapidly passed them by from a business perspective.

These practices just need a big brother, if you will. Someone, you know, a partner that will allow them to focus on the things that they do really well. Like getting patients in the door and treating them with a high level of clinical care.

As well as really pouring into their people and their associates and their employees. And just let us - their big brother - take care of everything else.

And then finally, you know, a history of consistent growth and a strong desire to grow further, but not at the expense of their work life balance. That may be one of the absolute keys to success as our partner, which is understanding that growth in the context of work-life balance; it's important to me.

So I suspect it's really important to a seller as well.

 

Paul Martin

Sure. Sure. So what I'm hearing you say is you're an add-on to an individual company. You will help them to achieve their goals versus simply a consolidator.

 

Steve Chenoweth

Absolutely. I mean, it's got to be complementary and it's got to be part of their next steps, their success story for the future.

 

Paul Martin

Yeah, that's great stuff. Great stuff. So, Steve, is the approach that you guys use in terms of the nuts and bolts of an acquisition process, structure, process, etc.. Is it any different than the approach that's used by some of the larger legacy companies out there?

 

Steve Chenoweth

I think so. You know, first of all, in the what we call the “get to know you” stage, we try to do more with less. We ask for just a very few basic financial operational and billing reports you know, that could be six to nine reports in all depending on the practice management system and the billing system that they use.

We feel pretty strongly that we can get a very accurate glimpse of the business from these reports, develop a valuation and a deal structure to talk around. And we can find out very quickly if our companies a good match for the business that we're looking to partner with.

There's absolutely nothing worse as a private practice owner or a busy private practice owner than doing a lot of due diligence work just to find out you're not in the same value ballpark or the same culture ballpark as a potential partner.

Secondly, we're typically more flexible in our deal structure than most of the acquirers that are out there. I understand why a lot of the larger companies are more prescriptive with their deal structure. You know, quite simply, it's just easier to do a one size fits all model.

We've just found that our deals seem to go better and the partners are happier when we can be a little bit more creative on things like how much equity we're buying, the length of their employment agreements, that type of thing. We also can work with a seller on structures that include earn outs if they truly believe there's a significant and immediate upside in the value of their business.

There's got to be a really compelling reason for us to do it – earnout - because it can be a little bit complicated, but we're absolutely open to the idea.

We spend a lot of time educating our potential partners about the deal, about deal value, about deal structure, and about the potential back end or what people refer to as a second bite of the apple value.

One of the great things about dealing with a group like Martin Health Care Advisors is that the sellers typically are more educated about the process and they've got a realistic expectation on value. They've got realistic expectations about the future and realistic expectations about what we call “what's next”.

And then ultimately, I mean, we're trying to get the maximum value to the seller, a value that we can justify, a value that we can underwrite and ultimately a value that doesn't impart significant risk for us as the investor.

We want our partners to be happy about the transition and about the transaction and we don't want them wondering if they left value on the table.

 

Paul Martin

Some really great points there. You know, going back to our audience you know, you need to be kind of quick to a decision. So when I use the word quick, that means get a limited amount of information, have some of the real critical conversations.

First on value culture, you know, to make sure that there is some kind of a match there before you, again,  go through almost a due diligence process of lots and lots of reports, etc…

And then I also heard loud and clear that your structures have flexibility – so, flexible structures, unique structures, depending upon what would make the deal. Those are kind of the two big things I got out of that. Did I miss anything?

 

Steve Chenoweth

And I mean, just to re-emphasize, I'm not sure that any one of our deals has been structured like any of the other deals. I mean, that's really how flexible we are.

And granted, we've done deals in lots of different spaces: from revenue cycle management companies, to compliance companies, and private practice clinics.

So obviously there's going to be some variability in the deal structure on different types of companies. But even within the private practice piece of it, I don't think any of our deals have been exactly like another deal.

 

Paul Martin

Interesting. So a former owner that's a part of your company. How would they describe the culture of your company?

Steve Chenoweth

That’s a great question. And, you know, we encourage all of our potential partners to speak with our current partners and owners. We believe our partners would probably tell them that we:

One, deliver on our promises. We believe they probably also say that they don't always agree with Therapy Partner Solutions, but we know that they'd probably also say that they always find ways to work as true partners with us for the good of the company, for the good of the partnership, and their associates, and really for the good of their patients.

As you know, we recently recapitalized our company with a new private equity partner. All of our partners that wanted to participate financially in that recapitalization did. So whether their documents said that they were able to participate in that transaction or not. We made sure that they were able to.

And not only did they have a financial event or a second bite of the apple during that recapitalization, but Therapy Partner Solutions was able to actually deliver more value to those partners than we had originally promised to them in their original agreements.

Additionally, I think these partners are now getting to continue to grow the remaining stake of their business, and they actually can have a third bite at the apple, which has put a lot of smiles on our partners faces.

And then I think our partners would tell a potential seller that we are true partners. We don't put our shares on the table and vote those shares. We make decisions with our owners. We think that's the only way to handle a true partnership.

 

Paul Martin

So often owners who are selling their company, you know, they have an ideal, an idea in their head of what's it going to look like for their people in the future. What would your partners say about how that may have changed or not changed from what they thought things would look like for their people to what now is the opportunity for their people?

 

Steve Chenoweth

I think what they would tell you is that there's more opportunity for them, for their people. One of the things that a partnership like Therapy Partner Solutions should bring to a potential seller is just that it's not just opportunity from a financial standpoint for the owner of the business.

It should provide opportunity for everybody in that company, whether it's the front office manager, whether it's a physical therapy technician that might want to go back to school and become a physical therapist, whether it's somebody who's looking to become a director.

But there's only one clinic and there's only one director, and they may have limited opportunities.

We really believe that our growth strategy will continue to provide those opportunities for everybody in the organization. You know, we pour a lot into those new partnerships in the first 90 days that have nothing to do with things like visits, per referral units per visit.

We pour into the people. There are certain things we have to do early on in the partnership like, you know, get their books shifted to our financial books.

But the first person they see is our vice president of Human Resources, because we think that's the most important thing we need to make sure of in that transition – that their people are taken care of, that their people are cared for.

And then most of all, that their people know that they're cared for. So that's why we spend so much time and that first 90 days of really just pouring into the people.

 

Paul Martin

Yeah. So if we took an atlas out – a good, old fashioned map right? Walk us through current geographies that you're in, and then how you determine what geographies you will acquire in and grow in in the future. How do you guys look at that?

 

Steve Chenoweth

It's a funny question because people will go onto our website and they'll look at our map and they think they have a sense of what our geography might be.

And then they see this little, little spot on the map kind of outside of our core territory. So we get this question a lot about geography. And really our answer is that we're not geographically limited, but rather we're culturally limited.

All buyers in the industry talk about culture. They talk about culture matching, they talk about culture fit, and that's great. But I mean, we really mean it. We don't believe in growth for growth sake.

But we're not just going to reach to geography because we can we can grow. We're currently in primarily the Southeast and we extend up through the mid-Atlantic states. But we also jump to the Boston area of Massachusetts.

And I can assure you, we didn't jump to Massachusetts because we like the state regulatory environment or the reimbursement rates in the Northeast versus the Southeast.

We went to that area because we found a partner that we loved - a partner that reminded us of us, a partner we felt we could grow with and establish a platform with. She truly was a cultural match for us. So when we when we say that it's a cultural limitation, I mean, we really mean it.

 

Paul Martin

I can hear Tom Carden in the office next to me. It's culture, structure, price, typically in that order. So, you know, we're into 2022 now and you know, we've been through a lot.

This industry has been through a lot. What advice would you have for a business that is preparing for this market, meaning, you know, considering looking into the market to partner and sell to a larger company. What do you think is most important to their preparation?

 

 

Steve Chenoweth

I'd say first and foremost spend some time educating themselves on the process. Most first-time sellers don't know what they don't know.

They should have an industry valuation done before they start the process so they know what their practice is really worth and not what they think it's worth.

A lot of times there's a big discrepancy in those two things. They should know how their practices are valued and understand what increases or decreases that value in the market to a potential buyer.

 They need to understand that they're likely not going to get a max value walk-away type deal. Most buyers want and need the owners to stay as vested partners in the practice, at least for a period of time.

After closing they need to understand that if they've got debt in their practice, that that's going to need to be retired or paid off either prior to closing or at closing with the new partner and ultimately that's going to decrease the net proceeds of their acquisition, but they really need to take that into account.

They also need to understand that a buyer wants them to continue to do the things that made their practice successful to this point in their history.

But there will necessarily  be some changes that come along with a new partnership and that those changes should help increase the value and the opportunity for the partners and the associates, but only if those changes are implemented with a true partnership spirit from both sides. So it's a willingness on both sides.

And then finally, you know, the highest upfront value may not represent the best partner and ultimate value for a seller. A seller should look for someone that can grow their remaining equity stake in a way that's  meaningful from a dollar standpoint.

While maintaining the low local culture that that that they've established over the years, that walk-away or second bite of the apple could and should be as valuable as the initial piece of the company that the owner is selling now. And so they just need to realize that that upfront value isn't always representative of their best partner.

 

Paul Martin

Absolutely. Steve, really, really helpful advice and I really appreciate it. So Steve, thank you for participating today. I really, really appreciate your time and as well as your knowledge. And we wish you the best of luck with Therapy Partners Solutions.

 

Steve Chenoweth

We appreciate the opportunity to speak with you guys. And we look forward to dealing with you guys and some of your clients here in the near future.

 

Paul Martin

Thank you. And for any of you out there today, ifyou have any questions about the discussion that I have with Steve Chenoweth today - click below. And let's talk. Thanks and have a great day.