When the Big Boys Come to Town
Historically, New England has not been a region of interest for large, national PT businesses. This was due to a variety of reasons that started with the reimbursement climate and occupancy/labor costs, but also included our provincialism as a region and resistance to change and consolidation.
With the recent acquisitions of Attain Physical Therapy in Western Massachusetts and Sports and Physical Therapy Associates in Greater Boston by ATI Physical Therapy, those days are done. We have entered a new era of PT in New England that includes national players that are already formidable entities, but are looking to grow even more.
I recently had a conversation with an expert in mergers and acquisitions in the physical therapy marketplace. He agreed to let me share his knowledge of trends in the industry and behaviors of large players when they come to a new market, but asked to remain anonymous due to historically representing both buyers and sellers in the PT space. Here’s what he had to say:
Question: With ATI now in Massachusetts, many owners are nervous about what their next steps should be. Could you discuss a bit of what you know regarding ATI’s history in new states? Do they tend to acquire small practices, only grow through start ups, or employ any other strategies we should be aware of?
Answer: ATI has historically entered new states through acquisitions and looks to become the largest player in the state to gain leverage in terms of payor contracting. It will do this through a combination of additional acquisitions as well as de novo facilities. ATI is typically very aggressive seeking acquisitions of the largest providers in the state to quickly attain market share. Michigan is a good example; Prior to 2013, ATI had no clinics in the state, but by the end of 2013, it had 54 clinics through the acquisitions of Michigan Rehabilitation Specialists (32 locations) and Dwight Orthopedic Rehab (22 locations) making it the largest outpatient provider in the state under one name. ATI has 65 clinics total in MI today after completing an add-on acquisition of 4 clinics and opening 7 de novo (startup) locations.
Question: I assume all national PT organizations have very effective, strategic marketing and sales plans that are aimed at further growing the size of the businesses they acquired. Is that true? And if so, any thoughts on how that will effect the 1-3 location practice who doesn’t have similar resources dedicated to marketing and sales?
Answer: Yes, national PT organizations will bring resources to their acquired clinics to help drive organic growth post-close. These resources include additional management support at a national and regional level, highly customized or proprietary practice management and billing systems, as well as marketing support. A marketing strategy national groups may use is partnerships with local professional teams for more outbound marketing, as well as a dedicated sales team to maintain and grow the referral network of the practice. These strategies are aimed at creating a brand name for a new provider such as ATI entering a local market, and this can certainly have an effect on referral patterns among established independent providers.
Question: Can you look into your crystal ball and give us a sense of what you see happening in the New England PT marketplace in the next 12-24 months?
Answer: It was only a matter of time before we saw larger players move into New England, and the expectation is that ATI will continue to aggressively approach the larger players in MA and surrounding states hoping to grow market share. At some point, I would expect at least one other private equity-backed provider will move into the state over the next 12-24 months given the opportunity to compete with ATI to consolidate the New England PT landscape.
Question: Put yourself in the shoes of a private practitioner with only a few locations. What would you be doing to prepare for what’s coming, protect the value of the asset you have built, etc.?
Answer: I would stay informed of market activity occurring locally and evaluate potential partnership opportunities with larger practices. Having additional resources at your disposal from a partner will only help you best position your practice to continue to succeed in an increasingly competitive market.
To summarize, change is already on our doorstep, now it’s up to us to decide where we are going from here. The only definite is that success in the past five years (or more) does not guarantee success moving forward. The landscape and environment have changed, and we need to change with it.
For more information about what ProEx is doing in order to compete and win in each of our marketplaces, and to find out how you can be a part of our plans, email me at firstname.lastname@example.org. And, as always, if you find information like this useful, please like, share and leave comments below!