The Blueprint to Buy or Sell a PT Clinic (Lessons From 127 Clinic Sales) w/ Clinic Accelerator

Hello and welcome to the Practice Marketing Podcast, highlighting successful strategies for North America's fastest growing clinics and experts so you can learn from their wins and power your practice growth. Hi, I'm your host, Neal Trickett, CEO of Practice Promotions, and today we're going to talk about the blueprint to buy or sell a PT clinic and the lessons learned from over 127 clinic sales with the awesome people at Clinic Accelerator. Today I'm joined by Rick Lau and Soroush Peyvandi from Clinic Accelerator. Rick is the founder of Clinic Accelerator, has over 20 years of experience and has built and exited multiple clinics and businesses, including a network of 127 physical therapy clinics, physiotherapy clinics in Canada with 1,400+ staff. And Soroush is both the director of mergers and acquisitions at the Clinic Accelerator Group and the CEO of Alberta Rehab Group. So together, their Clinic Accelerator Marketplace has seen 30+ million of clinic deals already sold and 70 million in active deals. So I'm super excited to pick their brain in the mergers and acquisitions space here. And in this episode, we're gonna cover both sides of the deal, how to buy a clinic the right way, and also how to sell your clinic for maximum value. And so I'll walk through what buyers are looking for, what makes a clinic more valuable, how owners can approach the process clarity and confidence and whether they're looking to grow through acquisition or plan an exit down the road. So Rick and Soroush, welcome back to the podcast.

Geez, I love it. You know, that introduction, you make me feel like I'm like aging and getting really old.

You're still young at heart there, Rick.

It's all good. I think so.

It's interesting we say that, like, you know, like, yeah, 20, 20+ years ago running clinics and running clinics 20 years ago is very different from running clinics now. Right.

Oh, no doubt. No doubt.

Way more competitive. There's way more noise. There's way more options for patients, you know, and also providers, right? Like whether you're a physio working, you know, you got so much different options to work at, whereas before you didn't, right?

Yeah, absolutely. And so let's talk a little bit about, you know, the merger and acquisition section of ClinicXO. You guys work a lot in this. You work with a lot of different size clinics through this process. And is that newest and fastest growing Arma Clinic accelerator. So I'm kind of curious, you know, talked about how different it is now compared to before, but what trends are you seeing in mergers and acquisitions, you know, in this current marketplace?

Yeah, maybe, maybe I'll start off and then Soroush could follow. One thing that we're seeing right now is a lot of, whether you're a small clinic or you're a big clinic, a lot of owners are kind of sick of running their clinics. They're getting tired. Yeah.

I totally get that.

Yeah. And they're being tired from all fronts, from like what's happening on the macro side, like with like the news, like this, the army of news going on, right? And obviously with the shortage of providers, right? With more and more competition and with, especially with AI now and marketing, like there's just so much different things going on that running a clinic is so different than what it was like even like pre-COVID, right? I think to me like COVID was like this massive, turning point. Yeah, it was not as predictable as before. We've lost predictability and there was no room for error anymore. You have to run a really good business on all fronts, you know, and, and that was really the genesis of Clinica and what we do. And Soroush could maybe share with, yeah, some of the things that he's seeing when he's talking to a lot of people who are looking at selling their clinic right now, right, and the trends going on.

Yeah, I think, I think it's really interesting. I was going to mention the same thing. I think COVID really shook a lot of people and I think more people became open to, you know, selling their practice. And one of the things I was kind of noticing is that I don't think a lot of the owners want to get out of the industry as much as I thought they would, but they just don't want to deal with all the, the BS or the headaches of having to hold the bag if something goes wrong. And COVID was just one of those things where, you know, in March, April, Everybody was really shook and they're like, wow, okay, like, I need some support. And it's funny because I was talking to some of the clinics that were acquired and during COVID they were kind of afloat because the, you know, the corps were helping kind of prop them up, whereas the clinics that didn't have that support, you know, they had to scramble, they had to figure it out. Some people had to close their business. And so, and people are, you know, afraid of something like that happening again. But on top of that, again, we talk about this all the time. Recruitment is getting way harder because the barrier to entry to open a clinic is getting lower and lower. You're seeing a lot of these cash-based PTs pop up and these smaller, like, people. And I'll explain why maybe that's a good thing and a bad thing at the same time in a little bit. But, you know, you're seeing a lot of those trends to try to squeeze the marketplace into pushing more and more M&A activity. One of the recent stats I was like, I've been following along is, you know, the largest physical therapy, you know, public companies that own obviously a lot of different locations, how much market share do they have? Because we know, you know, the The PT world is so fragmented. And in the US, one of the things that's really interesting is, you know, the biggest consolidators right now only make up about 10% of the market. So 90% of the marketplace is still super fragmented. And we're talking about 38,000+ outpatient facilities in the US, right? So there's a huge amount of opportunity for consolidators to get even bigger. And the last time I looked at that stat, well, I mean, I've been looking at it, but the last one, most notable one was an article that came out in around 2019 when I actually first started, you know, in the industry. And I remember at the time it was 5%. So they've doubled the footprint in the last like 5, 6 years. And I think they're going to keep doubling because, you know, they are— they do, you know, when you get— when you get acquired, you know, a lot of these acquirers are also starting to figure out that, hey, we're not coming in and slapping a new name on the door and trying to screw up your business, but we're going to come in, you're going to be part of our portfolio. And so we're going to help you stay afloat, but you can still run it the way you want to run it. And that strategy technology has been obviously a lot better adopted by a lot of the larger consolidators in the US. So those are kind of some of the trends that I'm seeing.

That's really interesting. And things that I've seen over the years, right? And you're totally right, like how things accelerated so fast after COVID. But you're right in that only 10% of the market is the big corporate groups. But we are seeing a flood of PE, private equity money come into the market, right? And either they're backing individual clinics that are a little bit bigger want to go bigger, right, and acquire. I've seen that happening, which is, which is kind of a nice thing, having this money in the market where you don't have to go to a bank and try to beg for money to have capital to expand your clinics. There's, there's this other opportunity with private equity. So I've seen a lot of that happening. And I saw recently there's something like $1.5 trillion in private equity money that needs to be invested in the economy. And like, they got to put it somewhere, right? Like, there's this demand from the private equity world, like, hey, we got to spend this, invest this money someplace. So there's, there's this big opportunity in that too. And we see them coming in healthcare big time, right? And also in the rehab space big time.

Yeah.

Yeah. And I think, I think like, you know, pre-COVID, when the interest rates were really low, that's when you saw the big wave, you know, right? Because their, you know, their cost of capital is really low, you know? And I guess now that, you know, in theory, the interest rates should be going down, I think you're going to start seeing that. And Soroush, maybe you could share with us, because we talked about this earlier this week with just with another podcast we're on, maybe talk about the type of buyers that we're kind of working with, which there's like 3, 4 types of buyers that we're seeing that are very active in the M&A space right now for physical therapy clinics, both in the US and in, yeah, like worldwide, right?

Yeah, so the most active buyers usually by far is going to be the private equity groups and the corporate groups. Like those are going to be, very active. And again, you know, we got a caveat, uh, that they are buying in-network type of clinics. They want insurance-based businesses because one, it fits well with their network, there's ability to scale, uh, and again, we can go in a little bit deeper with cash-based. You know, it's, it's, there's, there's reasons why you would do a cash-based, and from an M&A perspective, maybe reasons why you wouldn't want to do a cash-based, uh, practice. But, but the, the, the, the in-network Buyers are obviously, you know, very active in the space. You do then start now to address the other 90% of the marketplace. You have the individual buyers, you have a lot of these smaller family offices coming in and wanting to invest in clinics because they see the healthcare, you know, especially through COVID, like it was probably one of the industries that bounced back the fastest, right? Or actually had the least amount of instability. You know, obviously patient flow change, etc., but we see, like, for example, restaurant industry, you know, in that moment got decimated, right? Like, you know, a lot of those, like, type of services couldn't really hold up in an environment like that. So people are really interested in coming into the space. So, you know, it is those 3 types of buyers. Again, you have the private equity or financial buyers, you've got the strategic or these corporate buyers, you also have the individual buyers that are again buying the smaller locations and just kind of, you know, these are smaller multiples, smaller, you know, type of transactions that are changing hands in that other 90% of the marketplace that's not owned yet by the biggest groups.

Yeah. Fascinating.

And then now the group is like also, I think the fourth group is also these regional operators, right? You know, right?

That's right.

Like, you know, they're like, they're just in Ohio, right? Or they're just in like Washington, right? You know, and or Texas and just like consolidating as much as they can.

Eventually get bought by the corporate and larger groups because we see this right now. And the multiples are actually really interesting. Like there was a transaction I was looking at, you know, they built up to about $12 million of EBITDA and I think they, they closed for about 12 times. Right. So we can see double-digit multiples actually still present in the US. So there is still a ton of competition for M&A activity in the US, right? Because again, 10%, it seems like a lot, but to the big groups, it's not a lot. They want to get to 30% if they could, because then you truly start you know, having good control over the market share.

Yeah, so for someone who's pretty massive, right, you know, like these corporates are like, you know, I remember 20 years ago, you know, Neil, these— the corporate would be like a couple hundred, right? Now it's like minimum 500, you know, and like, you know, uh, and we work like— we talk and we work with a lot of these groups, you know, and like some of them are like over 1,000. It's insane. How do you run a network of 1,000 locations, you know? And they got 26 brands, you know, and the infrastructure and they're like the M&A. And do we buy clinics? Do we do new deals?

Right.

So it's, it's, it's becoming quite aggressive. Let's just say that.

Yeah, that's fascinating. So looking at what, what you guys look at, right, when helping clinics with M&A, if, if someone wants to expand, right, they want to buy clinics or a clinic, what's the most important things that they need to be looking at or evaluate first?

They, they, you got to work backwards if you look to an acquisition strategy. And, and it's not to say like you always build to exit, but you always have to build to be ready to exit because you never know what's going to happen. And so this is why, you know, I've had this conversation with a lot of different, you know, physical therapists that are like, hey, I want to open my own cash-based practice. I'm like, great. So like, why, why would you want to do something like that? Like when you're opening one or buying a cash-based business, uh, you know, you have You— what do you get? You get better margin per visit. Let's be realistic. You probably need less volume compared to an in-network type of clinic. You're less, you know, handcuffed by the insurance companies. We get that. But then you have more control. Like, that's really why somebody would go and purchase a cash-based type of business, you know, or, you know, something that's not super insurance-based. But at the same time, if you're building, you know, volume, you want to add, let's say, 20, 30, 40 locations in the future and you want to have a very large exit at the end. You have to look at who's going to give you the most amount of money, who's going to give you the best multiples at the end. And so this is where, you know, we'd be looking at either trying to create an in-network type of clinic, which you can— there is a process to, to become in-network or out-of-network.

So it's both, right? You know, so, yeah.

Yes, but more so in-network because, again, the people want those insurance-based, very heavy insurance-based business. So those buyers, again, we just talked about, they are going to pay you the biggest checks. So if you're looking at buying a business, you have to keep that in mind. What is the type of clinic that you're buying? What's the location? What's your likelihood of expanding to maybe 10, 15 locations? Can you get to a million plus of EBITDA? Because that's when the multiples also start really getting a lot more aggressive. And at the end of the day, again, you then have to balance that with what kind of brand you want to build, what kind of culture. You can still have a good brand and a good culture. With an in-network type of business, which I think some people might think that you can't because you don't have that quote-unquote control. But you do have the ability. I've seen a lot of really strong in-network type of businesses. I've also seen a lot of really profitable, strong cash-based type of businesses. So both can give you that cash flow that you want. But it's from an exit perspective or, you know, at the end that you got to work backwards from there. That's one of the things I tell people to look at.

Yeah, it's one thing I learned a long time ago is like you're going to exit your business at some point.

Right?

It might be soon, it might be very far in the future, but—

and it—

you're either going to exit it the way that you want or not, right? So, um, and I think it's really interesting the way that you position it there, is that when we structure our business, our practice, are we thinking from our viewpoint of what we want to do in the moment, or are we looking at it as how would someone else perceive this business? Would it be attractive to them? And I think what's always fascinating, I've tried to operate this way in my businesses as I have over the years, is that if, if I had to sell it tomorrow because of some, you know, something emergency, could I, right? Would it be attractive enough to another person? What's really interesting was when you, when you look at it from that viewpoint of, is this business attractive to someone else? Does it operate on without me? Is it, you know, good profitability? All these kind of things. It's— it actually is good business principles to begin with, right? You kind of run your practice with systems and, you know, profitability and, and not having to be the bottleneck as the owner. So it's all— it's like a really good practice to actually think that way of, of being in someone else's shoes trying to buy your own clinic, right? And that makes you just operate a better business to start with.

Totally, totally. And if you have the option to purchase a clinic versus starting a clinic, you get ahead very quickly. You can build a very strong business on purchasing unique opportunities. So there's two, two ways you can position a purchase, right? You, let's say you get funding, you have a family office, you know, or a friend, you know, that won the lottery. They're like, hey, I want to invest alongside with you. There's a different strategy that I would deploy to, you know, make yourself known in the marketplace. But again, because it's so fragmented, it's very green and you're really able to make a name for yourself in the marketplace very quickly. If you don't have a lot of capital, you don't have a lot of cash, and you're trying to decide, well, do I, you know, spend $200,000, $300,000, depending on the type of facility you want to open, um, you know, whatever hundreds of thousands you're going to put into a business. If you were to buy a business that is already ready to go, has some revenue, has some staff, again, you kind of get past all the permitting issues, you get all past all the, the blueprinting to build something out, you know, get the contractors, do all those headaches that you have to go through initially to build something out. You essentially front run that and go straight to, you know, the end. And this is where you then spend a little bit of cash to maybe do some renovations, you know, start improving the branding, start changing the website, you know, and that actually puts you ahead way faster than if you just start on your own, especially when you're first starting Yeah.

So instead of trying to build, even if you're, even if you have an established clinic and you're trying to build another location and build another location after that, it actually sounds like you could have quite an advantage if you, if you look for an acquisition versus just trying to do everything de novo.

I think it depends on how strong your brand is, right? You know, so if you have a really strong brand in a local community, right, you know, doing a nuvo, like it makes a lot of sense if it's like, I've seen a lot of people pop up nuvos, like maybe 5 kilometers away from their clinic, right? You know, and they got so much excess demand, like it makes sense, right? But that's like the— that's like a 10%, you know. 90% of people who start up a clinic, it will take them years to break even, right? And they pour all this cash in. But if you could buy a business where, hey, in 2 years or 3 years you're break even, if you could just manage it the way it is, right, you know, without doing any improvements, that is a lower risk and more of a guaranteed return. Whereas you're doing a startup, dropping a couple hundred thousand bucks and and praying that it's gonna work. That, hey, I opened my clinic and if I get a website from Neil, I'm gonna get a bunch of these new patients and I'm gonna break even. Like that's all harder, you know? And the probability that happens is like lower, you know? And so, and then the last thing I wanna say is like when you do buy a practice, what's nice is that the banks like that and they will fund it, you know? Because it's predictable cash flow and there's something, whereas like a startup, You know, like, you know, like there's less tangible value for them and it's not as, it's not as attractive unless you're a dentist or a doctor. Right. You know, they're like, yep, here's a check. Right. But for physical therapy, yeah. Yeah.

That makes total sense. And so in terms of, in terms of, you know, if you're looking to buy into a clinic, what should buyers look for then to understand that clinic's financial health before, you know, making an offer to go buy it?

So there's a, I mean, let's start with the easy stuff. The very easy thing to look at, look at their financial statement. If there's no financial statement, which is way more common than you might think, that's not properly set up, obviously that's where it's a little bit quote unquote riskier to evaluate because you don't have the specifics. But this is where you need to look at things like their EMR report, which is revenue reports. You have to look at the mix of their patients, which, you know, we call paramix. And you also then, again, outside of the— we start to go structural, look at their lease. What are some of the clauses in their lease that might prevent you from growth in the future? You know, how long is the lease? What are the, you know, what are some of the pros and cons and like the specific points in the lease, the insurance contracts they may or may not have. And if it's a cash-based business, one thing you may want to evaluate to see if it would be possible to actually convert it into either out-of-network or network, look in that process as well. And then outside of that, they get location, which obviously they can't change, but one of the things we look at location is location versus the density in the area and the projected growth of the density in the area as well. So we typically look at a ratio. And so, you know, want to see how many other physical therapy clinics are there in that area compared to the population of the area. And we know the uptake of physical therapy, you know, is not as much as maybe we want it to be, but we'll just make an assumption that everybody there would uptake it. And so those ratios you might be looking at is somewhere between 3,500 to 4,000 per clinic, meaning that you have access up to 4,000 patients to get to. And, you know, obviously you're not going to get that right away, but, you know, that is a pool. And the larger that number, that means the larger the pool you have, the less competition there is. And so you can start to do well and But one of the important things, again, depending on the type of practice you're looking at to buy is, you know, you're trying to find out all the reasons why this person or this clinic was not profitable. And usually that comes down to really no systems or any procedural things that they have in their business. They're just kind of running it by the seat of their pants. You know, they— there's no real leadership at all. And so they don't really train or coach people in their business. There's really no marketing effort, no social media effort, no real way to reach patients and recruits. So you look at all those things and if, if they don't have any of those things, those are probably good things that they don't have because then you see those as opportunities to, for you to grow, for you to add those things into their business. And so you hopefully get a 2x, 2 times return on your cash because you took this clinic that was $50,000 of profit, let's call it, to $100,000 of profit within the next year. And now you've doubled your investment effectively very quickly.

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Yeah, and I've seen that with, uh, you know, different clients that we work with that that do acquire other clinics. And because they have worked on, as Rick said, like their own branding, for example, is one component. But they, and as you were saying Soroush Peyvandi there, the systems, like they already operate off of systems. They built processes, systems, standard operating procedures in their own practice, you know, in operations, in hiring, in marketing, in finance and billing and all these kind of things. And then they can see at these other clinics, oh, they don't have those things in place. That would be fairly easy for me to put those systems in place and make it run better. And so over, you know, maybe 6 months or a year, I could recoup or even double my, you know, investment into that practice. So that's really— I love the way that you, that you, you know, kind of broke that down on ways to look for it, right?

Yeah.

One thing I would add too is like, you know, I think, you know, obviously, obviously the value, a lot of the valuation is based on like how much, like how much revenue or how much profit it makes, right? You know? And so when you're actually looking at, the P&L, you're actually also looking at trending, you know. Is it trending up or has been like the slow bleed going down, you know, right? You know, what type of growth rates you're seeing. Then you're also looking at certain benchmarks, right? You know, of like, hey, what is your HR cost to revenue? You know, you're looking at your admin cost to revenue. You're looking at what is your lease cost ratio. When you look at all these different ratios, like, and then you start comparing it to say maybe one of the clients you have, it's like, why is it that they're like, they're overpaying their staff by 10-20%, you know, right? And then that's where the employee contracts really kick in, right? You know, so, but for me, like, when I think back my days of like when I was rolling up 127 locations, like, you know, looking at trending and then was super important, you know. And then, and then when you dive into the EMR reports, it's like, hey, like, you know, are they doing a whole— like, you're seeing assessments like go up, you know, why is it going up? Is it because of the marketing, you know, or is it like the word of mouth, or, or is there something that fundamentally is responsible for why it's a decline, you know, right? And then why is it, why is it that the practitioners or the providers aren't very effective with, say, converting those new patients into care plans, you know? Do they have a, you know, like when they should— yeah. And so when you start looking at those numbers, then you're like, oh my gosh, like there's a massive amount of opportunity to be able to actually, you know, make this clinic more profitable.

Yeah.

And so I think that's where You know, I love what Clinic Accelerator does and just core fundamental principles, coaching, you know, systems and processes within the practice. Because if you really dial those processes in, you can obviously do very well with your own practice, but then you do see those opportunities in other practices that are selling and where you can, you know, systematize those businesses, take those further. So I love what you're saying with that, Rick.

Another question, one more thing to add is that like, you know, if you really You know, I've seen— I did this myself, but I know other owners do that, that they would actually even mystery call the clinics, right? To actually see how well their front desk is, like, are they answering the phones? What are they saying to convert, like, on the phone calls, right? You know, or mystery— do a mystery visit as a patient to actually experience what's it like going in that clinic. You're like, oh my gosh, when you go through, like, this is like terrible, they don't do care plans, and that receptionist. And so when you start, like, you know, doing some of this stuff, it gives you a lot of insight on the business and what you think you could do to actually improve it better. And then when you start having that, then that dictates like how quickly, like what, how much dollars you want to do to buy the deal, right? Buy the business.

Yeah. Yeah, totally. And so just quick question for you here as we're talking through this part, you know, we're a service-based business. So how important is staff quality and staff retention in this buying of other clinics?

I mean, it almost sounds like a rhetorical question because it's so, so important because like, so this is one of the things that Rick was mentioning too. When you're reviewing those contracts, not every single contract is a good contract to have in your business. Like, let's think about it. Like, recruitment's getting harder. Some people may get aggressive, especially we're seeing this with the cash-based businesses because they have margin to play with. They will give much higher compensations. But when it comes to then me coming in and acquiring this business, if I know that there's a lot of these high-paid individuals, it starts to stunt the growth, and I can't reinvest cash into the business once I start taking it over. So now retention is important. So even if you do have people that have these, you know, stronger contracts, uh, in terms of pay, because recruitment is so hard. And, you know, you know, we just did a talk recently, uh, in Nashville about this exact topic. And, and, you know, there's so many stats that just tells you that if this recruitment piece is going to get harder and harder— there's 12,000 open positions right now, vacancy rates 9.5%, which in the US— in the US is 4.8%, so it's double the vacancy rate. So you don't have the— you don't have the luxury of just picking and choosing whoever you want. Now, but the, the good clinics, the clinics that have set up recruitment properly, those are the ones that do have the luxury, right? But if again, we're talking general— generally speaking, we're talking the 80%. The 80% are doing the same thing as everybody else, and we know this, which is, you know, let me put something on a job board, let me just do this passive thing and hope for the best, right? And they're going to get the same result as the other 80%. So when you go and acquire one of these clinics and you have good staff, you have to do everything you can to the first quarter. Like, I— we always coach people when they buy a business, your first quarter, don't put a single thing into place. You're not coming in and adding something or changing something. Let the dust settle, build relationships, you know, start to meet the staff because they have to trust you. Because even if you're the, the nicest guy in the world, nicest girl in the world, like, it doesn't matter because they don't trust you. And that's, that's just an inherent thing because they don't know who you are yet. You have to let them get to know you, and then after that, you have to get buy-in for change. So that's how you actually maintain, you know, really high-quality staff in the business post-acquisition. Whenever we've done these acquisitions, it was very, very rare we had anybody exit or quit because of the acquisition, because all these clinicians want to know is, how does this impact me? Is my job safe? Are you going to change things that are going to really tick me off all day long? You know, If you're not, if you're gonna, like I said, build that relationship early on and, you know, really show them that this is a good thing, not a bad thing, then they're way more likely to stay and they're gonna start building some loyalty towards you and they might be people you're gonna expand with in the future.

Fantastic point, Tanner. I totally agree with that. 'Cause like how often we think, oh, I can go fix all these problems in this clinic. I'm gonna, you know, and I bought it, it's mine now. Let me throw a grenade in there and just start changing everything and I'm, You don't realize that, yeah, you're a nice person, you're trying to make everything go better, but they don't trust you yet, right? And it takes some time for things, like you said, the dust to settle, to get used to you, to get to, okay, we're gonna start operating in a little bit different way now. So, yeah, I think that's a fantastic point there, Soroush.

And then one thing I'd add to that is that if you, whether you're a strategic buyer or a regional, like, operator or a financial buyer, The last thing you want to do is buy a business and within a year, the business is down. And because of turnover, right? Or this business isn't turnkey because it doesn't run without Neil or it doesn't run without Soroush Peyvandi, right? And I think that was the lesson that a lot of these strategics made like maybe like 10, 15 years ago when they first rolled out the first 500 locations where 80% of the clinics that they would buy would end up like losing money in 5 years down the road, right? And so it's almost like an 80/20 rule. Out of these 500 clinics, maybe just 100 of them are profitable and the other 400 are not. And it's interesting, we do a lot of time meeting and talking with, we do a lot of work with a lot of the big strategics in the US. I think you, like with the, anywhere from 500 to 1,200 locations and it's a lot of their clinics are still run like the 80/20 rule, right? Where 80% of them actually aren't making money or breaking even, right? But the 20% are. Like, the 20% makes like the lion's share of the profit, right?

Gotcha.

And so now, like, these strategics and these financial buyers, they're way, way more cautious, right? So they care about HR, they care about who's on the leadership team, they care about what happens if Soroush Peyvandi is not in the helm of the business. Will the business drop? You know, and so when they're doing that due diligence and looking at your business and it doesn't check off you don't check off all the HR stuff, you know, and there's not a good leadership team in place, they may not even want to buy your business, not even a lower multiple, because it's not turnkey for them.

Yeah, makes total sense. And so that's a good segue here into kind of flipping the script here, which is we talked about buying and looking for clinics and opportunities there. But there's also now let's talk about the sale, right? So you want to sell your practice. What are some of the things that you need to be thinking about there to prepare for that sale, or if you're thinking about it down the road, um, you know, what would be that kind of first step if you're starting to think about selling your practice someday?

Uh, two, two very, very critical things that greatly impact the valuation of your business when you're, when you're going to sell your business. I— there's no owner that I'm going to talk to that's going to say I don't want the most value out is. So if you're an owner and you're thinking about this, these are very two, two very critical things. One is the prep. You have to prep yourself for the exit. It's not as, okay, I'm going to sell today, I'm going to just toss some financials into the air and hope that everybody, you know, wants to start, you know, wanting to buy my business. So the prep period, and this is what, you know, we've obviously worked on really aggressively to make sure everybody is well positioned, they have all their financials in place, and the story is well crafted but also well delivered to the people that are wanting to buy the business. Because there's always a good in the business that we need to communicate with the people that are wanting to buy the business. Because, you know, EBITDA and profit, uh, with EBITDA, earnings before interest, taxes, depreciation, amortization, that's your typical number profit that they're going to look at. That is pretty, you know, easy to calculate. That's, that's a number that you can change if you grow the business, but that's It is what it is. But really, the biggest change comes from the multiple. And that, again, the prep does have a huge impact. But the other thing, the second thing is, and I see this happen all the time, is people lock themselves in a single buyer negotiation. And so when you look at any M&A company, one of the things you absolutely want to avoid is to do a heads-up negotiation with one buyer. You need that competition, you need the bid process to ensure that you're getting the maximum value. It doesn't mean that all the buyers are going to come in and overpay for the business, but you got to remember they're buyers, they want value, so they're going to come in and probably bid under what market might be, or under what you could max out the potential of your business at. And so those two critical things, you know, have to be done in order for you to actually put your business on the marketplace. To then sell it.

Yeah, it's like selling a house, right? Like, you know, when you sell your house, you want to have— when you list it, you know, you want to make sure that you have multiple like bidders, right? You know, because the more multiple bidders, like just naturally with competition, like it will elevate everyone's game, you know?

Yeah.

And Soroush, I think we talked about that earlier this week, you know, that last deal we did that sold over— I think it sold over for $10 million. In enterprise, in value, right? You know, like how many, maybe start from the top to the bottom, like how many people actually was interested in, how many put in an LOI? Like what was that process like in terms of like numbers and flow, right?

Yeah, so that specific deal, because it was a larger deal, like the 80% of buyers, they're not gonna be able to afford it. So you're gonna have to obviously round up all the biggest buyers. So there was about 6 or 7 groups that were interested in the business, and, you know, that business got about 3 very strong offers. And, you know, the biggest difference between offers was obviously the, the multiple. It was the deal structure, the transition period, how much cash you're getting up front, uh, and, you know, your requirements as an owner to stay on for X number of years or work with the, the corporate team. So, uh, in that scenario, obviously, because we had multiple good bids— and again, Multiple bids doesn't mean you have to have 25 bidders at the table all the time because you're going to have some tire kickers when people want to buy your business and they're just kind of throwing BS numbers out there. You know, the low ballers, you know, they get cut out very quickly. But you know, you get the serious buyers at the top that, you know, know that there's other serious buyers at the table. And so that obviously, you know, makes them want to shape up and make their offer as best as possible, right? So that's why that group got a really strong offer. They ended up closing the deal and they've been just doing the transition and worked out well for them.

That's fantastic. I think there's such valuable points that you put there in making sure there's competitiveness for the sale of your practice. Right. And not just going with— I think sometimes maybe practice owners get— and I've been there too, like in the trap of like, hey, I got to dump this thing. I'm just done with it.

Right. Yeah.

Burn the thing on fire and run down the street.

Right.

So I think we've all been there at some point. but you gotta hold out, right? You gotta hold out, you gotta structure things properly, make sure you have bids there in the market. And I think you put another good point there, Soroush, where it's not just about the highest value possible, right? It's the terms that you want. Like, what's important to you? Like, do you wanna stay on, right, for a while, right? And there's gonna be some level of that, but some may require more than others. Or, you know, some are gonna say, hey, we'll put a little bit down front, down payment here, but then we're gonna pay the rest out over 5 years with you, and that may not work out in your needs, right? So there's a lot of different, it may not be the biggest dollar amount, the competitiveness I'm sure helps with that, but it's the terms also that are really important.

Soroush, what terms have you seen that have been deal breakers, right?

Deal breaker terms? Most of the deal-breaking terms, honestly, is usually to do with length of time and in the transition period itself, right? Because people, again, it's funny, when we started the M&A stuff, like in 2022, I always thought that multiple would be what would break a deal, but it actually hasn't been what breaks a deal. And two things that usually break a deal is the the seller's confidence in the buyer to preserve legacy. Because people don't want to sell to somebody who's going to come in and screw up their business because they feel that their reputation is so important. They worked hard. They built a relationship with their people. They don't want that. So, the buyer has to communicate that legacy protection piece. So, if you're a buyer listening, that's a quick tip for you. The other thing was the length of time. So, you know, as the deal size gets larger, people, of course, and the buyers want more security, which makes sense. But what I've seen is when the transition period gets longer than 3 or 4 years, it starts to become a little bit less attractive to the sellers. And so they would often opt for a lower multiple with a shorter transition period because part of wanting to sell is not just to max out the value, but is to remove that responsibility of owning and running a clinic. And during transition period, you still have that responsibility because you're not getting 100% of your cash up upfront typically in these larger deals. You might get that in smaller deals, but not in the larger deals. And so that deferred amount or the cash amount that's left, there's usually some sort of maintenance or performance incentive attached to that. So you still have to be active in the business. So that's why whenever somebody says, this is just a side point, hey, I want to sell in 3 years, I ask them, do you want to start the selling process in 3 years or do you want to be done in 3 years? Because those are two very different things. If you want to be done in 3 years, we got to start now. But if you want to sell and start the process in 3 years, then let's chat in 3 years.

Yeah, I love that. And I think you brought up a good point, like those payment terms, you know, whether how much is it, 70% upfront in cash and then maybe the 30% is a deferred payment. You know, we've also seen where if it's like a really good business and the owner is super motivated to help grow the brand, open more locations, like they also have they also have like an earn-out performance as well, right? So there's the— there is a cash upfront plus a deferred plus like call it a performance earn-out, you know? And some people have that because like maybe if they got 10 locations, 2 locations are shitty and they're not making money, so they need time to also wrap that up, right? You know, so this way could sell the 8. And so we've seen it work in all those other ways, but the flip side I've seen is like, you know, is someone like someone, a good friend of mine just sold their business for $50 million to private equity, right? And his condition was he doesn't want to like, he doesn't want to spend more than 3 months during transition, right? It was black and white to him. He was like, I don't want transition, right? And he wanted all upfront in cash. right? And he was able to do that because he delivered a fucking amazing turnkey leadership team that didn't depend on him and he sold it. So when Soroush Peyvandi was talking about preparing the business, like he was selling the team, he was selling the org structure, the systems, and how he doesn't even work at the business. And with that, like it was very easy for this private equity to actually have exactly the terms that they want. So that is possible too, but you gotta be running a really good clinic and you gotta be very well prepared, right?

Yeah, and that's good. I think that goes for any sale, right? For a business is that the person buying it, if they can walk into it that turnkey and not have to do much to keep it running and be profitable, the more valuable it becomes in that valuation, right? The more you kind of remove the you as the owner from the day to day and the direction of the clinic and they have that really strong leadership team in place. It's just good business practice anyway.

Right.

But the valuation just goes up from that. And speaking of that, I'm curious from what you've seen in the marketplace right now. So, you know, what, what are kind of the multiples that are happening, say, for a, you know, $500,000 clinic, $1 million clinic, a $2 million clinic? What kind of multiples are you seeing out there?

Are those revenue or is that the valuation?

We'll say EBITDA, right?

Okay.

Yeah, it's not. So on the smaller scale, the businesses that are, again, high owner-dependent, low infrastructure, you know, not turnkey, you're still probably in that 2.5x, like 3x usually will be the minimum, all the way to about 4x, 4.5x. That's still commonly seen. But what's interesting in the US is that that multiple can actually move up very quickly and double digits is still a possibility depending on the size that you get. But, you know, we're talking like more than $5 million of EBITDA, you can— you're more likely to be in that double-digit range, right? But, you know, it can go up to, let's say, 8x, 9x depending on obviously how well the clinic's also positioned. Because remember, the things that influence multiple is obviously outside of the business itself. Location is one of those other things where you might have a private equity group that is strategically looking at this location. They don't have anything in that area, they may be more aggressive with their multiple outside of what market rates are because the location is very desirable, right? So that's why when you set up your business or when you, you know, acquire in certain areas, you're looking at these high penetration areas that are very attractive, like Rhode Island, Tennessee, Massachusetts. Like, those are very high penetration states, uh, and so, you know, the multiples will start to fluctuate between like 3 all the way— could be to 12, uh, depending on the size of the EBITDA of that business.

And I, I think you just— the way that you were talking about that, Soroush, just made me realize that I, I think a lot of practice owners who go into the sale things don't necessarily prepare themselves with enough of a team to help guide them through this very complicated process, right?

And that—

and you're thinking, oh, you know, I don't really want to spend the money maybe for an advisor like you guys, right? Or attorneys or CPAs or whatever, trying to minimize the cost of the actual sale, right, the transaction part. But in the end, that really bites you because you may have been able to get another multiple out of it if the negotiations, if you knew what to negotiate about. Or even do certain things within your business before the negotiation so that it did help you with that extra multiple. And so I think that's crucial where you guys come in, in your advisory and your coaching and your mentorship through this process. Because if you go it alone, you could be costing yourself way more than you would if you invested in advisors to help you through this process. Is that something that you've seen before?

Oh yeah. Like, you got to remember, these people that are coming to buy your business, you know, their whole career is doing this. But you haven't been doing M&A like, like sell as a sell side. Maybe you've been doing M&A as a buy side. But you have been doing the sell side M&A. And so you remember, like, let's say one of these big groups, big PE groups, are coming in to buy your business. They've got these high-end MBA analysts that are 40 hours a week, finance lawyers, you know, and they're coming in and grinding the business down because they're not doing it to, like, to be obviously, you know, bad people. They're just— this is their job. Their job is to find areas of risk, to find ways to, you know, say that, oh, we're not going to give you credit for this part of your EBITDA, and start wearing that down, right? And the multiple maybe stays the same, you know, depending on— and usually it doesn't, like if you work with a group like us or not, because again, that competition, the competitive bidding, that's a very obviously impactful thing for the multiple. But let's say the multiple stays the same, your EBITDA grinding down. Let's say you're an 8x and you lost $100,000 of EBITDA, you're losing $800,000 of value immediately. If you pay somebody $150,000 to maintain $800,000, I think that's a pretty good deal. But again, I'm also biased. But this is where one of those things, you know, whenever I chat with people, I say, yeah, you can try to sell it on your own, totally, right? But again, you do usually get stuck in that single buyer negotiation. You don't really have a very clear understanding of what the prep phases need to look like. The story that gets crafted has to be very critical. But the other very important thing is having somebody in the middle takes away some of the emotional pieces, right? Because buyers— I mean, sellers can sometimes get emotional because it's their baby. You know, they react to certain things. And so we coach them through that process to really show the best of themselves and not to create concern through the way they're saying things, through what they say, through what comments they make. Because again, any small thing you say that maybe you said it under your breath, a buyer might hear it through a megaphone. So, and you don't know what that one comment might be that could maybe make them not want to buy the business at all. Yeah.

We've seen a lot of deals collapse because the seller got super emotional because of something that was said, and like they said things that they regretted on the call, and that was a deal breaker. Or like it slashed like their multiple and like what their adjusted EBITDA is, you know, right? Yeah. And so this piece is super, super important. And typically like we see two types of sellers coming in, right? You know, there's one seller saying, Man, like, I just want to get rid of this clinic. And so there's options where like, hey, I just want to get my clinic as quickly to the market as possible, get the multi-bidders, like do this process, you know, whether it's like 3 to 6 months, you know, right? Like, you know, depending on the state of your business. And then second type of seller that we see is, hey, you know what, I want to sell 2 years from now or maybe 3 years from now, right? I'm willing to do the work. And willing to do work means like I'm gonna implement, I'm gonna clean up my financials, right? I'm gonna get ready for the preparation, the due diligence stage. I'm gonna implement some basic systems and leadership and org structure. And then over the 2 years, not only is your business cleaning up, but your profits also improving. And then, but this requires work, right? And coaching to get you there. And then the 2 or 3-year mark, You're like, I'm ready for market. And this process starts and then, you know, like you could like the, your effective valuation or the multiple you get is gonna be way higher, right?

Yeah. And I've talked to—

And we work with a lot of people like that. And these are the ones that are getting those, you know, $5 or $10 or $20 million checks, right? You know? Gotcha.

That's awesome. And just, I've talked to a bunch of practice owners when they come to us for marketing help and they're like, yeah, I'm thinking about, I'm not sure if I want to do marketing now because I'm thinking of selling here in the next year. And I'm like, well, this is the prime time to really invest in your marketing so that you can get your numbers up, right? You got to get the revenue up, your profitability up. Like, now's the time. I'm curious from your end, as you work with different clinics, like, what is that ideal timeframe ramp-up preparation time? Hey, you know what? I am thinking about selling my practice. How much time should someone give themselves to get to that sale phase?

Is that someone that's willing to do the work or they just want to get rid of it as quickly as possible?

Well, I think what you were saying, the ideal scene is to, 'cause the goal is, you know, you put a lot of work into this thing, right? And it's your baby and yeah, sometimes the baby has tantrums and you don't want to be around the baby, but you've got to, You know, you put— this is your— this is probably going to be one of the biggest, um, you know, revenue generators probably in your lifetime. You know, people say your house is, but I think a business, selling a business, this is your home run.

This is your home run, right?

So are you going to make it a single or are you going to make it a home run, right? So exactly, like, if you're thinking with making it a home run, like, what, what would that ideal time frame look like? Is it 1 year? Is it 2 years? Like, what do you typically recommend there?

A minimum, minimum 2 years. So, the reason for that is you need at least a year of ramp and then 1 year to actually show the result of that ramp. Because one of the things that we've seen is, and not every buyer, right? You know, but a good chunk of buyers, they'll take that last year leading up your, we'll call the trailing 12 months, which is the last 12 months of your business as the most critical piece when it comes to the EBITDA and the valuation. And so, you want the business to ramp up for the year and then hold that ramped up position for the next 12 months to gain the value of the work that you did, right? So you do need a little bit of time. So, you know, we've talked to people, we say, hey, come talk to us at least a couple years before, you know, 1 year. We'll work with you on getting, you know, your— all your stuff in place, like you said, the marketing, make sure your recruiting funnel is, is well positioned. And again, all this is, is to the goal of the seller, because if the seller is like, I want the shortest transition possible, I want to be less involved. So, you know, our goal is how do we make you useless, useless on the internal operation of the business so that when you do sell it, you don't have to be stuck in the business through the entire time. You have flexibility during the transition period because you have a team that's already running the business, right? Similar to, you know, Rick's friend that sold to the PE group. So, so 2 years is usually a minimum, uh, longer the better because then you continuously ramp up and, and obviously, um, you know, can start to see more and more of that profit come in. And you know, as you get more profitable, you get more cash flow. So it's a win-win for you in any scenario. And I've had a lot of people tell me like, well, if I become so profitable, then why should I sell? You know, then you don't— you have the option to sell. It's not that you have to sell all the time, but the reality is it depends on the multiple, depends on the market. Like, if you get a very good multiple, you know, and then you invest that money into, you know, the stocks. Like right now, obviously, we're very turbulent market conditions. Let's say this market bottoms out in October and you have a million-dollar check you want to put into the marketplace. Over the next 5 years, that money could really significantly grow. And especially, and, you know, compounding is a beautiful thing. So by year 25, 30, we're talking millions of difference, right?

Yeah.

So that's kind of the, the reality for the timelines that, um, make sense for people that want to put their—

It's interesting, Neil, like, we're— like, I thought we would just see like maybe like older owners like want to sell. We're seeing a lot of like younger owners who are actually in the peak of their business career, you know, kind of in their like mid-40s, right? And they're exiting like while their business is at like, you know, like at this rocket ship like, you know, state. And it's for the exact same solution. Like they want to get some, they want to get some chips off the table. If they could park, you know, a couple million bucks in investments, whether it's real estate or ETFs, that gives them like that 8 or 15, depending on the risk you want to take, 8 to 15% a year. That compounding is amazing. Then on top of that, you're getting a deferred payment, you're on payroll, and you get an earnout of future performances or new locations. That is a win for a lot of people. And if you're going to join maybe some of these strategics that will like, you know, swap your, swap your clinic for equity. And then, you know, you're doing like, you know, there's second, third, fifth, 20, 20 bites of the apple as they kind of go up.

Right.

So, yeah, absolutely. But that's an interesting point, right? Because, because maybe that, that generation does see some different opportunities with that because, you know, if I kind of look back in my career and I know like you guys have done this too, obviously you've scaled businesses, you've exited them. And then you can take that revenue from that sale, right? And then do another business and scale that. And so that instead of thinking about, oh, do I want to keep this, this practice here for 30 years of my life? You know, if you're good at building a practice, if you're good at scaling a business, you can scale up, you could exit it then, and then you could go, you know, maybe not in the same place, but in another direction, different state, you know? Yeah, exactly. So you see some, you see some people do that, right? So that, that's another, another play there.

And let's be honest, like, you know, like You know, if you could be Gordon Ramsay, you know, go from state to state, buy up these failed like kitchen or these failed clinics, turn it around, you know, like flip them, sell them, you know, which is in essence what private equity is doing anyways, like if we're gonna be honest. Yeah. You're also, your tax rate on selling the business, right, you know, is also way less than the income that you generate from it, right? Yeah, because it's also a tax advantage to actually be in this business, and this is why these like There's way, way more financial buyers, private equity, family office that want to get in this game for that reason.

Right.

Yeah.

You guys have been like amazing advice here today. Is there any final words in terms of like buying or selling clinic that you'd like to share with our audience before we wrap up?

I think the only, you know, from, let's say from a buyer's perspective, again, just, I'll just repeat what I mentioned. It depends on, you know, what your end state is. If you're looking to acquire. It is, it is a very good way to grow your business through acquisitions. Again, as long as you do it well and you have a process in place post-acquisition, that's very critical. On the sell side, again, you know, a lot of people, they speak to us or speak to you, speak to somebody when it's already a little too late. And so don't wait until you're going to retire next year to have this conversation. Start planning early, even if it's 5 years before, whatever number of years it is before, you know, get some advice and start to build a path towards that direction. But again, the, the most important thing is you're not building businesses or clinics always to exits. Maybe that's the mandate for the financial buyers, but your mandate as a healthcare individual who came in as a physical therapist, you didn't come out to just buy and sell businesses, but You have to always be ready for that point because if it's not you wanting to retire and sell your business, it could be a health issue, it could be a divorce, it could be you got to move out of the country or something's happening. Like, you don't know what's going to happen. So you do have to build your business in a way that at any time you can extract that value through an exit versus wanting to wait and to do that later. Right? So just something to keep in mind.

Love it. Very well said. Rick, any parting words?

For anyone who is thinking of selling their business in the next 2 years or more, and they need help with preparing their business for sale, you know, with implementing some of the stuff that Soroush talked about today, with increasing your profits, scaling your teams, implementing systems, you could go to clinicaccelerator.com and you could check out what options we have. And then if you want to follow me on Instagram @thericklau, The Rick Lau, right? Did I get that right? The Rick Lau on Instagram. You could, we, you know, we post a lot of like daily tips on how to run your business more profitability. And also we talk about all things relating to M&A, about buying a practice and selling a practice, right?

So.

Awesome. Thanks, Rick.

Yeah.

And for our audience out there, highly recommend Clinic Accelerator. Fantastic group of individuals and people. Fantastic group just to be part of. I've been, you know, with them for many, many years here working with their different clients also and being at their events. And they, they, they do an amazing job. So I can't recommend them highly enough. Even if you're not looking to exit your business for a while, it's still great to go to clinicaccelerator.com, learn about all of their coaching and systems implementation, things that they do to help grow clinics. So fantastic resource for you there. So thanks, Rick and Soroush, definitely titans of the industry here. And thanks for being on the podcast with us. Thanks to our audience for listening to the Practice Marketing Podcast. Don't forget to like and subscribe to our podcast as well as follow us on YouTube and Instagram there. Don't forget to follow us there for more tips and advice and at practicepromotions.net for lots of downloads for marketing tips. This is Neal Trickett from the Practice Marketing Podcast wishing you much success in your practice.

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