Report - October 10, 2022
Key Takeaways:
Physical therapy offers a high level of clinical effectiveness at a low relative cost, which benefits patients, providers, and payors.
The physical therapy subsector is highly fragmented and growing, with strong demand tailwinds, a long runway for M&A, and meaningful benefits of scale across multiple dimensions.
We expect continued interest from both inside and outside of the industry, and new opportunities arising as investors work to gain scale advantages.
Large, fragmented, and supported by major demographic trends, physical therapy continues to garner strong interest from M&A investors. Here, Harris Williams senior bankers share their thoughts on why physical therapy is appealing to buyers and investors, which M&A trends are creating opportunities, and where the most promising opportunities lie in the sector.
Why are buyers and investors interested in the physical therapy industry?
Dixon: Physical therapy is a foundational layer of healthcare that can keep people healthier longer, reduce hospitalizations and surgeries, and enhance quality of life. It is a lower-intervention, alternative form of pain treatment to medications, and it can speed surgery recovery. It’s also becoming more accessible to patients, as many states have decreased barriers to direct patient access by reducing or eliminating referral requirements. In general, it offers a high level of clinical effectiveness at a low relative cost, which benefits patients, providers, and payors.
Porter: The physical therapy industry is also highly fragmented and composed primarily of small, independent providers and a number of larger, multi-state platforms. Despite active investment from private equity for many years, the sector still has a long runway: There’s a significant opportunity to build scaled platforms better able to partner with payors, invest in sales, marketing, and referral development resources, and attract, train, and retain clinicians. In addition, larger platforms are well-positioned to expand their footprint through both de novo development and add-on acquisitions.
What are some of the most recent trends in M&A activity in the sector?
Dixon: There’s a wide variety of transactions occurring within the sector, such as large providers acquiring regional platforms in sizeable transactions, and corporate buyers from outside of the physical therapy industry becoming active. For example, Harris Williams recently advised Lifemark Health Group, with 300 clinics across Canada, on its sale to Loblaw Companies subsidiary Shoppers Drug Mart. This is a new entry into physical therapy for the large pharmacy chain. The acquisition combines Lifemark’s healthcare services with Shoppers Drug Mart’s suite of pharmacy services and health and wellness solutions to help consumers more comprehensively manage their healthcare. We believe that as the sector continues to evolve, we’ll likely see increasing interest from strategic buyers that don’t currently have a presence in the space.
Porter: We’re also seeing investors who have had success in an initial investment in physical therapy extend those investments. One example of this is Waud Capital Partners’ recent extension of its investment in Ivy Rehab Network, a company advised by Harris Williams. Ivy Rehab is a high-quality provider that has been very successful growing in partnership with Waud, and will continue to actively expand its U.S. footprint.
Where are the most promising opportunities for buyers and investors?
Dixon: Private equity has been investing in the physical therapy sector for at least 15 years. Even with this activity, and the emergence of several national platforms of scale, the sector remains highly attractive. It’s fragmented and growing, with strong tailwinds behind its growth. We expect to see continued interest from both inside and outside of the industry, and new opportunities arising as the next wave of regional and super-regional platforms are built and buyers and investors work to gain scale advantages.
Conclusion
Driven by strong demographic tailwinds, the healthcare and life sciences industry combines fast-paced innovation with steadily growing demand, offering investors a wide array of opportunities. With deep industry knowledge, our Healthcare & Life Sciences Group helps investors and high-growth companies turn their goals into reality through M&A. Our global clients rely on our trusted advice to uncover opportunities in the healthcare market and unlock value in their businesses.
We partner with clients across key sectors, including providers, payors and payor services, outsourced pharmaceutical services, outsourced provider services, medical products and devices, healthcare IT, and more.
Contact our senior bankers to learn more.
