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Scoop: Physical therapy M&A warms up two new deals

Jul 15, 2022
Illustration of an exercise bike with a quarter for a wheel

Illustration: Sarah Grillo/Axios

A sale process for THL Partners' ProPT is well underway, while Pharos Capital Group's Motion PT Group recently hit the auction block, sources tell Axios.

Why it matters: The Northeast physical therapy arena, home to both Melville, New York-based ProPT and Brooklyn-headquartered Motion, remains highly fragmented and ripe for consolidation.

  • There's more coming. A number of smaller PT assets that are single-digit EBITDA or have a single-state presence are anticipated to come to market soon, presenting what is perceived to be a large growth runway via M&A.

What's happening, part 1: The Jefferies-run auction for THL's ProPT is in its second round, with the next round of bids poised for early August.

  • ProPT’s actual trailing EBITDA is around $22 million to $25 million, sources say, noting the company’s high leverage adds complexity to getting a deal done.
  • That said, ProPT has a regional scale that appeals to potential buyers, with services offered throughout the New York metro area, New Jersey, Connecticut, Massachusetts and New Hampshire.

What's happening, part 2: Pharos just launched a sale process for Motion PT via Livingstone Partners, sources say.

  • The company expects to produce approximately $18 million in 2022 pro forma adjusted EBITDA, based upon pending add-on acquisitions as well as prevailing visit volumes and reimbursement rates.
  • Motion's clinic network spans New York, Connecticut, Maryland and Massachusetts.

Yes, and: The best comp for Motion PT is the much larger PT Solutions, which Axios wrote commanded approximately $1.2 billion, or close to 15x EBITDA, with Lindsay Goldberg’s sale of the company to General Atlantic.

  • Not unlike PT Solutions, Motion PT has a dedicated hospital-JV strategy — which is somewhat unique relative to the broader industry.

Be smart: The JV model, which directs musculoskeletal patients to physical therapists, reflects health systems' recognition of the cost-control benefits PT can offer.

  • For example, by contributing to lower utilization of opioids, or costly surgical procedures and imaging tests.
  • “That’s what drove PT Solutions growth,” one of the sources notes. (PT Solutions under Lindsay Goldberg increased adjusted EBITDA by 250%-plus, Axios wrote in January, demonstrating the power of the hospital partnership model.)

What they’re saying: Compared with the West Coast, the Northeast is “behind from a consolidation perspective,” one source familiar with both processes says. “There’s a number of opportunities in the space right now.”

  • “These two businesses probably belong together,” another source adds.
  • Notwithstanding the higher labor costs, rent, and lower reimbursement rates, New York in particular is in the early innings of consolidation, one of the people adds.

State of play: The list of potential Northeast-centric bolt-on targets for whoever buys Motion and/or ProPT is lengthy. That might include...

  • Hackensack, N.J.-based Excel Physical Therapy, backed by Caymus Equity Partners in 2016.
  • Randolph, Mass.-based Bay State Physical Therapy, backed by Calera Capital in 2019.
  • Clark, N.J.-based Twin Boro Physical Therapy, backed by The Beekman Group in 2019.
  • New York-based SPEAR Physical Therapy, which remains privately held.

What else we’re watching: While in-person PT has proved its efficacy, capital is also flooding into digital health entrants that don’t rely on traditional clinics.

  • Hinge has collected more than $1 billion from VCs including Coatue and Tiger Global, and Sword has raised some $324 million from investors including General Catalyst.
  • Spry, a PT-focused SaaS startup that helps physical therapists manage clinical and administrative functions, picked up $7 million in Series A funding last month.

THL and Pharos declined to comment. Claire Rychlewski contributed reporting.

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