Opinion Rising demand for physical therapy drives deals


Private equity has been making a big play in outpatient physical therapy (PT) with a frenzy of mergers and acquisitions heating up in the last few years. While interest in the $35 billion industry isn’t entirely new –– it’s been steadily climbing over the last two decades –– shifts in market forces have intensified that interest, attracting countless private equity groups. Private equity groups are seeking attractive acquisitions and, despite the consolidation that’s occurred thus far, outpatient PT remains fragmented compared to other healthcare services sectors making it ripe for consolidation.

But will the trend continue? If so, what’s fueling the trend? And what types of operators are driving the strongest strategic interest?

The PT landscape
Over the last several years, the physical-therapy sector has been experiencing significant consolidation, with private-equity investors now backing a number of the largest practices, many of which have been established through serial acquisitions. Even with the consolidation, there are more than 245,000 licensed PTs in the U.S. spread across approximately 35,000 outpatient clinics. No single provider has more than 10 percent market share, according to U.S. Physical Therapy.

The heavy fragmentation within the sector provides the opportunity for medical practices with capital to increase size and scale rapidly through acquisitions, or leverage brand equity and marketing strategies to compete through de novo clinic openings. However, the large supply of small practices and limited number of consolidators has pushed investors towards the former –– leading to a surge in add-on acquisitions versus new platform investments.

“According to Bain & Company’s 2018 Global Private Equity Report, between 2012 and 2016, 12 PE investors made initial platform investments in outpatient PT,” said Nancy Ham, CEO of WebPT*, a provider of software for rehab-therapy clinics and a Battery portfolio company. “Over the last couple of years, however, industry transaction volume has been shifting more heavily to add-on deals versus new platform investments. In fact, in the last three years alone, PE platforms made 72 publicly announced add-on acquisitions –– this is up three times from the three years prior.”

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