The Physical Therapy sector is going through a period of growth and is expected to increase by 3.6% annually to become a $34.6 billion sector by 2020. The PT industry is experiencing heightened M&A activity from both strategic suitors and private equity investors. The PT business is highly fragmented with the 50 largest competitors comprising less than 25% of the market, which makes it ripe for consolidation. This consolidation will be led by private equity backed firms as they continue to expand their footprint through add-on acquisitions to gain market share and improve margins by leveraging infrastructure and systems.
Nine of the top twelve outpatient companies are private equity backed. The outpatient rehabilitation sector is highly fragmented with the three largest players controlling only 8.3% of the market share and 13.1% of the facility base. While there are a few national companies, the industry consists predominantly of small to medium regional providers with annual revenue of slightly over $1 million per clinic. Physician-owned PT practices comprise an estimated 10% -15% of all PT clinics and represent a large compelling market opportunity for consolidation.
Fair market valuation multiples are ranging from 5 to 6 time trailing EBITDA. US Physical Therapy, the largest pure-play operator of outpatient physical therapy clinics has been an active acquirer in this space. According to a number of their 8K filings since May 2005, US Physical Therapy has been acquiring private PT businesses at values averaging 1.6 times revenue.
