The physical therapy (PT) market currently generates approximately $33.9 billion in annual revenues, and is expected to grow 2.1% in 2021. Although the PT industry has declined 0.8% per year, on average, since 2016, many industry expert expect the annual growth rate to approach 5%. The PT industry is experiencing heightened M&A activity from both strategic suitors and private equity investors. The PT market is highly fragmented with the 50 largest competitors comprising less than 25% of the market, which makes it ripe for consolidation. This consolidation is being 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. Over the past few years, private equity firms have made a number of investments in general rehabilitation services, occupational therapy, sports injury recovery, orthopedic rehabilitation and pediatric therapy.
Hospitals and large orthopedic practices are getting into the fold as well. Hospital mergers and acquisitions allows a hospital to expand its service offering and keep patients in their network, post surgery. Patient engagement is a growing theme and keeping patients connected to clinics and providers ensures that they will return for their next visit.
The two largest publicly traded PT operators are US Physical Therapy (USPH) and Select Medical Holdings Corp (SEM). Both companies have seen their valuations decline significantly in the past fourteen months in midst of the COVID pandemic.
On December 1, 2020, USPH announced its completion of an acquisition of a three-clinic physical therapy practice. USPH acquired a 75% equity interests for $9.1 million. The business generates more than $4.6 million in annual revenue which equates to a multiple of 2.64x revenue.
In February of 2020, USPH announced it acquired a 65% stake in a four-clinic physical therapy practice for $12.2 million. The practice generates about $6.6 million in annual revenue which equates to a multiple of 2.48x revenue.
In October of 2019, USPH completed the acquisition of an 11-clinic physical therapy practice. USPH paid proximately $12.3 million for a 67% interest. The target generates $6.6 million in annual revenue which equates to a multiple of 2.78x revenue.