Benchmark Furthers Consolidation Play –

Malvern, Pa.-based Benchmark Medical Inc. made its fifth acquisition in the outpatient physical rehabilitation market since 1999 when it bought Susquehanna Physical Therapy Inc. last week for an undisclosed sum.

Susquehanna Physical Therapy has been owned and operated since 1975 by the physical therapist Francis Welk, PT, who will help fold the company into the Benchmark mold as well as continue in a limited patient care role. Susquehanna has clinics in Bloomsburg, Mifflinburg and Lewisburg, Pa.

Private equity firm Wind Point Partners formed Benchmark Medical in 1999 to build a leading provider of outpatient physical rehabilitation services.

“Our strategy is to partner with very experienced and accomplished businesses,” said Jeff Gonyo, a managing director at Wind Point. “Ron Hiscock, the Benchmark CEO, fits that strategy well. He used to be with NovaCare [where] he consummated [roughly] 150 acquisitions.”

Wind Point formed Benchmark in partnership with Hiscock, an executive with a track record in acquisitions in both outpatient rehabilitation services and orthotics and prosthetics. Prior to forming Benchmark, Hiscock was the CEO of both the orthotics and prosthetics and outpatient rehabilitation divisions of NovaCare, where he completed 78 acquisitions between 1994 and 1999. He also increased sales fourfold, Ebitda seventeen-fold and improved operating profitability by 19%, according to Wind Point. Additionally, in the outpatient rehabilitation division, he completed 80 acquisitions, increased Ebitda twofold and grew operating profitability by over 8.6% from 1996 to 1998.

“Benchmark was the name we gave Norstar Health Services, the first (public) company we acquired in the sector,” Gonyo said. “That deal was worth about $36 million in transaction enterprise value.”

“We also felt it was a very good time to get into the business,” Gonyo continued. “Pricing (the amount reimbursed per payer) has been improving. And the industry has long-term attractive growth prospects,” he said, pointing to both the aging Boomer population, and the fact that there are 92,000 outpatient physical rehabilitation clinics throughout the U.S., and “no one dominates.”

Gonyo said Benchmark is now the sixth largest competitor in the market “from zero” and “there’s still room to move up.”

“The largest entity is Health South. But we’re not trying to be the biggest, just the most profitable operating model. As long as there’s a steady flow of Mom-and-Pops [to acquire]…we expect the industry to grow in excess of 20% a year,” he said.

Wind Point Partners normally makes equity investments of between $10 million and $70 million, with a minimum Ebitda of $5 million in companies with revenue of $50 million to $250 million. The transaction types it favors are leveraged buyouts, recapitalizations, industry consolidations and expansion capital. Health care, of which the outpatient physical rehabilitation market is a part, represents 10% of Wind Point Partners’ portfolio. Other current industries the firm is focusing on include business and consumer services, consumer products, manufacturing and media/communications/IT services.

In terms of exits, Gonyo sees both an IPO or “potentially merging with or being acquired by a larger company” as strategies. But, he says, “we are long-term investors and have no precise plans to exit right now.”