New Harbor’s PT Solutions approaches sale to PE

A differentiated partnership approach with hospitals has done well for New Harbor Capital-backed PT Solutions, whose Jefferies-run auction has narrowed to a handful of private equity groups, according to people familiar with the matter.

The physical-therapy company completed management meetings with nine sponsors by the end of October, sources said. The number of participants has since reduced through a rebid in a final round, one of the people said.

Despite significant strategic interest in PT Solutions, corporate buyers were excluded from the process since the co-founders wanted to roll over an equity stake, this person said. The Wall Street Journal initially reported in late September that Jefferies had been hired to run a sales process for the company.

New Harbor, Chicago, bought its majority stake in PT Solutions in December 2013. Co-founders Dale Yake and Rocky Barnes, who serve as CEO and president, respectively, retained a minority stake.

The Atlanta company is projecting some $20 million in 2017 EBITDA, excluding any pro-forma adjustments, the sources said. Physical-therapy-asset EBITDA multiples have tended to run well into the double digits.

The auction has garnered good interest, in large part because the target operates a unique, hospital-based outpatient physical-therapy model, the sources said.

PT Solutions partners with hospitals through either an in-hospital management agreement, the development of satellite clinics and/or a joint-venture agreement, according to its website. Through these partnerships, it provides health systems with management and development of hospital-based outpatient rehabilitation, satellite clinics, inpatient rehabilitation and acute-care services.

The model makes a ton of sense and differs from other players in the market, sources said. At the same time, PT Solutions operates in a sector where minimal assets of scale are available for picking.

New Harbor says in a case study on its website that PT Solutions nearly doubled in size during the first year following its investment. The provider has expanded through a combination of new-clinic openings, additional hospital partnerships and four add-on acquisitions.

PT Solutions’ compound annual growth rate over the past five years is 24 percent, New Harbor says.

The provider includes 100-plus locations across Alabama, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, North Carolina, South Carolina, Tennessee and Virginia.

New Harbor Partners Tom Formolo and Ed Lhee, alongside Principal Jocelyn Stanley, hold board positions at PT Solutions.

In other physical-therapy activity to watch, WSJ reported early this summer that Revelstoke Capital PartnersUpstream Rehabilitation was negotiating to merge with GS Capital Partners-backed Drayer Physical Therapy. A deal has not yet been announced. One of the sources said discussions were underway well before initial reports of a deal came out. The combination would make sense strategically, though the source added that Drayer historically has faced challenges around revenue cycle management and compliance.

The most recent PT deal of size was in December, when BDT Capital Partners bought a majority stake in Athletico Physical Therapy from Harvest Partners. Terms weren’t disclosed, but Reuters had previously reported the company was working with Jefferies on a process that could ultimately value the asset at close to $2 billion.

Representatives of New Harbor and Jefferies didn’t immediately return requests for comment.

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