Maximize Your Practice Valuation: How to Build A Strong Foundation with Provident Healthcare Partners

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Announcer: Welcome to the Ignite podcast, the only healthcare marketing podcast that digs into the digital strategies and tactics that help you accelerate growth. Each week, Cardinal’s experts explore innovative ways to build your digital presence and attract more patients. Buckle up for another episode of Ignite.

Alex Membrillo: What’s going on everybody? This is going to be fun. Welcome to Ignite. This will be a little bit of a different flavor. We usually bring you vanilla or chocolate, today’s going to be vanilla fudge swirl. It’s going to be a delicious, delicious podcast, we’re going to talk about, not just the marketing side, but we’re more going to focus on the investment side. I’ve got Steven Grassa and Craig Sager here from Provident, and they’re going to talk to us about what it means to be a really successful practice in today’s day and age, and what it means to successfully go to market and sell that practice.

Now, if you’re a marketing director, and you’re listening to this, and you’re saying, “Hey, man, usually I’m getting marketing tips from this, why is he bringing on these investment banker guys?” There’s a bigger reason for all of us doing marketing. We always have to remember, why are we marketing the provider groups that we’re marketing? It’s to eventually help them get acquired, to grow, to seek additional funding to grow, to bring in the tuck-ins, to do all of this stuff. These guys are going to help us understand from the business, the finance side, what it means to run a successful practice.

Then, when you start incorporating that into your marketing plans, as CMO, you’re going to get a CMO job a lot faster, you’re going to get buy-in from the leadership team for all new initiatives. This is the language we need to be speaking as marketing directors. We have to understand the business implications of what we’re doing and what it means. We’ve also got Lauren Leone, our chief growth officer. You all know her, she’s on every one of these, and you know she’s the smarter one of us two, so, she’ll be asking quite a bit of questions. Craig, Steven, welcome to Ignite. How are we doing?

Steven Grassa: Doing well. Thanks, Alex. It’s good to meet you all. I’m the Vice President at the firm. I work in the Boston office, this is where we’re headquartered. I’m working from home today, but been in banking for about 10 years, I spent the last six or so with Provident and I focus most of my efforts within the behavioral health space. I’ve spent probably 60%, 70% of my time within the space, working with founders, owners, operators, as they look to explore what their transaction options may be. [unintelligible 00:02:14] started on this.

Alex: Yes. Thanks. Craig, please tell me you and Steven are not Patriots fans, or are you still? You need to be still, if you were through the whole last 17 years. What’s the deal?

Craig Sager: Yes. We are both, I call it suburb Boston born and raised, so, we are Patriots fans. Not so good these days, we’re loyal, so, we’re going to stick with it.

Alex: You guys stick with it because you’ve been rubbing it all our faces, 28 to 3 Matt Ryan just retired. Look at this. This is all I got. This is the best shot because I can’t get a good Falcon shirt, so this is the one I have. That’s what unites us. That’s what unites us. We’ve moved on. Lauren, how’re you doing? You’re okay?

Lauren Leone: I’m great. Happy to be on this side, not hosting, just joining.

Alex: Yes, you don’t have to do the thinking. You just get the answer and spit some game at us. Craig, why are we talking my man? What does Provident do? Why should people be looking at Provident Healthcare partners when they’re looking for an investment? Then we’ll talk about what you guys are saying, what makes a great behavioral group from a substandard behavioral group. That is widening now, that you can’t just go get tons of profit and then sell the bigger thing. Tell us about Provident, and tell about behavioral market, what makes you great practice.

Craig: Yes, absolutely. Again, thanks for having us on, Alex and Lauren. Provident Healthcare Partners, is a sell-side M&A advisory firm, i.e, investment bank. We also do debt raises and capital raises, but our bread and butter is M&A advisory services. It’s actually our 25th anniversary this year, so we’re pumped about that. 1998 was when the building blocks were put in place, and since day one, we have only played in the healthcare services arena. We have not ventured out into retail or industrials or other spaces, we’d really just stay in our lane and be experts there.

Essentially, what we do, we predominantly do recaps in buyouts for healthcare service organizations. What that means really is for organizations that are looking for not just capital, but a strategic partner to maybe take them to the next chapter, or the next goals they want to hit, we really, well, we have to say become their river guide. We help them navigate those waters, who are the potential partners. It’s not all about– I like to say, it’s not about our price tag, it’s really about the underlying terms, fit, what is the playbook for next five to seven years? Again, we really are the “middleman” in that process, and work with our organization, so we find them the right partner.

Alex: Yes. I like that. The river guide, Tom Sawyer and Huck Finn, we got them, guys. We got them, here on Ignite. You didn’t know I could bring them back to life. We got magical powers, healing powers here. Lauren, we’re just at the McGuireWoods conference last week, that’ll date us here on when this is going to [unintelligible 00:04:50] the McDermott thing this week. You know, one thing we heard last week was, everybody needs to be integrated and have a unique value proposition. It’s no longer good enough to just throw tons of profit into the mix.

Then we’ll have, Craig and Steven talk to that a little bit. As a marketer, Lauren, what’s one thing we learned last week that Multi-Site PE back provider group should be doing for the marketing firm to make it more attractive as a [unintelligible 00:05:12]

Lauren: It’s all about integrations in a way that you can bring, whether it be through technology, through the team, through the capability through the cross-selling of services, that you’re one entity and not just 17 different companies that happen to share one parent company name. I thought it was really interesting that integration is sometimes at the intersection with what is convenient and easy, and how do we not burden these providers? How are groups taking that burden on, and making it easier for them, and integrating at the same time?

Alex: Yes, I love that. I love that. I love that. We heard from a variety of groups, some of them will integrate things, and some will keep it independent at the local level. I’m very confused of what it takes. Maybe Steven can help us out here. Steven, on the clinical side, when looking at ops from the clinical side, what do you think are the most important things for an org to keep in mind? The clinical quality or do you look at anything behind the scenes [unintelligible 00:06:07] to process– What do you guys look at?

Steven: Yes, I would say all of the above. I think the single most important thing for a business that operates in the behavioral health space is clinical quality. That’s the name of the game, and I think as business scales and continues to grow, it’s really important to be able to maintain that clinical quality, as the company grows into the next chapter of its lifecycle. That can mean a number of different things. There’s outcome tracking tools that you can leverage to measure quality. There’s clinical staffing and clinical structure models as well, how are some of the providers utilized, [unintelligible 00:06:46] staffing ratios, all that stuff becomes important.

I think you need to have the protocols in place from a clinical and operational side of things to be able to win market share in this world and differentiate yourselves. Because there’s a stratification among providers, as in any other space where there’s, really quality providers, and then some others that are suboptimal. That’s the biggest differentiator in our mind.

Alex: Same thing with agency work. It’s all about outcomes. It’s all about outcomes and big strata difference, I think, [unintelligible 00:07:16]. Lauren, when we are looking at different things, like Steven mentioned a lot on the outcome side and making sure that you have better quality there, do we do anything on the marketing side that outline outcomes for our clients, is that a big selling proposition? Everyone claims that “We have the best outcomes,” there’s no way to quantify any of that.

Lauren: You see every site now has adopted things like the stats, like module on your website that’s going to talk about, these are the number of people that we’ve treated, the number of families that we’ve helped. I think when you’re on the B2B side of it, you’re talking to an audience of potential groups that are looking to roll up, or sell their practice into you. You’re talking about, maybe how you’ve worked with payers to renegotiate contracts, to have a more value-based care approach to essentially lower costs on all fronts and bring more value to the end patient.

I think you can quantify those things in a number of ways. It really just depends on your audience, and what they want to hear or what they need to see. I think in behavioral too, the outcomes aren’t necessarily just numbers, it’s things like some innovative treatment options. We see a lot with treatment-resistant depression, what services are you bringing to the table? By integrating certain practice groups, you can then make this service available to a wider subset that maybe didn’t have it before, or how are you bringing services online and making it more convenient for both the provider and the patient to get together? I think those are all the outcomes that we might be talking about.

Alex: I like that. Steven also mentioned staff planning and stuff like that. As marketers, we’re being asked to do a lot more recruitment and staff recruitment, training, support, all that kind of fun stuff, talent acquisition support, demand planning, staff planning, all that kind of fun stuff. We don’t just find patients anymore, we find not clinicians, but support staff for clinicians. All a big part of it. Craig, tell us about what the most successful groups are doing. If you want to hone in on behavioral even better, what are some common themes that you see these guys doing that are better than the other groups that are coming to you, saying, “We want to sell,” and you say, “Guys, y’all need to be more like x? We’re not quite there.”

Craig: Right. It’s a great question. I think people get into– we’ll say behavioral health for a couple of reasons. Some people are clinicians by trade or there was a family member that was diagnosed or going through certain conditions and so they want to give back and be a helping hand. Other people are in it for the money, and everything in-between. I say, in terms of the winners, and I’m not going to call losers, because everyone in this space is very noble work, but they’re all stars. I think Steven refers it clinical excellence is bar none you have to have that, and a lot of times people are just growing to grow, but what is good growth? You have to have the building blocks infrastructure in place and with that, it’s really having your IT systems, your regulatory, your compliance teams, maybe someone that fits a part of revenue cycle management.

Actually, when you think about operationally you’ve had key performance indicators in place and really track what’s working, what’s not working, what are we striving to be? If you’re able to have, again, those foundational items in place and referral sources start to buy in, you’re doing family education and you’re really tracking those outcomes, then the growth will come in itself, you don’t have to go chase it. You have that already in place and it comes to you.

Alex: Do you see the more lucrative or the more interesting behavioral groups, do they have a strong telehealth component or are they mostly interesting because they just have enough therapists? Is telehealth important when they go to sell?

Craig: It’s an important offering, but the best groups don’t lead with it. It’s an offering for many people in rural communities or for certain situations where late in the night they can’t get to the clinic or they can’t get to the facility, but most people are, it’s going to be the in-person treatment.

Alex: It seems to be. I think it, I saw a stat today from Chris Larson Behavioral health network. 70% still prefer in-person, but 30% even some of the older demographics are doing a lot of telehealth. It’s give or take. I like in-person first and then we can do videos. Same thing with other treatments in our life. I have a question that’ll apply to marketers.

Is a behavioral health group more attractive if they’ve developed their own marketing machine or does it matter? Is it okay if they’re a hundred percent driven by PCP referrals or word of mouth, or is it like you’re going to get a higher multiple if you built a marketing machine through whatever main Google [unintelligible 00:11:52], Facebook, SEO, local activation, does that factor in to their multiple or how well they can sell?

Craig: I think it absolutely does. I think word of mouth is a great way to grow, it means you’re doing something right. The community is behind, your referral source behind you, but if you have a differentiator in terms of robust digital marketing or other marketing angles and you’re able to scale it or faster clip than Joe Schmo down the street or competitors, that’s absolutely something that people can get behind and it’s more scalable.

Alex: Good. You’re [unintelligible 00:12:25] here and marketing directors or behavioral health provider groups that’s one way you can get more budget. You can say, “Hey, listen, I know what we’re trying to do because we’re PE-backed. We need this thing to roll up in the next couple of years. If we’re able to show that we can build our own marketing machine, we’re going to be able to sell this thing faster, going to get a higher multiple, we’re going to be more attractive. Telehealth component’s semi-important too.” Build a marketing machine for these things.

All right, thanks Craig. Steven, we’ve talked on operations a little bit on digital, like financial economics. What have you guys seen in the companies you guys have worked with, payer mix revenue? What are you guys seeing currently? This is March of 2023, I feel like every month we’re going to get a different answer, important that we date ourselves there.

Steven: I think two things. One, quality of revenue is important and the different sources that it’s derived from. If you think about referral sources, funding sources, what your payer mix is. You want to avoid any concentration risk because ultimately valuation it’s a function of the growth of the cash flows of the business, but also risk and concentration risk is inherently risky. Having a diverse set of referral sources, diverse payer mix, being in networking, having cleaner revenue cycle, those are all things that play into play into the quality of revenue that’s important for groups that are looking at these businesses and I mentioned growth too, and Craig also touched on it too.

Not just for growth’s sake, but being thoughtful and focused around growth. I think density is really important as you continue to scale the business. There are some groups that fall for pins on the MAP syndrome and I think it’s more important to build density in core markets and that really comes into play when you approach the payers and provide some ammunition and leverage as you come to the table for some of those negotiations.

Alex: Steven, so what are you trying to do to show we don’t just have one location in Atlanta, we have 10 providers there. We’re in all of the sub-markets within Atlanta. What is the best thing to show there? It’s good to have satellite offices or a hotel, the therapy desk, and just get tons of therapists in one area. What’s the best thing to do?

Steven: Honestly, even in a given market, in adjacent markets, just building out offices in a presence, in winning market share in your core regions and even satellite offices, just outside of that poor catchment area. There are some groups that bounce from state to state that may be in disparate regions but I think building density in your core geography and core region is what’s most important, and what most groups are looking for.

Alex: Craig, I’ll punt this one over to you. When you guys are evaluating viability of a group, do y’all look at the talent acquisition system that they have, from open job rec to placement, what marketing support they have, how much they’re spending to get each placement from Indeed or LinkedIn ads or none of that factors in? Is anyone looking at that stuff?

Craig: No, for sure. In our [unintelligible 00:15:21] list every time we look at a business to try understand what it looks like under the hood. We always ask about retention rate and what is your staffing approach. The best groups have a pretty robust systems in place, whether it be an applicant tracking system or something that’s tied to HR. At one of my former companies, we had a head of town acquisition probably had seven or eight people underneath him and behavioral health specifically, it’s a high turnover industry and that’s okay, you want to retain people, but you have to understand that that’s just kind of par for the course. You have to have some tools and certainly people in place that can constantly find talent and keep them.

Alex: Not easy. Lauren, as we help, and behaviorals are the biggest chunk of our business here, and you heard it from them, like sustained revenue growth. When you think about it from a marketing perspective, what are the things that we do that don’t just make patient acquisitions shoot off, but what do these groups need to do to build sustained revenue growth? Is it just the foundational digital marketing stuff? What are we talking?

Lauren: A lot of the foundational pieces, a lot of what everyone throws their money at is what’s pay to play, right? It’s great while you’re in it, but if you’re not in it, you’re not getting it. You’re not getting the activity and I think what a lot of people tend to do is want to get quick results and you throw a bunch of focus there and really challenging clients, people that we partner with, people that I speak to that never become clients, but I get a chance to speak with them, is to think about what your brand value propositions are because what makes you unique is not that you’re convenient, it’s not that you have 4.8-star reviews. Those are great.

Those are almost necessities to do business nowadays and you have to think above and beyond that. I was actually curious, I have a question for Steven and Craig, but I think organizations have to have a mission bigger than just what they are. They all care about something and oftentimes, at least the younger generations, they’re not always just buying your product or service.

They believe in you and what you stand for so they’re willing to give you your business instead of the guy down the road and I don’t know if you all factor that in, it’s kind of this unquantifiable it factor, but is the vision and the purpose and how they position themselves in the marketplace, something that you all consider when you’re looking at valuation? I guess I’ll ask Steven that.

Steven: It’s definitely more qualitative, but you can see it the second you talked to some of these founders and owners and just how mission-driven they are for the most part. Those are the groups that are successful. They have a true passion for what they do and it shows in their business performance, their financial performance a lot of times, and shows really well with prospective partners and at the end of the day.

If you’re approaching the market exploring your transaction options, you’re exploring partnership options and there needs to be philosophical and cultural alignment between founders, owners, and the group that they ultimately partner with. That’s more important than the economics of the deal or some of the more quantifiable components of the deal.

Craig: I would just add too, if that’s all right, is one of the first things we do and certainly any potential partner investor is we always go on site, we meet the management team or the owner, the entrepreneur, and we always have them tour a clinic or a facility or where they do business.

You can get both ends of the spectrum, or just the culture and the people and the way they react to the owner can be great and really positive and other times you can tell they’re very distanced or there’s not a good culture. I think when you think about going to market and having a transaction, buyers can see that real quick, and so that’s stuff they’re always looking for that you can’t quantify.

Lauren: That, perfectly sums up in a much bigger version of what we think about on the marketing front, which is the same applies to the patients, you can sit there and put words on a website that say, we are this, we are that. Showing them and not telling them, letting them open it up and let them see that for themselves through video content, through featuring your providers, through testimonials of the patients that have had life-changing experiences whether it be through talk therapy or something like TMS or medication, whatever it is but I think the same thing applies, you can see right through it and who’s really doing it for a purpose and who’s doing it for the economics. Everything you’ve said we’re a bit of a micro. of what’s going on in y’all’s world.

Alex: What is the number one concern, guys, when a provider is looking to sell and is like, “I’m going to lose control over this thing and just be a cog in the big machine.” How do you all overcome that? Is it by bringing them into a partnership, an earnout, they have to stick around? I’ve seen the clinical qualities just drop off on some of these groups that are acquiring a lot, and then the providers leave because it becomes a machine. How do you set that up?

Craig: It’s not a good answer, but it is definitely case by case, but I think at the end of the day, most of these owners, this business is their baby. They’ve put blood, sweat, and tears into it for years. Sometimes 30, 40 years and they’re obviously, it’s time not actually to [unintelligible 00:20:43] or exit the business, but it’s time to take it to the next step and whether it’s professionalizing the business or just having someone else run the day to day. Whenever you’re giving up a majority, there’s just a control ego thing there, and that’s why you generally get some proceeds with the deal.

I would say it’s definitely finding the person that you can trust to carry on what you’ve built. That’s really hard to figure out through even dinner meetings. We constantly say, “Don’t talk to everyone under the sun, but you’ve got to talk to enough different cohorts of partners or investors and understand really what it’s going to be like to work with them, and then do reference checks and understand how they’ve worked with other founders in the past.”

Alex: Try to find the deals that didn’t go through with them or their fellow partners if they don’t list on one of their portfolio sites that fell apart. Try to find those. Maybe a lot of these providers– Something that scares me about some of these provider groups that look to sell is that they meet some PE firms and they sell without going through a process or hiring a banker. Steve, what are your thoughts on that? Obviously, [unintelligible 00:21:46]. Tell them the big pitfalls. What’s the danger there if they just, “They know a PE firm with lots of healthcare services in their portfolio. I feel good about them. I’m going to do it. I don’t need Steven and Craig to move on it.”

Steven: It’s not often you get to sell a business you’ve built over the last 20, 30 years. You really want to do it right, and you want to professionalize the process. I think hiring a bank is just a signal to the market that this is a professionalized process, that it’s a competitive process. Groups aren’t going to be able to fully take advantage of some of the unsophistication of some of our clients and they’re going to be competing with other prospective partners as well and so they know they need to put their best foot forward. Structuring a well-organized process and being able to control the narrative to the market, putting in there the marketing materials, putting in there the financial model increases the probability that a deal is likely to close and in most cases, maximizes valuation for the seller as well.

Alex: Also, you guys know the real players, and you also know the PE firms that aren’t going to just run them over and stuff like that. The counsel from you guys on who to talk to, and who to stay away from I imagine is invaluable. The first bite is slightly less, sticking around, second bite, is much bigger.

Steven: Yes. We know how all these firms have performed. We know case studies, good outcomes, bad outcomes, how groups behave through a process, how they behave in diligence once they go exclusive. How often have their deals actually gone through, were they having LOIs signed? All that comes into play as you fit your options.

Alex: How’s this year going to be? What’s our prognostication, Craig? What are we thinking? Is it the year of the tuck-in? Are we still seeing platforms born, money drying up, interest rates going up? What do you think?

Craig: Yes. [crosstalk] It looks like. I think we’re going to be okay. I think where Provident plays, we sit nicely in the lower middle market so our average deal size is call it, 50 million to 150 million of enterprise value. We’ll go below in certain spaces but this space is not as affected as say the Bull’s brackets or the mega buyouts where it’s $1 billion-plus and go and get debt rises or writing a check to fund the deal, is much harder, right? There’s still areas that investors and the lenders have to be cautious about. We’re still very bullish and optimistic and I think there’ll still be more add-ons or tuck-ins over the next call it 12 months. We went to JPM two months ago and undoubtedly behavioral hell if we ran the numbers as low as possible for a space in healthcare.

Alex: Yes. We get a new ABA lead or therapy lead just about every day. Yes, we’re going to fight. Can you invite me to this JPM [unintelligible 00:24:26] or anything like that through invite? How do I go to this thing? Everybody [crosstalk]

Craig: Give a lot of money, you’ve got to kiss a lot of rings, and just network like crazy, but no, it’s great.

Alex: Well, if you all let me see the rings, I’ll be out in Boston and kissing them. Something came from these rings. What do we have? We’re both having kids in the next month, is that right?

[laughter]

Steven: Yes.

Alex: [laughs] It’s okay. It’s 2023. We’re in investment banking and we’re having kids together. You never know. That’s exciting. Boys or girls, Steven, which one is it?

Steven: Boy.

Craig: Boy as well.

Alex: Boy, and what about you, Craig? That’s the way to go.

Craig: Someone say that to Lauren.

Alex: That’s the way to go. Lauren’s got boys. She likes a boy better.

Lauren: I always choose a son too. I think it’s going to-

Craig: [unintelligible 00:25:10] do you have a boy or two boys?

Alex: I have three. 14, 4, and 2. Yes.

Steven: [laughs] Yes, dude.

Alex: I had them young when I started Cardinal. I left the hospital and started [unintelligible 00:25:19] a day after. When you guys were talking about some of these guys for 20 years, I put 14. I’ve gone through raising babies and stuff. It is the baby and the exit must significant and we have heard the same thing you guys are saying. You need to have your own unique value propositions and marketing’s got to be on point. You’ve got to have your own marketing machine, you’ve got to have talent acquisition on point.

Very useful, very helpful, Craig, Steven, thank you for joining us on Ignite. Guys, if you want to find them on healthcare [unintelligible 00:25:47], find them on LinkedIn, you can search for them. Please, please, please, before you go to market, go ping them. These are the guys to know in the healthcare investment banking space. Steven, Craig, thank you for joining us on Ignite. I very much appreciate it.

Craig: Thanks, Alex.

Steven: Thank you very much.

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