E142: Joshua Catlett Shares His Experience in the Private Healthcare Sector

[00:00:00] Ronald Skelton: The How2Exit podcast. Today I'm here with Joshua Catlett. He's a investor, advisor, primarily I guess, in the, private healthcare sector and I bet you've ventured into some other stuff too. We're going to have a great time today. Thank you for being on the show, Joshua. 

[00:00:12] Joshua Catlett: No problem. Looking forward to it.

[00:00:14] Ronald Skelton: Now we talked beforehand. You can call me Ron. I should be calling you Josh. I'll do better about not calling you Joshua. I just read the screen sometimes. 

[00:00:21] Joshua Catlett: Amazing. I won't get offended. 

[00:00:23] Ronald Skelton: Yeah. So how did you get into this? Where did you start from? Kind of give us your origin story. Where are you located? Cause I know you're on the other side of the pond for me. 

[00:00:31] Joshua Catlett: I'm located, in the UK, between London and Oxford. I've been fairly entrepreneurial from a young age. Even looking back at my sort of, school days. I guess my first, first play into a business or the entrepreneurial world was in, selling protein powders, believe it or not.

[00:00:50] I didn't really know what profit was at that point. So I never, it wasn't structured as a business. I didn't do it to make a profit. Simply I,set up a supplier contract with aprotein powder supplement distributor in the UK. And I purely did it so I could gather orders from other friends, family, colleagues, in and around the gym.

[00:01:08] And,they effectively funded my protein and, supplement habits. So, I guess that was my, first venture into entrepreneurialism. But my first proper business was, founded at 22. So just prior to that, I just came out of university. I had qualified as a physiotherapist.

[00:01:25] I did two years working in a private organization. I had a fairly, odd start to my career. Most physios go into the NHS or they'll go down a,maybe into the military or private practice. I went into an occupational health company and worked in a service redesign leadership management role. Not particularly clinical or hands on.

[00:01:48] In fact, my boss at the time was very big into functional capability assessments. Which is much more prevalent in the U. S. than it is in the U. K. And I was actually sent over on a couple of occasions to the U. S. to work with a company called JTEC based in Utah. Learn some of their measurement devices and bring that skill set back to the UK.

[00:02:13] So that was sort of my, my start in, professional life. While I was with that company, I was working on one of their largest, largest contracts. A large, large car manufacturer, based in the UK. They had three sites and I was responsible for the occupational health team at,at the site near Luton.

[00:02:32] So I was heading up that site, running the occupational health team, with a particular focus on the physio aspect. And,I like to think I was doing a fairly good job. Anyway, unfortunately, the clients at the time decided they wanted to break with the company I was employed by, but they really liked what I had done with the business or with the department. 

[00:02:50] So they approached me and said, look, Josh, we don't like how the overall contracts being managed, but we're really pleased with what you've done. You've made some really big changes and big efficiency savings. If we split with the company that employs you and, look to kind of go out to tender, will you tender for it?

[00:03:06] I'm a pretty moral guy, pretty standup guy. So,I said, I will, but only if I've got the blessing of myboss at the time. He'd been very good to me. Anyway, so I approached him and said, look, you're going to lose this contract anyway, and,I'm ready to move on.

[00:03:21] I'd like to tend to fall thison my own, would you give me your blessing? And,thankfully he did. Which was hugely appreciative of. So that's why I bid for this tender. I set up a company, bid for this tender. I actually got a bit ofinvestment behind me. Looking to set up an occupational health physio group.

[00:03:39] And, I thought, wow, this is fantastic. Business is easy, isn't it? And,they turned around and said, thanks for your bid, we're giving it to somebody else because they came in at half the price. So that was my first hard lesson in business, if you like.

[00:03:52] That was a pivotal moment that made me go off on my own, but it didn't work out as a success. Anyway, I ended up with some investment left over from the investors. I was thinking, God, what am I going to do with this? How am I going to,the one opportunity I had is not come to fruition.

[00:04:10] So I went to market. Looked to tender for other opportunities, again, fairly naively. In that,trying to tender for large occupational health contracts.As a company with no trading history, no balance sheets, nobody was interested. I had this pot of money, I had no sales coming in,I had sort of dwindling savings, to support me personally.

[00:04:34] And, I had a few conversations with my mentor at the time and decided to use that pot of money to make my first acquisition. So I bought a small private practice, and that was in Hertfordshire. Again, just on the outskirts of London. And, that was the first business I bought. And it was a real labor of love, owner operator venture.

[00:04:54] I did a bit of the clinical work. I sat behind reception. I made the elderly clients cups of tea, roped my family and friends into paint the place, do the gardening, you name it. So, yeah, it's a real labor of love. 

[00:05:09] Ronald Skelton: So real quick, before we go too far. Let's clear up a couple of terms cause, we have a language thing here going on. On the other side of the pond, there's certain things are called certain things, in here it's called something else. Physio, is that like a physical therapist? 

[00:05:22] Joshua Catlett: Yeah. I think the remit is slightly different. I think in the States, it tends to be a little bit more rehab focused. Whereas in the UK, it's a little bit more treatment focused. Again, there's a fairly big difference in the practice, whether you're in private practice or whether you're in the NHS. But yeah, I think broadly speaking, the term in America is, physical therapist.

[00:05:47] Ronald Skelton: We have occupational therapists too. So if you just like something like starting to have early signs of like carpal tunnel or something like that, you can have an occupational therapist come in and look at your desk layout design and that type of stuff and make suggestions. But a physical therapist here would typically, like I've had a bunch cause I used to do sports a lot, race motorcycles and stuff.

[00:06:07] All the physical therapists I've ever seen is because I've had ACLs replaced and arms dislocated and shoulders dislocated. They're Humpty Dumpty doctors. They're trying to put you back together again. So there is a difference. Okay, cool. So you're more broad spectrum, anything physical, motion related? 

[00:06:24] Joshua Catlett: And again, I've not been, I guess, directly in that space operating for a while. But, I think the sort of dominant profession privately is chiropractic. Your side of the pond. Whereas, obviously we do have chiropractors over here, but it tends to be a smaller proportion.

[00:06:39] Physiotherapists tend to be the sort of more dominant, and I guess it's around 50 50 splits. So half work in the NHS, and there's a very broad remit from respiratory physio to burns and plastics. rehab to, to kind of your typical ACL or short dislocation problems. And then private practices, which tends to be very,musculoskeletal injury focused.

[00:07:06] Although there are community care, physios, elderly care. There is a very broad. 

[00:07:11] Ronald Skelton: The other term is "tender". When you say you're going to tender a business, is that buy it or run it or operate it? Or what's the...

[00:07:17] Joshua Catlett: The process of bidding for a contract. 

[00:07:21] Ronald Skelton: Okay. Okay. So you're out there soliciting. I think we would say soliciting or bidding or whatever. Yeah. But I was trying to figure it out right there for a second when you're chatting like, okay, Tinder, is that like where he's running it or, right? 

[00:07:33] Joshua Catlett: I suppose that the form that I'm referring to is a slightly more formal process of putting in a bid amongst competitors. As opposed to, I guess, kind of cold outreach and forming a relationship and providing a service. The company that I was working or that I was putting in a bid for at the time, they put out a formal requirement. They opened it up to the market.

[00:07:57] They've got a number of bids in and, as I said, mine was, sadly less competitive than, the winning bid. 

[00:08:04] Ronald Skelton: Yeah. Okay. So I was just curious. I don't know if it's the same way over there, but over here, dental practices, doctor's offices, chiropractic offices, private practices and stuff, they trade the operator, right?

[00:08:18] There are some roll ups we do,here you can't buy, I couldn't buy one. You have to be a licensed practitioner or you have to set up what's called a,management organization. So a DSO, MSO, medical service organization or dental service organization. Then you can actually own the business.

[00:08:32] And there's a lot of rules as to, you're going to own a medical office and hire in doctors, but you have no say into how they treat the patient. You can just have say over which doctors are employed or not, and office that type of stuff. But,it's a very niche market.

[00:08:51] I know I have good friends that are chiropractors. They've sold, eventually he came back and circled back around and started another one. But, there are probably just a handful of, less than that probably two or three decent brokers in town that know how to sell chiropractors offices and stuff. And it's usually selling, it's usually senior generation selling to younger chiropractors coming out of college and that type of, or schooling and stuff. Is that what you see too is a lot of their aging demographics selling to newer grads or what is a? 

[00:09:20] Joshua Catlett: It depends on the type of business really. The smaller practices have less options in terms of a sale. If you're turning over a couple of hundred thousands and you are working within the business, and most of that goodwill is associated with you as an individual. Then, you're not a particularly appealing or your business isn't a particularly appealing acquisition target to most buyers.

[00:09:45] In that respect, your best chance of sale is to an individual practitioner who wants to take over your caseload and run the business. Or a local competitor that wants to absorb your caseload. And incidentally,that's not really the kind of business that,that I'm supporting now.

[00:10:01] It was the kind of business that I bought. So after buying my first one, which was a small sort of owner operator led business. I then went on to do a,I guess you would describe it as a bit of a buy and build model. But I made seven acquisitions in that space, and they ranged from 100, 000 turnover to over a million turnover.

[00:10:21] So some sort of fairly small companies, companies that I would struggle to buy or sell these days, and some much larger ones. And my journey was, I bought all these businesses. I opened a number of organic sites. I put a bit more process infrastructure. And at that point, I sort of stepped away, became CEO and was on the business rather than in the business. And, created what became, perhaps not the largest in the UK, but certainly, one of the top 10 private physio groups in the UK. Which I then later, sold or part exited to private equity.

[00:10:56] Ronald Skelton: Okay, so that's cool. So we know what you bought and what you grew. What is your typical client look like now? What's the size range? Is it like, they're up, they're running, they've got, other physicians or physios or whatever working for them.

[00:11:09] They're doing a million plus. What is the target demographic for what you're looking at now? 

[00:11:13] Joshua Catlett: Yeah. So, I'm no longer on the, buy side in that sector. I did my buy and build. I kind of concluded that exit. And subsequently, I've set up a M& A advisory consultancy and brokerage.

[00:11:26] So effectively, I'm working as a, a broker at the moment. But very much in the, in the niche sector of medical and healthcare practices. There are factors that influence salability and valuation. I don't have a minimum cutoff, but as a broad,broad range, we typically tend to start around the sort of 200, 250, 000 turnover.

[00:11:50] Anything smaller than that, unless the owner is not too involved in the business or it's in a geographically very appealing area with lots of buyers, is quite a challenge to sell. It's seen as quite a risky, acquisition target. So generally speaking, most of the clients I work with, their practices are 200, 000 turnover plus, and they're not too involved in the business.

[00:12:12] The largest on my books at the moment is 1. 2 million. And that's in the kind of private practice sector. And that's not, not by choice. That's simply because there, there are very few businesses in the sort of physical therapy sector in the UK that are over a million. I don't have exact figures, but I would assume it's around, I'd say the top five to 10% of physical therapy practices, are a million plus. 

[00:12:37] Incidentally, I've had a number of conversations with, and I've had a number of businesses that are expected to engage me that are, two, three, four million turnover. But they tend to be a bit more,either multidisciplinary,in the more specialist psychology fields.

[00:12:54] Or medical device companies or medical marketing companies. Uh, perhaps on the peripheries of the healthcare sector or business serving healthcare sector. 

[00:13:02] Ronald Skelton: Do many of them franchise? So one of the physical therapies things I went through, now this is from an injuries, but, I was in a bad car wreck and, lost motion in my right arm, never getting it all the way back.

[00:13:13] I still can't fully extend my right arm. But, the physical therapist that they sent me to the doctor sent me to was kind of cool in the fact that it was, I don't know it's truly a franchise under the franchise laws here, but they had multiple offices. All my physical therapy exercises and stuff were in a computer system.

[00:13:31] So good example of why I liked it is, I was in one little town, but for a little while, I needed to go down about 150 miles away for about a day and a half. And, I was going almost every day right after the car wreck.For back and formultiple issues they had. I was there for a while doing different exercises and, but they had an office down there.

[00:13:49] I showed up, one of the ladies met me at the door, greeted me, pulled up my stuff on the thing, and I did the exact same exercises and had the, it was almost like, the same doctor was seeing me was a different dude, of course. And then his team helped me do these exact same exercises, recorded the same measurements and stuff.

[00:14:06] And I didn't feel like I missed a beat. Is that happened a lot? I'd never seen it before. Everything I've ever been to before was small private practices or, you'd have to see the same doctor every, every single time. Nobody else knew what you're up to. 

[00:14:19] Joshua Catlett: Yeah. I think it's a problem in the UK as well. The physio market in particular is very fragmented and there's a real, I mean, there's lots of fantastic practices out there. But the quality and the journey that you have is very inconsistent. You will have some practices that are still using, paper filing systems and, drawing stick men figures fit for your exercises. 

[00:14:45] There are others thatare using some of the fantastictechnology that's out there these days and, sending auto reminders and, giving you sort of biofeedback tools via apps that you can,that will enhance your engagement.

[00:14:57] But they are, as I said that there is,it's fragmented. So there, there isn't a, nationwide franchise model, and there isn't a nationwide high street model at the moment. I form a company which, has now been sort of taken on, and is,private equity company are the majority shareholder and driving that forward.

[00:15:17] That's effectively what they're trying to do. They're trying to create a nationwide high street brand of physio clinics. But that's under a, directly owned model as opposed to franchise. I think there's, there are some successful franchise models that are based over in Australia or New Zealand, that have, they've done well over there, looks to come to the UK, but I don't think it's ever really, take and hold. 

[00:15:40] Ronald Skelton: The reason I asked because, I see an opportunity there and I don't, I don't know when I went to. I can't remember what it's called. It was like, but I mean, they were set up in little strip malls too. You walked in, all their exercise equipment was in the exact same spot. I like, I almost kind of knew where to go set and like, you have your own routine.

[00:15:57] So I kind of knew where my next station was like, cause they had me doing different things. I had, severe vertigo because of it. I had a hematoma during the wreck. I had severe vertigo. So I do the balance exercise. They had a bunch of stuff I had to do and I just kind of knew, okay, well that's going to be around the corner over here in this area.

[00:16:11] And sure enough it was, right? So there's a huge opportunity, I think for a roll up or something to where you put everybody, consistency. The same practice is done across the board. You share knowledge back and forth and stuff. I just don't understand, why it hasn't been more proliferant.

[00:16:30] I don't know why it's not happening more where there's like not, a standard big national franchise for some of these type of industries. 

[00:16:39] Joshua Catlett: Yeah, and I think you're absolutely right there. There is an opportunity and I know there's lots of conversations going on, with a lot of the, sort of senior players. More established practices as to, how one would take advantage of that opportunity.

[00:16:54] And personally, I think franchising,is the right play. Why it's not being done yet, I couldn't say. But perhaps what one of the barriers at the moment, particularly after the COVID pandemic and Brexit is there's been a real recruitment challenge within the sector.

[00:17:11] I think, had Brexit not happened and had the pandemic not happened, perhaps we would have seen some more consolidation in the market and a few more franchising models emerge. But I think that those two events are very much, impacted the development in this market. But I suspect we'll see some exciting things over the next few years.

[00:17:30] Ronald Skelton: I've noticed since I've only been in this space for a couple of years now, but, I have noticed that each industry has its own valuation models, right? Some of them are just multiples of EBITDA or seller discretionary earnings. A lot of them are that way. Right now I'm doing like digital assets, blogs, newsletters and stuff that's done off of multiples of revenue.

[00:17:47] Just because they're all high profit margin. There's just different ways. What's the typical valuation model for these businesses you advise? If somebody was wanting to, think about selling it, how are they valued? 

[00:17:59] Joshua Catlett: Yeah, I mean, we typically use an EBITDA model that tends to be the one that most buyers apply when making offers.

[00:18:07] I'd say as a rule of thumb, a multiple of 3 to 5 is pretty normal in the industry. A couple of exceptions to that. So if the business is very owner operator led, and as I said, around the 250 turnover mark or smaller,you might see offers up to two and a half times, just to reflect the risk. Or you may see a, a more heavy earn out components on that.

[00:18:33] And, again, the, reverse of that is true for the larger businesses because there's very few businesses that are a million plus in the sector. Again, there seems to be, there's a bit more competition and I have seen multiples of,six at the higher end. Those size businesses.If you include performance based earn outs, then it might nudge it to sort of seven, eight. But yeah, as a rule of thumb, anything between 250, 000 turnover and a million turnover, which is the vast majority in this sector. Three to five times multiple of EBITDA.

[00:19:09] But of course, the important thing to highlight in that is that's adjusted EBITDA. So most, a lot of these businesses are owner operator. They obviously pay themselves in the most tax efficient way. And therefore the profits can be, artificially inflated or deflated. So obviously appropriate adjustments have to be applied.

[00:19:29] And I typically see most businesses in this sector operating around, somewhere between a 12 and 22 percent margin. That's pretty, pretty normal. 

[00:19:37] Ronald Skelton: That's pretty decent. So, what's the time on market for one of these? The reason I'm thinking is, your buyer pool is either, strategic, meaning that's a, somebody already in the business, somebody acquiring it or, licensed professional, right.

[00:19:53] at least here you'd have to, unless you're playing a rollup strategy where you're, we've set up a DSO, MSO or something like that. I couldn't buy one. You could, your licensed. I don't know how the license would transfer over to the United States, but if you were licensed here, you could do it, but if not, you'd have to go a big roundabout way.

[00:20:07] And it's, not outrageously expensive. I think you can set up a DSO or MSO in most states for about 20, 000 to 25, 000. But that's just, part of what you'd have to do to buy a physical therapy slash dental office slash medical office, or even a veterinarian services. Anything that's got a medical license. 

[00:20:23] Joshua Catlett: So there's, there's not as much red tape around physio or physical therapy practices. So if you want to acquire, or if you want to set up a medical practice, and you're doing more invasive procedures, then you need, CQC accreditation.

[00:20:37] That's Care Quality Commission. If you're buying a physio practice, there isn't that requirement. You can be an outside investor and go and buy a physio practice with no prior experience running it. The regulation side comes with the individualprofessionals.

[00:20:54] So I guess there's two things to look out for. The physiotherapy in the UK is a protected title and physiotherapists therefore need to be registered with the health and care professionals council. All of the physios that you're buying have to be regulated, but that's an individual thing as opposed to a business thing.

[00:21:14] It's always advisable that they're members of the main governing body, the charter society of physiotherapy, which also gives them, sort of malpractice insurance. But again, that's on an individual level, not a company. The company that you're acquiring, although quite often I see the company owners relying on the individual practitioners insurance, should have its own professional indemnity malpractice insurance. 

[00:21:39] Doesn't have to have any direct sort of,association with the regular regulatory body. That's not to say that some of the top ones act in a more hospital, operate more like hospital and they do have CQC, but they tend to be the physio practices that also have, orthopedic consultants working in there.

[00:21:56] Which do require that regulation. The other thing which is, I guess it's not a regulatory requirement, but there are some requirements placed on those businesses by insurance companies and the insurance companies are the one that ones that refer a lot of work.

[00:22:11] So, the clients typically come from either insurance companies. Private individuals that simply walk in off the street and say, Hey, can you fix my knee? Or you have acompanies that are, I guess, acting as a go between the insurance company and the practice, which we refer to as intermediaries. And, intermediaries have a lot of, sort of service level agreements and KPIs that they put in place.

[00:22:37] The insurance companies have slightly stricter requirements, and it's usually around, I mean, some typical examples from the likes of Axel and Bupa. They require you to have a lead therapist, who has x number of years experience. They must've had their HCPC license for a minimum number of years, things like that.

[00:22:57] So it's, it's not totally unregulated, but it's loosely regulated. And therefore, from a buy and build perspective is an quite attractive market. 

[00:23:05] Ronald Skelton: I have not looked into it, whether or not you can buy a chiropractic office, cause it is here, depends on who you ask. And if you ask a doctor if a chiropractor is a real doctor, they'll tell you no, but if you ask a chiropractor if he's a real doctor, he'll tell you yes.

[00:23:19] And I don't know there's any clean, clear cut definition of that. They both go to an enormous amount of school and stuff. But I'm curious, I haven't done the research. I'll have to Google that after, Google it after the show. Now I'm curious as can I buy our chiropractic, a physio business here without having to set an MNSO up, like a medical service organization up.

[00:23:38] Or a physical therapist office, right? Because I'm not, not exactly sure on that one. Because that might be one of those, it might be slightly under the radar of these licensing authority type of figures and they may allow it.United States it's a little weird on that type of stuff because it's like, X is, got it regulated this way, but you're Y, you're kind of X, but you don't have the license to do X. But you know, there's a subset of it. You can get that and then they change it on you.

[00:24:07] The guys that are licensed start losing business. So the guys that aren't, and then all of a sudden there's new rules put in place. Tell me about, if you've had some exits, you had some acquisitions and stuff. there was any lessons learned in some of those that you apply to both yourself and your clients in the future. Did you learn anything from exiting the big business you built out to private equity that like, okay, I'll never do X, I'll never do this again.

[00:24:29] Or, Hey, I really liked the way that went and, everybody should kind of know something about it? 

[00:24:33] Joshua Catlett: Yeah. I think, I mean, I've learned a lot of, a lot of lessons with every business that I've bought. Lessons with every business that I've sold on behalf of clients.

[00:24:41] And I learned a lot oflessons with,working with private equity.I think the big one with working with private equity is,the value of having that corporate governance,regular reporting, systems, processes, structures in place. I think it really,it can help, help an organization at a certain stage.

[00:25:00] Personally, that side of things wasn't so much for me. I mean, I've always beena fan of, well, I've always bootstrapped companies. I've always been a fan of sort of scrappy deals myself. Suddenly having a bit more red tape and restriction. I personally found that a bit,suffocating, perhaps a little strong, but, certainly it didn't,it didn't allow me to flourish.

[00:25:20] But having those,additional expertise and contacts around you was excellent. I think the advice I'd give anyone that's looking to work with private equity is,choose carefully. Prior to me,accepting the offer I did and working with a private equity firm that I did, I was approached perhaps on a, certainly a monthly basis, if not a weekly basis.

[00:25:39] And a lot of the term sheets that I get were sneaky. They had very attractive valuations, which as a young entrepreneur, I saw sort of dollar signs and thought, great, I'll go with that deal. But on closer inspection, actually, they were,pretty restrictive.

[00:25:54] And effectively, it was a,ways of almost sort of silently taking over the company. And unless you've got a, a sort of billion, billion pound, billion dollar exit,ultimately you would end up with very little share in the exit. They were the deals that I rejected.

[00:26:10] Interestingly, I went with a private equity firm that was,backed by a fairly well known UK entrepreneur. It was, mostly his money that was being invested. He was verykeen on technology. He shared values with me.

[00:26:27] He loved the sector. As much as it was an investment for him and his team, there was certainly a passion behind it, and they shared a vision with me. I had a gut feeling about them being the right partner. And I'd always say, look, stick with your guts.

[00:26:42] Don't just go for that high valuation. The business did achieve a very good valuation. It was a very, very fair term sheet, but actually, there were higher offers on the table, but I selected this particular partner because, I felt like I could work with them. And that was more important.

[00:26:57] I think gut feeling is key in that. In terms of the acquisitions that I've done, I think my, my number one lesson is, don't underestimate, I guess the, nervousness that, or the, that the worry that goes through staff's heads when they find out their company's being bought.

[00:27:12] Whenever I've made mistakes or failed, which is plenty, in acquisitions, it's usually been because I have not communicated enough and it's usually caused an issue with a, an individual and usually in this sector. It's very, it's people-centric. So if you lose a member or staff when you're acquiring a company, it can have a big impact on the business.

[00:27:35] Again, top tip on acquiring in a people centric and service heavy businesses over communicates from day one, keep people in the loop and that will certainly help with a smooth transition. 

[00:27:48] Ronald Skelton: Yeah, I have my own criteria. Everybody has their own criteria, what they're looking for.

[00:27:50] And I kind of shied away from service based businesses mainly because at the end of every single day, all your revenue generating capability walks out the door and goes home. So in the doctor's space, even like IT consulting sector and stuff like that, at the end of the day, if every asset you have walks out the door and goes asleep in their own bed, there's a little concerning factor.

[00:28:12] There's no, a lot of those companies, especially IT and, physio, your physical therapy slash, chiropractic. The people are the business, right. And one of the reasons that I kind of shied away from that is, inherently with acquisitions and mergers, people are resistant to change.

[00:28:30] It's very common to have the staff move around a little bit, once there's a change to. They stayed because they were loyal to the previous doctor or the previous physio. They had the connection there, now that's gone. Well, they like the new guy. It's a lot of uncertainty for them. So I can see where you're saying if you don't communicate really well, it's disruptive to the, to the company.

[00:28:50] Joshua Catlett: You've got to be very tactful. You've got to tread carefully. And I think, as part of any offer, you need to think about how you're going to retain staff or mitigate the risk of their loss. What one technique I use when I was acquiring businesses is, I would identify the sort of key revenue generators or the key staff and, factor into my offer, a golden handshake for those individuals.

[00:29:14] Again, it would make me look like the, the good guy coming in, offering them a bonus on day one. And that bonus would beretained by those staff members,so long as they remain with the business, but for a certain amount of time. I've seen some really good deal structures, that are, I suppose their earn out, that part earn out in their nature. 

[00:29:34] But a lot of sellers get a bit wary of earn out deals. They don't like to be tied to a particular revenue, makes them very nervous and it's very hard to get someone to agree to that. But I did see a structure recently that I thought was very clever, where a buyer heard, made an offer where with some upfront components.

[00:29:52] And a cash bonus after the owner of the business had performed, I think it was 200 procedures. Which I thought was quite nice because you're tying them into the business and the business is success, but you're also, it's very much within their gift to deliver that.

[00:30:09] If they want to do those 200 procedures in 6 months and work really hard and get their cash bonus, it generates money for the business, it keeps them involved and they get that payout. If actually they want to be a bit more flexible and it takes them 2 years to achieve that, they still get the bonus. 

[00:30:23] It's not associated with any other changes that are made. It's simply, it is a isolated KPI if you like. So yeah, you can do some clever deal structures to, mitigate the risk of key staff leaving. But I think it's really important in this sector. 

[00:30:37] Ronald Skelton: I bet. I can imagine there's a lot of these guys are small shops too. They're probably 10 people or less. Is that very common? 

[00:30:43] Joshua Catlett: Yeah, mostly. I mean, I'd say sometimes even quite a bit less than that. I mean, the average size of the, of private physio practices in the UK is around 350, 000 turnover. Typically doing 50, 000, net profit. With a, owner operator and four, maybe five associates working with them. 

[00:31:04] Ronald Skelton: So if you thought about, if you look at that and go, okay, the, owner operator, especially in, maybe they have an x ray tech or something like that. If they need that, like chiropractors use a lot of times use x ray and, or they have, they have a couple of different people. It's like usually small. Any company where there's less than 10 people, you start losing one or two, that's a significant percentage of the company. 

[00:31:25] Two people is, you lose the owner cause the owner's transferring out and two other people, you just lost 30 percent of the company. As far as, manual hours is on.

[00:31:33] Joshua Catlett: Definitely a risk. I mean, I think most buyers are, particularly worried about somebody leaving and taking their caseload with them. That tends to be a rarity.

[00:31:43] I don't see that as often as people might think, but that tends to be the, the overwhelming concern buyers have. More commonly what I see is somebody that isn't willing to work,under a larger corporate entity and decides that they want to exit just before the company is sold, or during the process or immediately after.

[00:32:03] And again, as a rough rule of thumb, you typically tend to find that when you lose a clinician and have to replace them. You should probably allow for around a 20 percent drop in revenue that's associated with that. So, if it's managed well, you will retain a lot of those clients, but it will take you a while to rebuild up a caseload for a new practitioner. So allow for around 20 percent drop in revenue. 

[00:32:30] Ronald Skelton: If you think about it though, I mean, I've been through enough physical therapy. Unfortunately with being having that car wreck, before that I raced motorcycles and before that I taught martial arts and participated in martial arts thing. So I've been in physical therapy more than most of the general adults.

[00:32:43] I've been through, I've had six knee reconstructions, my ACL has been replaced three times. Two times with one leg and one, one in the other. Kind of give you an example of how many times I've been to the, the physical therapist and stuff. I was sitting there thinking about what you were saying about you losing technician, and you can lose 20 percent of your business.

[00:33:01] I know for a fact that after all those times going there, after a couple of times going, you have your favorites. Like I've waited as much as 30 minutes for my tech to be available because, I liked the way she did the exercise or he did the exercises. They didn't push it to him and pain leaving, but they pushed me and we got the stuff done.

[00:33:16] You almost feel it's like a doctor or anything else. You build a bond with them. And when they're gone, you're like, yeah, where did they go? I'll just go with them. You kind of try to hunt them down and go back, figure out where they went to work. And it goes with the tech too, because a lot of times it's not just the doctor. A lot of these, at least for me, I remember going to a bunch of these, I seen the doctor once. He gave me the list of stuff to do,or the doctor, but the top guy, the head tech. And then his, his attending techs the, whatever you want to call them. 

[00:33:41] I forgot what they're called now, but you know. The other people working there is you get assigned one of those guys and that's the one you work with for months, right? They're the one having you do the exercise, marking your measurements on the chart and doing all that.

[00:33:52] They're the ones that, they have small talk with you while you're, you know. For me, when they're trying to get my arm to fully extend, they would dangle in a 50 pound weight with my arm hanging off the table. Trying to stretch it back out. They're the ones sitting there talking to you.

[00:34:03] Okay. It's only one second coach. Like you only got one more minute. Can you hold that for one more minute? And, you build bonds with these people. 

[00:34:08] Joshua Catlett: I suppose it's, it depends on the nature of the injury in the rehab. If you've had a procedure done in hospital, let's see it, let's say an ACL repair.

[00:34:17] The recovery for that is longer. The intensity of physical therapy is much greater. And therefore you're probably having quite regular visits. And therefore you are going to build a bond. And, if your particular practitioner moves down the road, there is a risk with that.

[00:34:34] More commonly, what I see is that the vast majority of referrals that go into private practice in the UK tend to be shorter cases. Someone goes in with shoulder pain, I have 345 sessions and,and usually the practice, and I might be able to 3, 4, 5 week period and then they're discharged.

[00:34:53] Typically I see that there's, in most private practices in the UK, there's your client base is being replaced quite quickly. And you may not go back in again for another year. In which case you're probably not too concerned whether it's the same person or somebody else. 

[00:35:08] Ronald Skelton: I was just thinking about the, longer term things. The difference between my first ACL replacement in 1995 or four, and the one that have, my most recent ACL replacement, which was in 2007 I think, was the first one, was in the hospital for two or three days. My leg went into atrophy.

[00:35:29] I actually had to do electrical therapy to like, learn how to use my leg again. Spent a weeks in a, weeks or almost a month in a wheelchair. Physical therapy, like, full blown thing. The last surgery, same thing. And they used a third of my, what's it called, patella on the other leg.

[00:35:44] The first one to replace my ACL on the other one. I'm probably butchering the name of that, but a third of the front big fat ligament that goes out the front. The other two were done with cadavers. And the most recent one was, I think it was in 2007. It was outpatient. I show up, they gave me a local, like a lower, it was still a spinal tap type of thing.

[00:36:01] But, when it wore off, they handed me a pair of crutches and told me to go home. And,the physical therapy, I showed up, he gave me a list of exercises to do. Now I've done them two times before. This is my third thing. He gave me a list of exercises I'd do, and I do everything from home.

[00:36:14] The one thing I did benefit was, I got full range of motions on both of those. So I did every step that they said, and that's why it was kind of this disheartened. Out of the car wreck that didn't get full range of motion of my right arm back is because, I've been through all these things before and they told me you're never going to get 100 percent of your range of motion back. And I'm like, yeah, I will because i'm gonna do every exercise you tell me to do, I'm gonna do it the way you tell me to do it.

[00:36:35] And then I did that with the physical therapy on my arm and it just didn't, the damage was too much. That said, you build relationships with those people. All the stuff I've had was probably about enough. I was there going there for weeks, as opposed to two or three times.

[00:36:48] I'm sure I've had a few times where I went to the physical therapist for two or three times and I was done. But, the ones that stick in my mind are the ones that had to go in there for a long time. 

[00:36:55] Joshua Catlett: I suppose it's, I mean, if you're looking at it from a bond perspective, yes, it is a risk. You're absolutely correct.

[00:37:02] The demand for private physio is so high at the moment and the supply is very limited. That actually people choose to go to a practice based on its location, availability, and perceived quality. And I think it's, the demand is so high that we're moving to a point where people go to a brand or a location, rather than to an individual.

[00:37:27] Ronald Skelton: It happens here too. And when, with the arm thing, with the physical therapy that I've, I got the rest of it back. My neck was fine and my balance came back fairly well. The only thing I wanted to keep going there for, was the arm.

[00:37:39] And when I, your insurance gives you so many treatments. And after that, it's like, if you don't have it fixed by now, it won't be fixed. I offered the, the small company, they had kind of a chain. I said, like, I'll just pay it out of pocket and I'll keep coming until we get it working.

[00:37:54] And they couldn't, because they were so booked up with that insurance and other insurance providers. They just, they actually had booked my slot knowing that my insurance ended that day. That was supposed to be my last treatment. I would have to wait weeks and weeks before I could get a new slot to come back in.

[00:38:08] They were that booked. So it's probably the same here as being like, it's pretty backlogged. They make room for injuries and stuff like that. But, I think the demand here is just the same. I don't think there's enough, the supply of trained professionals hasn't caught up with the demand of people needing the expertise.

[00:38:25] Joshua Catlett: Yeah. In the NHS, which seems to fruit, fruit free healthcare in the UK. Waiting lists, I mean, it will vary by, by sector. But waiting lists can be three, four, five, six weeks. And that, that's pretty good. It can be a lot longer. And once you do get in, the resources are so limited, that you may get two or three sessions.

[00:38:48] They may be three weeks apart. There are a lot of limitations to, to what you can get from the NHS in terms of physio. The NHS is a, an absolutely fantastic organization for emergency care. And that's where most of the resource code, but anything that is, physical therapy or rehabilitation. Certainly the quality is great, but the resources are limited.

[00:39:09] Ronald Skelton: I have a, there's one for you. I'm curious if you're, out of curiosity, because I'm interested in this industry a little bit. What about telemedicine? Is that happening there with this type of stuff?

[00:39:17] I know during COVID, one of my friends got hurt, occupational hazard. He got hurt driving a forklift. He drove off the dock on a forklift, on actually backed off of the dock. He got hurt pretty good, but the physical therapy was done from a webcam, like a zoom, right? They gave him exercise sheets.

[00:39:33] They, sent him PDF of exercise sheets. They would get on there and they have consultations. They would even made him move his laptop and show it like, show me how you're doing the exercise. Why are you having pain doing that particular one? And they just did everything on camera.

[00:39:46] I wonder if that stuck after COVID lifted. I wonder if a lot of, my doctor right now, I can either go see him or I can meet him on, send him an email, tell him what's going on. He might pop up a, an email chat and I can talk to him over the thing. So this things like he knows, like my allergies, medicine's not working quite right anymore.

[00:40:02] He needs to switch up that. They'll just switch it up and I don't have to go see them. It's telemedicine. Are they doing that in the UK for some of this now or? 

[00:40:09] Joshua Catlett: To a degree. So telemedicine, it is very popular in a lot of fields.

[00:40:12] More so I think in sort of psychology and, GP appointments, uh, pro GP appointments. It hasn't stuck as much with physical therapy . And I think that there's a perception that you need to go and see somebody and be touched. which I think there, there's a bit of a mixed opinions within the sector.

[00:40:30] And I think really the effectiveness of it very much depends on what the problem is. Telemedicine can be very effective in the physical therapy space for certain conditions. And I certainly think that if it enables you to access those services quickly and efficiently. It's great for your initial session.

[00:40:53] But, being in an environment where you've got the right equipment,you've got some supporting you for a lot of injuries and a lot of rehab,it's still,still the preferred method, I think for most people. And a lot of it's perception.

[00:41:06] Clients in that sector are, less comfortable or find telemedicine less appealing. They'd rather go and see that. 

[00:41:14] Ronald Skelton: I can see that like some of the exercises, like for my knee, I could do them all from home. As a matter of fact, when I did the last surgery, it was with Kaiser.

[00:41:22] And they sent me, they're the ones that like did outpatient. Kaiser is a big, HMO here. Fairly well run, but they sent me home and gave me like the exercise sheets. I went and seen the physical therapist. But he had me like only once every couple of weeks. We'd usually like, okay. I would go in for my measurements.

[00:41:37] But I would do the exercises. He showed me the exercises I do in my home, right? Stretching exercise, mobility exercises and then he'd come in and measure me every once in a while. I would go in for them to measure range of motion. So it was kind of a hybrid on that. They didn't do anything over the telemedicine. This was 2007, right?

[00:41:54] I was just curious if it's starting to pick up a little bit, like how much of it's staying. If COVID made a shift in the industry, because the reason I would be interested in it is, it's an industry that won't go away. It's recession proof. And I wouldn't be interested in buying the actual company or investing in the company that's doing this stuff.

[00:42:12] But the guys providing the telemedicine software, it's not straight up zoom. If you had something, you could rebrand and create a tool that's for this. Or somebody already done that, some type of SaaS around it. That'd be an interesting, adventure to have, the support structure around telemedicine and stuff.

[00:42:28] Joshua Catlett: Yeah. No, I think it's, I mean, you can deliver very effective physical therapy with a hybrid approach. Again, it depends on what technology you've got. And I guess the company delivering it. As I said, a lot of businesses in, in this sector in the UK are small owner operator. Don't necessarily have the capital to invest in that kind of technology.

[00:42:53] And therefore, with the best will in the world, it can end up being a zoom session to replace a normal physical therapy session. Which, on its own, probably isn't that efficient. But if you're pairing it with, a system that can deliver a structured exercise plan with good guidance videos,and,tools for feedback between patient and therapist and interactions in scoring,then it can be a absolutely fantastic. There's one company called, Physitrack. I think they're the market leader platform, that do deliver that technology and it's fairly accessible to, most practices. They have a monthly subscription model per team member. 

[00:43:32] Ronald Skelton: Where do you see the market going right now?

[00:43:34] I think your industry, like, It's a little bit recession, for people are going to get hurt. People are going to feel pain. People are going to feel,like they need help mobility wise and stuff like that. I think it's recession resistant. But with the economy doing what it's doing, it's uncertainty here in the United States. The interest rates are going up and everything like that.

[00:43:54] How do you see that impacting your market and your businesses? 

[00:43:57] Joshua Catlett: Yeah, I mean, I've seen continual growth, in this sector for the last few years. Demand for, private healthcare services in general, seems to be growing. Again, an approximation, I saw the vast majority of practices in and around London, they were seeing, 30 percent growth since, compared to pre pandemic numbers. The exception to that being central London, which has been impacted by hybrid working.

[00:44:24] So just the volume of people that are accessing those services near their work, is lower. So central London demand has declined slightly. Although that's, that's sort of nearing pre pandemic levels. But yeah, certainly home counties,affluent suburbs of London, and other major metropolitan areas that there's been a big increase. I think there's a variety of factors driving that. There's,less availability of physios, which means there's a bit of a supply problem.

[00:44:49] And,many unfortunately,went under during the pandemic. So the practices that, that, have survived have obviously picked up a large percent of the market share. The NHS is under extreme pressure. You tend to find, that during times of uncertainty and when people are under financial stress, that mental health and physical health or pain associated with it can be impacted.

[00:45:14] So there's a number of drivers that are very much, kind of pushing people to accessing private healthcare services, but mental health and physical health in particular. 

[00:45:23] Ronald Skelton: So as an investor that knows absolutely nothing about this industry, other than what we've learned today, and maybe a talk with, somebody you might know, Ross and some other guys in this industry.

[00:45:32] Would you recommend outside investors to look at this? Like if I, if you were to talk to a guy like me or somebody else that like, we're looking for acquisitions and we're looking for well, good companies that run. If you don't have the background in this industry, is this something that somebody should be looking at? Or do you really need the background?

[00:45:49] Like you have the, the training and expertise in this industry. 

[00:45:53] Joshua Catlett: I think there's a huge opportunity, particularly for a buy and build in this, and potentially a franchising model. I think it's perfectly suitable as an investment for somebody outside of the trade. But I would encourage anyone that does go down that approach to, to either find a platform business, with a decent infrastructure and a good clinical leadership team. That they could then, acquire bolt ons on.

[00:46:18] Or find a partner that could act as their clinical lead. Generally, one of those two approaches is going to enable you to enter the space. But as I said,the regulation isaround the individual professional. They're sort of, limited regulatory constrictions.

[00:46:34] The demand is good. Again, I suspect that the biggest challenge that the industry faces at the moment is recruitment. Although that, that is slowly improving. I'm seeing a real shift or have seen a real shift in the last six months or so. We're seeing more candidates, traveling from Australia, New Zealand, South Africa, coming back to the UK and,they tend to be very good quality physios and they're looking for work. So that the labor market is improving.

[00:47:01] Obviously they're still, still impacted by, by Brexit. But, yeah, certainly sort of more, more internationally we're seeing coming over and, filling those jobs. 

[00:47:11] Ronald Skelton: Oh, awesome. So how can myself or the audience help you out? This is your chance, I don't think I told you beforehand.

[00:47:17] It's always okay to pitch on our show. So this is your chance to go hey, yeah, so this is your chance to go, here's the kind of companies I broker. Here's what I'm looking for. Or even if on your acquisition side, if you're still looking for acquisitions, here's what I'm looking to buy. Use this opportunity now to tell us how we can help you.

[00:47:31] Or if we have a company, what kind of companies you advise, so that, somebody listening to this, they know exactly what to bring to you. 

[00:47:39] Joshua Catlett: Sure. Well, so the main thing that I'm doing at the moment is, I'm helping private practices to, to exit. If you're an owner of a private practice and you want advice on preparing your business for sale, valuing that business or taking it to market and selling, please do get in touch.

[00:47:55] We've got a very good success rate and I think we're probably one of the only sector specialists in the UK that deal with,exclusively with healthcare and, medical practices. Certainly, uh, people are looking to sell. I have less of a network over in the States, so I can advise, and I probably have less success on the sales side.

[00:48:15] So again, happy to have conversations, but my, my market is predominantly the UK. I do have some European buyers as well and sports practices over there. I'm always looking to increase my, list of investors and buyers. So if,if there's any, anyone from,from the US or from the UK, that's looking to enter into this market and make acquisitions, then, please go to my website and sign up as a, a buyer.

[00:48:38] The website's, verilo.co.uk. That's spelled, V E R I L O. And have a browse of the businesses that are available or sign up. On a personal note, I am always looking to invest or join the board of,of companies. I'm interested in startups or more established companies. In a variety of sectors, but I prefer businesses that operate on the fringes of health care.

[00:49:04] i'm also looking for acquisition opportunities myself. Again, predominantly in the UK at the moment. But again, any businesses that serve the healthcare market, whether that be a healthcare marketing business, medical supplies, and operate within a niche. Whether it be pediatrics or women's health, fertility clinics, serves one of those markets. And, my target zone is probably businesses that are turning over, at least a million, but ideally sort of 1. 5, 2 million and above. 

[00:49:38] So anyone looking to exit, and, with a business that matches those descriptions, I'm certainly open to acquisition and I have lots of colleagues and, investment consortiums that would, also sort of join me on a, on various projects.

[00:49:51] Ronald Skelton: Awesome. Sounds great. Well, I appreciate you, being here today and, I think we should call that a show. 

[00:49:57] Joshua Catlett: Thank you very much.