Latest / No Appointment Necessary / Buy My Clinic, Not My Soul: Valuations, Roll Ups and MSK Reality

Transcript

Buy My Clinic, Not My Soul: Valuations, Roll Ups and MSK Reality · No Appointment Necessary

• 0:00
  Michael: So, welcome to the latest, greatest podcast in the world ever for MSK clinicians.
• 0:04
  Michael: Today we've got quite an exciting one.
• 0:06
  Michael: We've had quite a few requests for this one.
• 0:08
  Michael: It's with Kinetico Health, and we've known Kinetico for for quite a long time now.
• 0:12
  Michael: And it's it's gonna be fascinating because we're gonna be delving into essentially within the within the MSK sector, which has become such a huge topic over the last year or two.
• 0:23
  Michael: So I'm gonna be throwing a lot of questions at them and so on.
• 0:26
  Michael: So first of all, welcome Claire and do you want to give us a quick background on who you are, just to get everyone in the in the know?
• 0:34
  SPEAKER_03: Yeah, sure.
• 0:35
  SPEAKER_03: Well, first of all, thank you for for having us.
• 0:37
  SPEAKER_03: We're very, very excited.
• 0:38
  SPEAKER_03: But yeah, Sharp, do you wanna tip?
• 0:40
  SPEAKER_03: I go first.
• 0:40
  SPEAKER_03: I go first.
• 0:41
  SPEAKER_03: Okay.
• 0:42
  SPEAKER_03: So I am I'll start on a personal introduction.
• 0:45
  SPEAKER_03: I'm originally from Lebanon, um, but I grew up in Mexico.
• 0:49
  SPEAKER_03: I spent most of my life there.
• 0:51
  SPEAKER_03: I went to university there.
• 0:52
  SPEAKER_03: I went to work in management consulting afterwards.
• 0:55
  SPEAKER_03: Um, I did that for a few years, covering a bunch of different sectors and a bunch of different projects, but always really focused on like finding a way to sort of improve the processes and improve the outcomes of like very big companies.
• 1:07
  SPEAKER_03: I did that for a few years before uh pursuing an MBA at Harvard Business School, which is where I met Claire.
• 1:13
  SPEAKER_03: So I did that for a couple of years before deciding to move to the UK, which was about seven years ago.
• 1:19
  SPEAKER_03: So I did that.
• 1:21
  SPEAKER_03: I'm very happy to call London Home.
• 1:23
  SPEAKER_03: I've been here for the full seven years and also planning on staying here, you know, indefinitely, let's say.
• 1:30
  SPEAKER_03: I worked in finance for the majority of that time and worked in MA at a bank called Morgan Stanley.
• 1:38
  SPEAKER_03: I sort of learned the ropes on how to get deals done, but I think more importantly, I took away from that that I was really yearning for a lot more purpose in my career that sort of finance wasn't giving me.
• 1:49
  SPEAKER_03: So I decided to sort of take a plunge, leave the sort of comfort of a corporate job and become an entrepreneur in a sector that was radically different.
• 1:58
  SPEAKER_03: And that's you know, sort of the I'm I'm I've been diving into how we started Connecticut.
• 2:03
  SPEAKER_03: So I'll pause here for a sec because I'm sure that's gonna come next and I'll let Claire do a personal intro.
• 2:08
  SPEAKER_01: Yeah, I'll keep it really quick.
• 2:09
  SPEAKER_01: Um, my name is Claire.
• 2:10
  SPEAKER_01: I grew up in the Midwest, I'm American, of course.
• 2:13
  SPEAKER_01: Uh I started my career in New York as an investment banker and then worked at a private equity firm.
• 2:17
  SPEAKER_01: And then we're gonna talk about private equity in a sec.
• 2:19
  SPEAKER_01: Uh I then went to Harvard Business School, met Yoni, and then I moved to London.
• 2:23
  SPEAKER_01: So I've now been here for seven years.
• 2:25
  SPEAKER_01: I spent a few more years working in private equity here.
• 2:28
  SPEAKER_01: I always had an itch to do something far more entrepreneurial, build something of my own, be able to control my own destiny in a way.
• 2:35
  SPEAKER_01: And there are a lot of reasons why I left private equity, which we can we can talk about.
• 2:39
  SPEAKER_01: Yeah, as Yoni mentioned, we started Connecticut Health about two years ago.
• 2:43
  SPEAKER_01: Uh, we acquired our first two clinics a little over uh one year ago where we just passed our one year anniversary, which was fantastic.
• 2:50
  SPEAKER_01: So we acquired the Give Health Center in Leeds and then the Well Debree Clinic in Cannington.
• 2:54
  SPEAKER_01: Six months after that, we welcomed Van Morale Physiotherapy into our group.
• 2:58
  SPEAKER_01: Uh and then quite recently, uh we just closed on our fourth acquisition of dynamic chiropractic out in sale.
• 3:05
  SPEAKER_01: And yeah, we're really excited to tell you a little bit more about us and some of our reasons for you know diving into the sector.
• 3:14
  Michael: Sure.
• 3:14
  Michael: Well, let's get into because you've got so there's four clinics now and many more sort of on well in the plans anyway.
• 3:20
  SPEAKER_01: So ongoing conversations, yeah.
• 3:23
  Michael: Yeah.
• 3:23
  Michael: Talk to me about Kinetico.
• 3:24
  Michael: So, what is Kinetico?
• 3:26
  Michael: What are you trying to achieve?
• 3:27
  Michael: Who are you?
• 3:27
  Michael: You are digging?
• 3:28
  SPEAKER_01: Yeah, sure.
• 3:29
  SPEAKER_01: So our grand ambitions are to be the house of or the home of 40 leading private multidisciplinary MSK clinics across the UK.
• 3:39
  SPEAKER_01: And we aim to be a solution for sellers for the most part.
• 3:44
  SPEAKER_01: Stage one is we provide capital to acquire your clinic when you're kind of contemplating retirement, or you might have other capital needs.
• 3:51
  SPEAKER_01: You might be looking for a partner to help like take your clinic to the next level.
• 3:54
  SPEAKER_01: Step one, we're a partner for owners of great clinics.
• 3:57
  SPEAKER_01: That's kind of how we came into this and where our skill sets really lend themselves to this industry.
• 4:02
  SPEAKER_01: There are a lot of 55 to 70-year-old clinic owners that have built something great over the course of multiple decades.
• 4:10
  SPEAKER_01: It's probably too large to pass on to the next generation of physio, osteo, or carro in their clinic.
• 4:16
  SPEAKER_01: And they want some financial reward for the decades that they put into it.
• 4:21
  SPEAKER_01: And we believe they should be paid fairly for that.
• 4:22
  SPEAKER_01: So that's step one.
• 4:24
  SPEAKER_01: Step two is ultimately we want to be you know the home for exceptional practitioners to build a career.
• 4:30
  SPEAKER_01: So obviously, we've been patients at multiple different clinics, we've had multiple different ranges of care from the NHS to like premium, premium private.
• 4:38
  SPEAKER_01: And there is a real difference between, you know, having someone with experience and confidence and someone that can help you sort through the issues that you're encountering, and someone that, you know, kind of maybe isn't the strongest practitioner.
• 4:52
  SPEAKER_01: And so we want to be a magnet for exceptional people.
• 4:55
  SPEAKER_01: And then last but not least, we are kind of a I know it's a dirty word in the sector, but it's an increasingly important word.
• 5:01
  SPEAKER_01: And you mention it occasionally in your newsletters.
• 5:03
  SPEAKER_01: This is becoming a consumer value proposition.
• 5:06
  SPEAKER_01: If you want free health care, it's for the NHS, if you want to pay for healthcare and get a completely different level of service, whether it's next day appointment, same day appointment, you want to see a senior specialist, you want to, you want to go somewhere down the street from your house, you want, you know, um a premium experience with, you know, wonderful receptionists that welcome you in and give you a cup of coffee.
• 5:26
  SPEAKER_01: That is the that is becoming something where we want to be able to speak to consumers who are patients.
• 5:32
  SPEAKER_01: So for us, it's both we're a seller value proposition, a practitioner value proposition.
• 5:36
  SPEAKER_01: And then also importantly, we're just trying to be, we're trying to have a public image.
• 5:41
  SPEAKER_01: So oftentimes with the help of HMDG, to make sure that patients can find the best practice for them.
• 5:47
  SPEAKER_01: And so we spend a lot of time helping bring in new patients.
• 5:50
  Michael: So there's been a lot of chatter in the industry and sector over the last year or two about MA and private equity, and it's become a bit of a dirty word.
• 5:58
  Michael: And I've noticed quite a lot of pushback and negativity around it, which I think is absolutely crazy for the most part.
• 6:04
  Michael: Um, and I think one of the issues is people don't actually understand what MA is and what private equity is, especially private equity.
• 6:12
  Michael: It's everyone seems to be accused.
• 6:13
  Michael: It seems if you've got a few quid in the bank, you're buying something, you're suddenly private equity.
• 6:17
  Michael: So give us a just a really simple explanation.
• 6:19
  Michael: What is private equity?
• 6:21
  SPEAKER_03: Yeah, I'll I'll and Claire answer the question in a sec, but it is, it is.
• 6:25
  SPEAKER_03: I just want to say I second that.
• 6:26
  SPEAKER_03: It is mind-boggling the misunderstanding of what private equity is and who is private equity and and whether private equity is even playing a role in the sector or not.
• 6:35
  SPEAKER_03: Uh so I just wanted to second that and maybe you could take it away if you will too.
• 6:39
  SPEAKER_01: Yeah, um, I'll I'll I'll talk about my experience in private equity.
• 6:42
  SPEAKER_01: So effectively, what happens is the private equity fund will raise a big pool of money.
• 6:47
  SPEAKER_01: They will then allocate that money across, let's say, 10 investments per fund.
• 6:51
  SPEAKER_01: You will have a group of people, private equity professionals, that sit in an office will kind of check in on monthly or quarterly board meetings, give some guidance and advice, but a lot of the returns are predicated on financial structuring.
• 7:06
  SPEAKER_01: So getting the highest amount of leverage at the lowest cost of debt, that's become a big value driver for private equity in the last, you know, let's say 10 years, 20 years.
• 7:17
  SPEAKER_01: Let's say that's been the main value driver.
• 7:19
  SPEAKER_01: We are operators.
• 7:20
  SPEAKER_01: So, and you know, sorry, back to back to private equity.
• 7:24
  SPEAKER_01: They won't be very involved in the they won't be involved at all in the operations of the company.
• 7:28
  SPEAKER_01: They will speak directly just with the hired management team.
• 7:32
  SPEAKER_01: That management team works for the private equity fund.
• 7:34
  SPEAKER_01: If the if the underlying company isn't spending, you know, or isn't driving the growth that the private equity fund wants to see, often from a very removed basis, they'll just sack the CEO and bring in someone else.
• 7:45
  SPEAKER_01: So, and I think that's maybe where there's a really key difference between private equity and what we are.
• 7:51
  SPEAKER_01: We don't have a fund.
• 7:52
  SPEAKER_01: We're not doing 10 different deals across different structures or across different industries, different structures.
• 7:58
  SPEAKER_01: We are doing one industry and we are incredibly operationally involved.
• 8:04
  SPEAKER_01: So Yoni and I are co-CEOs.
• 8:07
  SPEAKER_01: He's COO, I'm CFO.
• 8:10
  SPEAKER_01: We're very involved in the kind of oversight, the day-to-day behind the scenes of each of the clinics that we bring into the group.
• 8:17
  SPEAKER_01: We are backed by private individual investors who are all a relatively small portion.
• 8:24
  SPEAKER_01: So we have ultimate control and we're meaningful owners ourselves.
• 8:28
  SPEAKER_01: We have ultimate control of the decisions we make.
• 8:30
  SPEAKER_01: So there isn't this just jointed removal between the decision maker that sits at the private equity fund and the practitioner.
• 8:36
  SPEAKER_01: We know the names of all of our practitioners.
• 8:39
  SPEAKER_01: We know what's going on in their lives.
• 8:40
  SPEAKER_01: We we're we're very intimately involved on a personal basis.
• 8:44
  SPEAKER_01: And we also know that the decisions we make are going to affect these people.
• 8:47
  SPEAKER_01: So we don't get to sit in the ivory tower and make just kind of returns-based decisions.
• 8:53
  SPEAKER_01: We're also very long-term minded.
• 8:55
  SPEAKER_01: So short, so private equity firms are inherently very short-term minded.
• 8:59
  SPEAKER_01: They have to perform over a short period of time, exit that investment so that they can return capital to their investors so that they can raise ever larger funds.
• 9:10
  SPEAKER_01: We're not like that.
• 9:11
  SPEAKER_01: We're we're we plan on building this for a long period of time.
• 9:15
  SPEAKER_01: Um, and we think there's a lot of opportunities, not for cost cutting and not for leverage in this sector.
• 9:22
  SPEAKER_01: We think there's a ton of opportunities for growth, which has ultimately driven it, driven us to it in the first place.
• 9:27
  Michael: Yeah, and I I think that's it's an important distinction to make because uh I mean, traditionally it's not like we haven't heard all the stories about private equity firms and and how they operate.
• 9:36
  Michael: And particularly, you know, this industry is very sensitive to that kind of operation, let's say.
• 9:42
  Michael: It doesn't mean that all private equity firms in this industry are bad, but you know, that there are a few already that I've seen that aren't particularly companies I would want to be involved with or sell my business to.
• 9:52
  Michael: So I think I I think for the for the average person, you know, you are wanting, if you're gonna sell your business, do you want to sell it to someone who is much more involved in your business?
• 10:01
  Michael: Um, not clinically necessarily.
• 10:03
  Michael: And I think that's an distinction to make as well, because there's there's been criticisms, obviously, not of you, but just in general, of oh, there's these people with loads of money and they come in and they start making clinical decisions.
• 10:12
  Michael: And I think that's actually, I haven't seen that yet.
• 10:15
  Michael: It's very rare that happens.
• 10:16
  Michael: They normally defer to the clinic owner or to the team.
• 10:20
  Michael: Um, and I think it's it's really important to if you're gonna sell your business to go for people who are going to look after your business, to care about the business, to care about the culture of the business.
• 10:28
  Michael: And I know for, for example, I don't want this to be a love-in, but I I I know we had a discussion before about why not just put everything under one group, like a six physio, let's say.
• 10:37
  Michael: And you said, well, I want to keep the culture of the clinics, I want to keep the identity of the clinics, they all have their own personalities and and so on.
• 10:44
  Michael: I think that's the sort of thing that's that's really important, and what people in the industry who are really critical about all of this absolutely miss all the time.
• 10:51
  unknown: Yeah.
• 10:51
  SPEAKER_03: Yeah, look, I think Claire said it really well, but I think if you were if I were to summarize the difference between us and private equity, private equity are not as as invested, you'll be one of a million sort of types of strategies they're looking at.
• 11:03
  SPEAKER_03: No one in the private equity firm is going to be operationally involved at all.
• 11:07
  SPEAKER_03: This is just something they'll check in on in and out, and then and then sort of hope things turn out well, they'll just put a lot of debt and then hope that that's where the money comes from.
• 11:15
  SPEAKER_03: We're building a company.
• 11:17
  SPEAKER_03: We've built Connecticut.
• 11:18
  SPEAKER_03: Connectic is not just the owner of these clinics, but also a service provider.
• 11:22
  SPEAKER_03: And as we grow, the services that we offer these clinics grow with it.
• 11:25
  SPEAKER_03: So everything, everything that has to do with like finance, accounting, marketing.
• 11:30
  SPEAKER_03: Obviously, we work a lot with you on that kind of stuff.
• 11:33
  SPEAKER_03: Uh strategic projects, like we will be there working on like what should your schedule look like to solve a problem that you've raised to us on our like weekly chats.
• 11:43
  SPEAKER_03: So like that's the level of detail that we get into, and we really try to make it so that the previous owner-seller's life looks better after they sold because we've managed to take things off their plate.
• 11:55
  SPEAKER_03: We are a company where that that is a fundamental.
• 11:58
  Michael: And I think that leads into another question, which is or another criticism which I often hear, which is you know, the the idea that patients will suffer.
• 12:06
  Michael: Everything's about profits, you know, you've just made a big investment, you've spent a lot of money, and now you just need that return.
• 12:12
  Michael: You just care about making money.
• 12:13
  Michael: And however you do that, it doesn't really matter.
• 12:15
  Michael: You've got to get that return back.
• 12:16
  Michael: And to some extent, I you know, it's it's it's not untrue to say you want to make a return.
• 12:20
  Michael: It's not unfair to say that you need to make some money because otherwise the the entire concept doesn't work.
• 12:26
  Michael: But speak to a little bit about um why patient outcomes might actually improve and why businesses improve with investment or or acquisition rather than this kind of um polemic that I keep hearing about, well, everything just gets worse all the time.
• 12:41
  SPEAKER_03: I mean, that's a very good question.
• 12:42
  SPEAKER_03: And I can I can see why some people might have that question, but it's based on a very simple premise.
• 12:47
  SPEAKER_03: Might be true for some, but we don't think it's well for us, it's definitely not true, and then we don't think it's a winning strategy.
• 12:52
  SPEAKER_03: So let me paint the example that I'm talking about.
• 12:55
  SPEAKER_03: If you think that the way to make money and the way to succeed in this space is to like extract as much as you can while giving back as little as possible, you might make money for a few months' time, but ultimately that that's gonna the whole system is gonna break down and you're gonna have very little to look to sort of show for it in a you know within a year or less.
• 13:14
  SPEAKER_03: That that's just our fundamental belief.
• 13:16
  SPEAKER_03: Uh the our approach to care, and I want to say I want to be very careful here, we don't get involved clinically um in any of the decisions that happen at our clinics, but we do ultimately like to engage with clinics that have an incredibly good reputation at providing exceptional care.
• 13:32
  SPEAKER_03: And if you start from that premise, the reality is patients are gonna get incredible care from incredible practitioners.
• 13:40
  SPEAKER_03: Incredible practitioners are gonna be want to work in incredible clinics that pay them accordingly.
• 13:45
  SPEAKER_03: In order for you to pay that practitioner accordingly, you need to charge accordingly.
• 13:48
  SPEAKER_03: And so, yes, our clinics are probably you probably pay a bit of a premium versus the competitors in the area, but it's because we feel like we this virtuous cycle that we have is actually incredibly beneficial to every one of the stakeholders involved.
• 14:02
  SPEAKER_03: And we do not do not ever look at things in the short side.
• 14:06
  SPEAKER_03: So we will invest in technology, we will invest in in sort of refurbishing the clinic, we will invest in whatever we need to do to make sure that people want to go and practice there and patients go there and are very happy to continue to go back.
• 14:18
  SPEAKER_03: And that's how our group, you know, is profitable, not by extracting as much as we can by giving back as little as possible.
• 14:26
  SPEAKER_03: Yeah.
• 14:27
  SPEAKER_01: There are some, there's there's a lot of different, like, there's a lot of different choices of care in the industry, even on the private side.
• 14:34
  SPEAKER_01: So let's say there's insurance contracts, let's say there's NHS contracts, and we're our our clinics are predominantly private paying patients.
• 14:42
  SPEAKER_01: If you get an NHS contract, the only way you can make more profit from it is to pay the practitioners less or to see more people in a short period of time.
• 14:49
  SPEAKER_01: So you have this like fixed mentality.
• 14:52
  SPEAKER_01: Therefore, there is a trade-off between profit for the clinic and the pay of the practitioner.
• 14:58
  SPEAKER_01: For us, one of the reasons we're really drawn to big clinics is because the there's so much capacity to grow within that existing premise.
• 15:06
  SPEAKER_01: So we typically, our typical clinic that we acquire has about, you know, between eight and 10 treatment rooms.
• 15:12
  SPEAKER_01: There's a ton of opportunity to see.
• 15:14
  SPEAKER_01: We've hit records at our one of our clinics the last few weeks of seeing 500 patients in a week.
• 15:19
  SPEAKER_01: There's plenty of opportunity to grow.
• 15:21
  SPEAKER_01: We, you know, the clinic can generate higher profits, but also the practitioners can take home more money and more pay.
• 15:27
  SPEAKER_01: And for us, we believe practitioners are doing an exceptional service in the industry and we think they should be paired.
• 15:33
  SPEAKER_01: We think they should make a very good wage for what they do.
• 15:36
  SPEAKER_01: And so we don't view this pie as like we take more, you get less.
• 15:40
  SPEAKER_01: Like the pie is growing, the industry is growing.
• 15:44
  SPEAKER_01: There's such, there's so many people that have never entered private MSK care and don't know that it exists.
• 15:50
  SPEAKER_01: We obviously work with you to help bring them through our websites and into our clinics, but we were very, very focused on growing the pie.
• 15:58
  SPEAKER_01: And then everyone in the system, patients, practitioners, are asking to benefit from it.
• 16:03
  Michael: Yeah, and I I think it's um we we've all seen big companies who have been acquired and the new owners just focus purely on profits and they're very short-termist.
• 16:12
  Michael: And and you see those companies fell pretty dramatically.
• 16:15
  Michael: Um, I'm thinking actually recent ones, so house, right?
• 16:18
  Michael: You look at what they've done and and it's just driving, moving away from this sort of aspirational, small, unique thing to being this giant thing and just getting everybody in.
• 16:27
  Michael: It's ruined them, right?
• 16:28
  Michael: Um, and I and I think that it's just a misnomer to think that people are going to come in who know how to run businesses and want to make money, that they're just gonna be completely short-term and just try and get as much profit out because that isn't how you're going to make money.
• 16:42
  Michael: And then beyond that, I think patients, what people forget is the more money you have, the better patient care is going to be.
• 16:48
  Michael: It's you know, you ask any single physio or clinician in the country, we'll give you£200,000.
• 16:54
  Michael: Do you think you'll do better with your patients?
• 16:55
  Michael: The answer is yes, we will, whether that is hiring better clinicians or more clinicians or being able to see more patients or buying better tech or whatever the case may be.
• 17:03
  Michael: Um, and again, I think that's often forgotten.
• 17:06
  Michael: Um, and I I I think it's it's really important that uh you know, acquisitions and so on aren't always seen in a in a really negative light.
• 17:14
  Michael: That's not to say some aren't bad, and and I've seen plenty that are bad, but that's more about choosing the right person to sell the business to rather than the concept of selling a business as all.
• 17:25
  Michael: I'm gonna this is why I just want to jump in and see, because I think you just hit on a great point.
• 17:29
  SPEAKER_03: You know, really eventually and what their model is.
• 17:33
  SPEAKER_03: One of the things that really drew us to do this is that we really thought like we could bring that skill set that we had developed over, you know, collectively 20 years or 15 years, whatever it is, of uh of doing what we did in the past with the practitioner, clinician, clinic owner level of experience.
• 17:55
  SPEAKER_03: We could bring those two things together and and sort of make magic out of it.
• 17:59
  SPEAKER_03: And so far with our existing clinics, it really does feel like it's magic.
• 18:02
  SPEAKER_03: I mean, we have an incredible relationship with our sellers, with our partners, incredibly, incredibly strong, quasi-personal, I would even say.
• 18:10
  SPEAKER_03: We have done everything we can to grow the clinics.
• 18:12
  SPEAKER_03: We really helped them grow a lot.
• 18:14
  SPEAKER_03: The practitioners seem to be very happy with that.
• 18:16
  SPEAKER_03: And I think as a seller, even if you're even if you're cashing out completely, you really want to make sure that your clinic is going somewhere where it's gonna be taken care of, right?
• 18:26
  SPEAKER_02: Yeah.
• 18:27
  SPEAKER_03: Um, and I think I I pride our, I pride myself in knowing that we've built a place where people should be very happy to place their company and you know, in our hands.
• 18:39
  Michael: And I can speak to that because when we were selling HMDG, I remember the first ever offer was from a quite a large agency who said, we're gonna give you a load of money, but we're gonna fire everyone and we're gonna consume the the business into our own agency because we're essentially just want to buy the contracts.
• 18:54
  Michael: And we were like, absolutely not.
• 18:56
  Michael: It was it was just not what we were after, even though it was a significant significant amount of money because they'd obviously reduced their costs massively.
• 19:03
  Michael: And I don't know if you know the story, but but when we started talking to Ben and we were going through a process, and we were a little bit unsure.
• 19:08
  Michael: And at the time we needed a maternity policy and because we didn't have one.
• 19:12
  Michael: And so we said to Ben, Can you create one for us?
• 19:15
  Michael: And it was a bit of a test.
• 19:16
  Michael: He he he knows this now, he didn't know this at the time.
• 19:18
  Michael: And he said, Yeah, I'll create one for you.
• 19:20
  Michael: And it was so generous, and we were like, Yeah, okay.
• 19:22
  Michael: You know, this guy's not just out there to to make a ton of money.
• 19:26
  Michael: This is actually more generous than we would have given.
• 19:29
  Michael: And that was you know, it and it just showed it was so important to us when you're selling a business that you want the staff to to continue, you want them to prosper, you want to make sure that that your your your your clients actually do really well as well.
• 19:41
  Michael: You know, you don't want someone just coming and ruin things, and then beyond that, someone who actually cares, right?
• 19:46
  Michael: And and I think that's probably one of the biggest things that you'll get from clinic owners, whether they're exiting completely and running into the sunset or not, they want to make sure that it's good people who are involved because none of these people uh they never came into being a physio or caro or.
• 20:00
  Michael: Ever to become billionaires, right?
• 20:01
  Michael: They they knew that was never going to happen.
• 20:02
  Michael: They're vocational and they they they want to do good things.
• 20:06
  Michael: And I think one of the worst things to do, and I've seen it happen as well, is where you sell the business to someone who's just or a business that just isn't particularly nice and kind of ruins that entire legacy.
• 20:16
  Michael: And I I think that's that's something people really have to be careful of.
• 20:19
  Michael: And if you do it right, you end up with a better business than you you started off with.
• 20:23
  Michael: Because as none of us are, well, not not talking about you guys, but us and clinic owners, we weren't business owners, we didn't get trained into it.
• 20:32
  Michael: We sort of learnt, we pirated a lot of it.
• 20:34
  Michael: And actually having people come in from the outside and kind of go, Yeah, that's a bit crap, isn't it?
• 20:40
  Michael: Maybe we can we can change that.
• 20:41
  Michael: And you're like, Thank God, yes, absolutely.
• 20:43
  Michael: I want to get that changed.
• 20:44
  Michael: I've just never known how to make it more optimal, whatever.
• 20:47
  Michael: And I think that's the that that's where you can really get some help in improving the business as well.
• 20:52
  SPEAKER_03: Well, and we've learned, I mean, I I completely get it.
• 20:54
  SPEAKER_03: I do think our sellers have, you know, benefited from that, but we've also learned a lot from them.
• 20:59
  SPEAKER_03: Like an incredible amount of you know, empathy is something that probably lacked a bit in our media sectors, and there's an abundance of that in in the MSK space.
• 21:08
  SPEAKER_03: There's but there's this focus on care and focus on patience, which is very inspiring and really one of the reasons why we left.
• 21:14
  SPEAKER_03: We didn't have to leave our our old jobs behind, but we did it because we really wanted to be in a place where you had something beyond just sort of business and then sort of a deeper purpose.
• 21:25
  SPEAKER_03: We wanted to be involved in something like that.
• 21:27
  SPEAKER_03: But I I just want to mention really quickly, because you you talked about the soul, you talked about the name, you talked about the legacy.
• 21:33
  SPEAKER_03: And I think this is really important.
• 21:35
  SPEAKER_03: We really, really care about making sure that that legacy that was in our case built over, you know, in some cases, decades for some of the from some of the clinics that we require, that that legacy stays in place.
• 21:48
  SPEAKER_03: And that doesn't change, right?
• 21:49
  SPEAKER_03: So the name, sort of logos, things that like really resonate, the location of the clinic, the staff that works there, the practitioners that are there, we really don't want that to go anywhere.
• 22:01
  SPEAKER_03: And I think that is a bit of a tension point because we want the culture to stay in place.
• 22:05
  SPEAKER_03: We want what made this place magical to remain there, but we also want to get involved in some of the more sort of back office operational things to take them off their plate and do them ourselves and make their lives easier, as I mentioned before.
• 22:18
  SPEAKER_03: So there's a bit of a, you know, it's a delicate dance.
• 22:21
  SPEAKER_03: I think we've done a so far okay jihad, good job.
• 22:25
  SPEAKER_03: But we really do care a lot about Alexi.
• 22:27
  Michael: Yeah.
• 22:28
  Michael: One one other question, uh, and I I think um this is a tough one because I I I think you probably agree.
• 22:34
  Michael: When you get a number of companies coming into the sector and they start rolling up clinics, it becomes much more difficult for the small uh innovative core clinics to compete.
• 22:45
  Michael: Um you can outspend them, uh, you can outemploy them, out-incrupt them, recruit them.
• 22:50
  Michael: And we've seen this in the veterinary space and in the dental space to some extent.
• 22:55
  Michael: I do wonder what your thoughts are on that and whether you agree with that that rolling up of clinics can actually damage the industry to at least to some extent.
• 23:03
  SPEAKER_01: Do you want to do that?
• 23:04
  SPEAKER_01: Sorry, the top one.
• 23:05
  SPEAKER_01: No, no, no, no.
• 23:06
  SPEAKER_01: Uh I I agree that it can happen.
• 23:10
  SPEAKER_01: Obviously, MSK space is decades away from being as consolidated as veterinary.
• 23:18
  SPEAKER_01: I mean, veterinary is so consolidated that the CMA is now involved.
• 23:21
  SPEAKER_01: And actually, it's become so consolidated that it's a negative to kind of go see a to go see a group vet.
• 23:28
  SPEAKER_01: Our industry, it's it's, and I think it also becomes a challenge when the industry is more stagnant, when there isn't kind of this meaningful growth tailwind behind you as an industry to bring in more patients to kind of attract war practitioners, etc.
• 23:43
  SPEAKER_01: So again, whenever there's a zero-sum game, whenever there's an eye that is fixed, it is more challenging when there is concentration because it inherently means you will steal from the little guy.
• 23:54
  SPEAKER_01: We currently have four clinics, so I wouldn't I wouldn't necessarily necessarily say that we have the resources to meaningfully impact, the resources to meaningfully impact.
• 24:04
  Michael: Well, I I'll disagree with you on that one.
• 24:06
  Michael: No, I will disagree and pull you up on that because let's let's take Leeds, right?
• 24:10
  Michael: Or or maybe somewhere smaller like Greenwich.
• 24:13
  Michael: Um, you have definitely the ability to outspend people, you have the ability to do a lot of things that maybe a smaller clinic with three staff can't do.
• 24:21
  Michael: That that clinic is inevitable.
• 24:23
  Michael: Well, I was gonna say is inevitably, I don't think they are inevitably, but there is a possibility that that they can they may suffer, whether that's because you can outspend them on marketing or whatever the case may be.
• 24:33
  Michael: Um now, I don't think, by the way, that's a criticism of you.
• 24:37
  Michael: And I don't know, you can't just say, well, therefore no one should ever buy a business because someone else might suffer from it.
• 24:42
  Michael: But I do think that that there is a bit of a sort of pushback because of that.
• 24:46
  Michael: Not again, not necessarily against you, but uh the industry in in general.
• 24:50
  Michael: And I do think that clinics will inevitably, some will inevitably suffer over time.
• 24:56
  SPEAKER_01: Can I can I can I interrupt you?
• 24:58
  SPEAKER_01: Can I interrupt you?
• 24:59
  SPEAKER_01: Because you touched on a really important topic, which I am very passionate about and I feel like isn't widely understood in the industry.
• 25:04
  SPEAKER_01: You just described benefits of scale, but that could be benefits of scale of one single clinic.
• 25:09
  SPEAKER_01: So Vanbrugh, we acquired six months ago.
• 25:12
  SPEAKER_01: It had that advantage already against a two to three treatment room clinic.
• 25:16
  SPEAKER_01: So I do think the and and by the way, it is so much easier.
• 25:19
  SPEAKER_01: And I I do try to have this conversation with people.
• 25:21
  SPEAKER_01: It is so much easier to run one large clinic.
• 25:24
  SPEAKER_01: You have one great practice manager, you have a team of receptionists that can cover when one goes away on holiday or one is sick, you have a team of practitioners that can cover when somebody goes on holiday, somebody's sick.
• 25:33
  SPEAKER_01: Um, you have shared kind of skill sets, you can invest in more technology, you can spend more on marketing because you have more practitioners in treatment room available when you do spend the marketing money and drive patients to the clinic.
• 25:47
  SPEAKER_01: The whole business model of the clinic works at scale.
• 25:50
  SPEAKER_01: So we're not necessarily using, you know, money that's generated at one clinic to fund customer acquisition, patient acquisition at another.
• 25:58
  SPEAKER_01: You've just described benefits of scale, which I do think over time the industry will start to consolidate, not even just in groups, but as larger clinics.
• 26:05
  SPEAKER_01: They're, I promise, they're much easier to run than smaller clinics.
• 26:10
  SPEAKER_01: So I don't necessarily think competition, I know it's a scary thing, but I think fundamentally it is good.
• 26:16
  SPEAKER_01: In a large clinic, you can offer so much more to your practitioners.
• 26:20
  SPEAKER_01: You can offer more CPD, you can offer more skill building, they have more people, more people of experience to learn from, more people to go ask questions to.
• 26:28
  SPEAKER_01: That inherently results in better patient care.
• 26:30
  SPEAKER_01: So all I think, I don't think scale is is a bad thing.
• 26:34
  SPEAKER_01: Yeah, I I as you described it.
• 26:36
  Michael: I I agree.
• 26:37
  Michael: I I think that competition is competition.
• 26:39
  Michael: You know, we live in a a society where competition generally brings out generally brings out the best in in in in an industry.
• 26:46
  Michael: On the other hand, this is a slightly different industry to many.
• 26:50
  Michael: And because clinicians and and and and small probably owned businesses are not there to make profit, they're generally there as lifestyle businesses.
• 26:59
  Michael: They just want to help people.
• 27:01
  Michael: They don't have the knowledge, the resource, um, the competency in most cases to really compete in any way.
• 27:09
  Michael: So it's not really competition, it's more of a bit of a David Galive situation.
• 27:15
  Michael: Now, again, it's not a criticism against you necessarily, but what I what I would say is that it'd be really nice, and I know that we we do it as HMDG with a lot of our clinics, it'd be really nice to see a bit more collaboration actually between clinics.
• 27:28
  Michael: An example is we've got two clinics in in a location that are literally separated, one's a chiropractor, one's a physio, literally separated by a wall.
• 27:35
  Michael: And it works brilliantly because we introduce them and you know, one's got shockwave, the other one doesn't, and they kind of send patients between them, and it's it's turned into a really nice relationship.
• 27:43
  Michael: And I think that's something that is somewhat missing.
• 27:46
  Michael: Um, and it would be nice if there was more collaboration.
• 27:49
  SPEAKER_03: I I completely agree on the tire racial point.
• 27:50
  SPEAKER_03: I'll get to that in a sec, but I just want to go back to what you were saying about it's gonna make it harder for people to sort of compete in the space.
• 27:56
  SPEAKER_03: I'm gonna rephrase that.
• 27:58
  SPEAKER_03: And what I would say is the sector has been very, very far behind where it needs to be when you look at other other countries than you know, other developed countries.
• 28:09
  SPEAKER_03: The reason for that is, you know, maybe there hasn't been like a forcing mechanism to ensure that clinic owners are upping their game.
• 28:18
  SPEAKER_03: And if us coming into the space and investing in incredible technology and bringing in new equipment and refurbishing clinics, making it like a place that more and more patients want to come to.
• 28:28
  SPEAKER_03: And so the clinic that is not too far away is falling a little bit behind.
• 28:33
  SPEAKER_03: What I would expect to happen is that they would step up their game.
• 28:36
  SPEAKER_03: And ultimately, if we all step up our game, it's a benefit to everyone and particularly to the patient.
• 28:41
  SPEAKER_03: So I actually always think like we shouldn't be shying away from being forced to up our game out of fear of not being able to.
• 28:49
  SPEAKER_03: I think that's not how we develop business as a sector.
• 28:51
  Michael: No, I agree with that.
• 28:52
  Michael: I I think it's really important, and it's interesting because up until probably two years ago, it was the smaller clinics that were really upping their game and doing things better and differently.
• 29:02
  Michael: And those larger, more established clinics were still living in the past like dinosaurs.
• 29:07
  Michael: Um and it's kind of changed a little bit now with acquisitions in that those bigger clinics.
• 29:12
  Michael: I'm not talking about the superstars, I'm talking about the 500k turnover turnover.
• 29:16
  Michael: Those clinics are the ones that are being acquired and now upping their game almost in response to some of those smaller clinics.
• 29:22
  Michael: And it's it's kind of an interesting change that I've seen over the last few years.
• 29:26
  Michael: But you're right, yeah, ultimately competition is important, right?
• 29:28
  Michael: You want to drive.
• 29:29
  SPEAKER_03: I would also just say, and you're probably the best person to speak about this in this, in this, in this sort of car, because you've you've sold.
• 29:38
  SPEAKER_03: So you know what it's like to be a business owner, an entrepreneur that started a business, and uh and to find that there's someone out there that is willing to buy your business.
• 29:49
  SPEAKER_03: Now imagine that that same thing applies to clinic owners.
• 29:52
  SPEAKER_03: Like if you're a clinic owner who started something 10, 15, 20 years ago, it would be very disheartening to get to sort of one in your life where you say, There isn't a buyer out there.
• 30:01
  SPEAKER_03: So, in the same way that, you know, and it you're probably looking at it from like the lens of like the 20-something, 30-something year old that wants to start their own clinic and saying, oh, they're going to be pushed to the limit to do things better and more efficiently.
• 30:13
  SPEAKER_03: On the flip side, there are people that are in their 50s, 60s, 70s that really want there to be a good buyer out there.
• 30:19
  SPEAKER_03: And so I think, you know, not everyone is, it's not a monolith of like how this is perceived and how it impacts people.
• 30:25
  Michael: Yeah, and I agree.
• 30:26
  Michael: And and I I don't know how many hundreds of clinic owners in the past couple of months that I've spoken to that are just burnt out.
• 30:34
  Michael: They, they, they're done and they want to sell the businesses.
• 30:37
  Michael: And and it's not, you know, I'm not saying you're some charitable enterprise here, but it's certainly whether it's your other people, it's it's good for them to have the ability to finally cash out.
• 30:47
  Michael: They've spent a lot of time, a lot of effort, and they're able to cash out and now live their lives.
• 30:51
  Michael: And and that opportunity wasn't there five years ago.
• 30:55
  Michael: The the multiples were much, much lower.
• 30:57
  Michael: Um, the the buyers weren't out there, and there's a lot of people that just didn't have that opportunity as as they do now.
• 31:03
  Michael: And I think that's really important to remember because ultimately those clinic owners are real people, and they are people that um want to retire or or whatever, and and and that's often forgotten.
• 31:14
  Michael: Um and I know for us, you know, one of the reasons we sold it, we were just we died, we were done.
• 31:18
  Michael: You know, we when people say we work 20 hour days, we work 20 hour days, and and our health went backwards, and it was just time to find someone that was gonna be able to do things and let us do the fun stuff, not all the stuff you guys enjoy doing, the operational stuff.
• 31:32
  Michael: I hate that.
• 31:33
  Michael: I want to do the fun stuff, I want to do podcasts, you know.
• 31:35
  Michael: And and I think that's the same for many of your clinic ones, because the majority have stayed on, haven't they?
• 31:40
  Michael: All of them?
• 31:41
  Michael: Yeah, okay.
• 31:41
  Michael: Um which you know, which is really promising.
• 31:43
  Michael: Um, and and it's a really good thing because it just means that they're not running off.
• 31:47
  Michael: Not that there's probably financial incentives to stay on for a little bit, I'm I'm sure those are there.
• 31:51
  Michael: But um, right, we don't have long because I know we've got a hard stop in 10 minutes.
• 31:54
  Michael: So I'm gonna shoot through some stuff.
• 31:56
  Michael: Most important thing, this sort of thing that everyone's gonna listen to.
• 31:59
  Michael: How do you value a business?
• 32:01
  Michael: How do I know how much my business is worth?
• 32:03
  Michael: Everyone has all these kind of crazy opinions.
• 32:05
  Michael: I turned over 300,000, multiply that by five, so my business is worth 1.5 million, which I always giggle at.
• 32:11
  Michael: So give us a really simple formula.
• 32:13
  Michael: Uh in fact, I'll give you, I'll give you a business turns over 500,000 pounds.
• 32:18
  Michael: It has a profit of 100,000 pounds.
• 32:20
  Michael: I don't do much in the business and I'm the clinic owner.
• 32:22
  Michael: What is that business roughly worth?
• 32:24
  Michael: How do you work it out?
• 32:26
  SPEAKER_01: Um, I appreciate the case study.
• 32:27
  SPEAKER_01: Um, it's been a while since I've done one.
• 32:29
  SPEAKER_01: So the way that we think about valuations, simple in concept, but there are some nuances.
• 32:34
  SPEAKER_01: So we actually don't look at net profit, typically because, you know, there might be personal expenses that run through the business.
• 32:40
  SPEAKER_01: There might be non-recurring expenses that run through the business.
• 32:43
  SPEAKER_01: It might not, oftentimes doesn't, include any compensation, ongoing compensation for the seller when they do partner with us on a longer term basis.
• 32:52
  SPEAKER_01: So we kind of start from scratch uh and we'll look at the entire PL and we will come up with an a figure called adjusted bata, which effectively is meant to, it's an industry term, annoyingly, but it is meant to be a proxy for kind of cash flow before taxes.
• 33:09
  SPEAKER_01: And then we do make a lot of adjustments.
• 33:11
  SPEAKER_01: So we will factor in if you do see patients, we make sure there's a commission factored in there for you.
• 33:16
  SPEAKER_01: If you are going to require compensation going forward or fixed compensation going forward to work with us, we make sure that that's factored in as well.
• 33:23
  SPEAKER_01: If you own the building, we'll add rent or we'll make sure that it's market rent or whatever the rent is that we would sign in the ongoing lease.
• 33:31
  SPEAKER_01: We will add back certain things that are non-recurring.
• 33:33
  SPEAKER_01: So let's say you replaced your whole heating system last year and it was very expensive, or a tree fell, et cetera, et cetera.
• 33:39
  SPEAKER_01: We we kind of give give those figures back to you and we come up to an adjusted eBay-duff figure.
• 33:46
  SPEAKER_01: Now, multiples in this industry, I know there's a lot of wide ranges that get batted around.
• 33:52
  SPEAKER_01: I'm probably not going to give a specific number, but it is in the kind of maybe single digits, uh, is what you could expect to apply on that adjusted EBITDA basis.
• 34:01
  SPEAKER_01: Now we do give you credit for the fact that the industry is growing.
• 34:04
  SPEAKER_01: So we do just look at the last year, which we feel is fair.
• 34:08
  SPEAKER_01: I know some people look back at the last three years and take an average.
• 34:10
  SPEAKER_01: Where given the state of the market, given the growth, given the fact that we believe it's very enduring, we do give you credit for recent growth.
• 34:17
  Michael: Okay.
• 34:17
  Michael: So just want to really simplify it.
• 34:20
  Michael: Um, because you just break like someone in private equity.
• 34:23
  Michael: Right.
• 34:23
  Michael: An eBid Dart is essentially your profit, right?
• 34:26
  Michael: And you've got to adjust it.
• 34:27
  Michael: So you've got£100,000 profit, but you spent$20,000 on a one-off cost last year.
• 34:32
  Michael: So now your profit is really£120,000.
• 34:35
  Michael: But you haven't paid yourself out of that much that number, you take 50k off.
• 34:39
  Michael: So really it's 70k.
• 34:41
  Michael: So you work out all those little costs.
• 34:43
  Michael: You bought a telly um through the company, and you know that goes back on because you know you adjust it.
• 34:48
  Michael: So you've got about 70,000.
• 34:49
  Michael: Let's make it 100,000 because my maths is terrible.
• 34:51
  Michael: So you've got yourself to a hundred thousand figure, and then there is a multiple that you would then apply to it.
• 34:56
  Michael: There are obviously variables um which can affect things quite significantly, but generally what I'm seeing is if you've got a hundred grand profit, generally, you're gonna get between four and six times that um that number, depending on who's buying.
• 35:11
  Michael: Um, I would say to be uh on a hundred grand profit, most clinics will be looking at between 400 and 450,000.
• 35:18
  Michael: Um and the more profit you have, the higher the multiple, right?
• 35:21
  Michael: So if you've got a million pound profit, you're gonna you're not gonna get a four and a half, you're gonna get closer, probably, to seven, maybe even.
• 35:30
  SPEAKER_01: There's a lot of reasons for that, which I don't know that it's necessarily clear.
• 35:33
  SPEAKER_01: The higher the profit, typically in this industry, means we have a lot more practitioners, means you have a lot more patients.
• 35:39
  SPEAKER_01: And that fundamentally for us is a de-risked value proposition.
• 35:42
  SPEAKER_01: So the smaller the profit figure, typically, the fewer practitioners work there, which means if anyone goes, it's uh it's a greater risk to the to the revenue generating capabilities of the clinic.
• 35:52
  SPEAKER_01: I think there are a few the thing, the thing that we care about the the most, which probably most people don't think about, is practitioner concentration.
• 36:01
  SPEAKER_01: Um, people think a lot about seller concentration, but they don't really necessarily think about practitioner concentration.
• 36:06
  SPEAKER_01: So one of the things that we really look for in terms of high quality clinics are number of treatment rooms.
• 36:12
  SPEAKER_01: Again, we've talked a little bit about why it's easier to run one large clinic as opposed to a bunch of smaller clinics.
• 36:17
  SPEAKER_01: So number of treatment rooms, number of practitioners that work there, practitioner concentration.
• 36:22
  SPEAKER_01: So do you have 10 people where one person works, you know, five, seven days a week and then everyone else works one day a week, you'd end up with a very a lot of risk exposed to that one person.
• 36:32
  SPEAKER_01: We also, so we care a lot about we all so we care about number of practitioners, we care a lot about practitioner turn.
• 36:37
  SPEAKER_01: So ideally, a practitioner has been there for a very long time.
• 36:40
  SPEAKER_01: They're very happy to work there, they make a very good living there.
• 36:43
  SPEAKER_01: Um, and that's evidence by the fact that maybe they've worked there for 15, 20 years, et cetera, et cetera.
• 36:47
  SPEAKER_01: That's that's a very strong practice for us.
• 36:49
  SPEAKER_01: We find that those people are just exceptional practitioners if they've kind of stayed put and developed their craft over many years.
• 36:55
  SPEAKER_01: Uh, and then we also look for a wide patient base.
• 36:57
  SPEAKER_01: So did patients come back.
• 36:59
  SPEAKER_01: Um and coming back is not a oh, they need to come back this many times for us to be interested.
• 37:03
  SPEAKER_01: It's more like they came back because they got great care from you and you have a great reputation.
• 37:07
  SPEAKER_01: We look at things like Google reviews.
• 37:09
  SPEAKER_01: So are you 4.95 stars across hundreds of reviews?
• 37:13
  SPEAKER_01: That's a really great sign that you're a great clinic and that you have a really great reputation.
• 37:17
  SPEAKER_01: Do you so all of those things help move the multiple from four to higher than four?
• 37:23
  Michael: Do you find that you speak to a lot of, I know I do, you speak to a lot of clinic owners who are just surprised at how little that they're getting for a business that they've run for 20 years and they just don't understand how companies are really valued.
• 37:35
  SPEAKER_03: Yeah, and they and they seem to have like round numbers as well.
• 37:38
  SPEAKER_03: The people love the round number uh element of things, right?
• 37:41
  SPEAKER_03: So, you know, for some reason they'll have like a one million pound figure and it's you know, why one million?
• 37:46
  SPEAKER_03: It sounds like a bit random.
• 37:47
  SPEAKER_03: Like, you know, it's it's there's a psychological, emotional element, of course, to this whole process.
• 37:52
  Michael: It's it's actually what exactly what we did.
• 37:54
  Michael: We we came up with a number, I figured out how much I would want for the rest of my life, and it was like that number, and Ben said, How much do you want?
• 38:01
  Michael: I said, That's the number.
• 38:02
  Michael: And he pretty much agreed straight away, and I'm like, fuck, that was too low, should have gone higher.
• 38:07
  Michael: But no, you you you obviously do get that.
• 38:09
  Michael: I think um I I think there's a lot of clinic owners that are actually quite disappointed with how little they get because they they look at the effort they've put in rather than the fact that they're doing 40% of the revenue and and and the you know the profitability is actually quite low and so on.
• 38:23
  SPEAKER_01: I will say it is incredibly hard.
• 38:25
  SPEAKER_01: We have a ton of respect for people that have built big businesses in this sector while also being practitioners.
• 38:34
  SPEAKER_01: It is impressive that you know Ami built Good Health Center into what it is.
• 38:39
  SPEAKER_01: It's impressive that Tom and Ricky built Waldegrove into what it is.
• 38:43
  SPEAKER_01: It is a ton of work to be the top of your craft while also building a team of practitioners that work for you and stay for a long time.
• 38:50
  Michael: I'll tell you I'll tell you what else is that really impresses me is that these aren't businesses that have large profits, right?
• 38:58
  Michael: They they don't have large net profits.
• 38:59
  Michael: Unlike some like us, we can all you, we go, you know what, this is a problem in our business, let's hire two people to solve it, let's hire a person there, let's hire another clinic manager.
• 39:08
  Michael: And it's it's it always amazes me that these clinics are doing really, really well, but they don't have the money to go and just hire people to fix problems and and they still manage to run things effectively.
• 39:19
  Michael: They're actually if you think about the startup world, they're actually very much like startups, they run incredibly lean compared to what most corporates would be doing.
• 39:28
  Michael: Um, I think if you put most of these clinics in corporate hands, there'd be an extra five people doing admin.
• 39:32
  Michael: Um, but so I think that's always really good as well.
• 39:35
  Michael: I know we don't have much time.
• 39:36
  Michael: I've got one final question.
• 39:38
  Michael: Um, and if people are interested, we will do a round two of this because I've got about 30 questions that I think would be really interesting for people.
• 39:44
  Michael: But this is one that um I'm really interested to hear your point of view on.
• 39:48
  Michael: My feeling is that right now, because of the competition in the industry, and because so many people are looking to buy, that multiples are way, way too high.
• 39:58
  Michael: They're higher than they've ever been.
• 40:00
  Michael: And I do wonder whether that is sustainable and whether in the next two years those multiples are gonna start dropping and you're not gonna see I I saw one recently, by the way, it was seven times for a hundred K eBIT DA adjusted.
• 40:12
  Michael: There are some really crazy multiples being thrown around.
• 40:15
  Michael: Do you think that's sustainable?
• 40:16
  Michael: Do you think those numbers are going down?
• 40:18
  SPEAKER_03: I'll jump in really quickly.
• 40:19
  SPEAKER_03: By the way, we have a we have a few extra minutes.
• 40:21
  SPEAKER_03: We just push back the next meeting a bit.
• 40:23
  SPEAKER_03: Uh so we can take two, three minutes answer this.
• 40:25
  SPEAKER_03: Uh look, whether whether people are expecting seven times for a hundred K of eBit DA, if that's the case, it's gonna be very hard for us to engage with someone because that's a ridiculous multiple in this sector and in almost any other sector.
• 40:38
  SPEAKER_03: This isn't an NSK specific thing.
• 40:40
  SPEAKER_03: So like we we wouldn't even engage.
• 40:42
  SPEAKER_03: We try to give, we try to be very fair in our approach and make sure that people are getting our paid a market rate for the businesses they have.
• 40:49
  SPEAKER_03: Um, in terms of like multiples and what's gonna happen to them over time, it really depends.
• 40:53
  SPEAKER_03: I mean, there's a lot of different factors that come into valuation.
• 40:56
  SPEAKER_03: There's all the sort of business specific, clinic-specific elements that Claire went through.
• 41:00
  SPEAKER_03: There's also sort of the macro elements that people should not underestimate.
• 41:04
  SPEAKER_03: What is the environment looking like?
• 41:06
  SPEAKER_03: What's the sentiment in the country?
• 41:08
  SPEAKER_03: How much capital is there, you know, as they are re-entering a recession, are taxes going up, or taxes going down?
• 41:13
  SPEAKER_03: That that really impacts people's appetite to invest in the sector and in the and in the country more broadly.
• 41:20
  SPEAKER_03: And we don't know.
• 41:20
  SPEAKER_03: We we don't have a we don't have a crystal wall to say, you know, this is what it's gonna look like in a year or two years' time.
• 41:28
  SPEAKER_03: But I would say if anyone does have a very clear view that they're going up or they're going down, they're probably not, you know, don't trust them as much because no one's no one knows.
• 41:36
  SPEAKER_03: Um so that's what I would say in terms of multiples.
• 41:38
  SPEAKER_03: I think seven times for 100k is ridiculous.
• 41:40
  Michael: Uh, that's insane.
• 41:42
  Michael: But even even five times for for 200k, let's say, I think is is quite on the high side for a for a for for the majority of physioclinics.
• 41:51
  Michael: And I I feel that um multiples are higher than they probably should be.
• 41:56
  Michael: And I just don't I've seen quite a few buyers who come in and they say, Oh, you know, they've got 20% um net profit.
• 42:02
  Michael: If we if we if we optimise the cost base and do this and do that, we're gonna make it 40%.
• 42:09
  Michael: And and I'm just looking at that laughing, thinking, there's no way you ever make the money out of these clinics that you think you're going to make.
• 42:14
  Michael: It's just not gonna happen.
• 42:15
  Michael: And I think the reality is starting to set on some of those people, and uh they you know, they've come in, they've bought clinics, and they're like, shit, this is not working as I thought.
• 42:23
  Michael: This is much harder than I thought it was gonna be.
• 42:25
  Michael: And and I do think you're right about the macro environment.
• 42:28
  Michael: I don't think there's any doubt that it's gonna become more difficult for business owners over the next two, three years.
• 42:33
  Michael: I think we'll see what happens in November.
• 42:35
  Michael: But uh, I I just feel that it's it's you know, if I was a betting man, I would put a lot of money on things not looking as good.
• 42:43
  Michael: Um, and we already know, right?
• 42:45
  Michael: B A D R and CGT over in the next April and whatever.
• 42:48
  Michael: So I I do I do think over the next couple of years we will see a slight drop in valuations.
• 42:54
  Michael: Yeah, I've had a few clinic owners say, well, should I buy now, should I sell now, or should I wait?
• 42:59
  Michael: Well, there is obviously stuff in April that is gonna have a bit of an impact, but beyond that, I don't know.
• 43:04
  SPEAKER_03: I think it's it's also value and certainty, I would say, right?
• 43:07
  SPEAKER_03: Like again, we don't know what things are gonna look like in a year or two.
• 43:10
  SPEAKER_03: There's a lot of value and certainty.
• 43:11
  SPEAKER_03: And I think for most of the people that you know, at least all of our partners, uh luckily, luckily, none of them look at us or look at anyone and say we regret doing it at the time.
• 43:20
  SPEAKER_03: If anything, we've heard some of them say, I wish I had done it sooner, because there's a lot of value and certainty.
• 43:24
  SPEAKER_03: Uh, you might, you know, valuations might go up slightly, but is it worth another two years of stress and on and hoping and wishing and and praying that things work out?
• 43:33
  SPEAKER_03: Maybe, maybe not.
• 43:34
  SPEAKER_03: It depends on people's risk appetites.
• 43:36
  SPEAKER_03: Uh, but you cannot discount, you know, again, the value of having something certain in your hand.
• 43:41
  SPEAKER_03: And and that's what we'd like to offer.
• 43:43
  Michael: Yeah.
• 43:43
  Michael: Okay.
• 43:44
  Michael: Alrighty.
• 43:44
  Michael: Well, listen, thank you very much.
• 43:46
  Michael: I think that there are so many more questions we could go into, and I think we'll probably do a part two at some point.
• 43:50
  Michael: But that was that was super interesting.
• 43:52
  Michael: And um, yeah, thanks very much for coming on.
• 43:54
  SPEAKER_01: Thanks, Michael.
• 43:55
  SPEAKER_01: Thanks very much.
• 43:56
  Michael: Cheers.