**Transcript was automatically generated by artificial intelligence.**

Paul Martin

Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations, today we have with us Andrew Lotsis. Andrew is the CEO of Active Pro Rehab Partners, formerly Twin Burro and Active Pro is a private equity backed physical therapy company that is based out of Cranford, New Jersey. Currently, they have grown to 42 clinics, all located in New Jersey. Drew, it is great to have you with us today.

Andrew Lotsis

Thank you, Paul.

Paul Martin

Andrew has been a guest on our show a number of times. I have often referred to him as one of the best physical therapy operators in the country. So, Drew, you do hold that title back.

Andrew Lotsis

Paul. Well, first off. I got my start with you. 31 years ago in 1989. And I won't be here today if it wasn't for you. So we go back a long ways.

Paul Martin

Yes, we do. And I appreciate that. I appreciate it. You know, I know you guys have been at this for a number of years now, but as you look at some of the other larger legacy companies, you are still referred and as a newer acquirer. And when new acquirers enter the market, our clients and folks that we talk to out there, they ask us three questions. The first one is, is active pro strategy for becoming a successful large company in this industry. How is it different from the strategies that the larger legacy companies are following out there?

Andrew Lotsis

Well, I think there's a couple of things involved with that. I think that when you get so big, I think that in some sense it gets very difficult for a lot of larger companies to transcend or transpose what their perceptions are in reality. In terms of operating a local market business. We have a six pronged marketing approach, you know, with marketing and different aspects of it. I feel like active for a rehab partners is a growth accelerator and every acquisition that we've done. Within 18 months we've grown by 40%. So and that's all fact. And I invite anyone to come and look under our hood and to see what we do and how we do it. So there's a marketing approach, and then there's an operational approach. And I think there is a combination of the both that, you know, help helps each, each local market grow, right? Because all these locations are hyper local market driven businesses. Right? And it's in direct proportion to the quality of the clinician and quality of the people and the quality of the care and what the actual product that's being delivered at the local level. Not all physical therapy is created the same right? Just because the location has physical therapy on it doesn't mean that a successful or that it's going to be successful. It's in direct proportion to the people and the evolution and quality of how that product is being delivered. And then the combination of the marketing and the operation and the person, all three of those things take make a big impact. And we spend a lot of time and strategies in each of those, you know, silos to make sure that, you know, we're trying to make the the we'll go round a little bit better for everybody.

Paul Martin

So So. 40% growth, eight months. I mean, that is remarkable. You know, it sounds like an owner that joins your company really has to be prepared to kind of step up their game. Would you agree with that?

Andrew Lotsis

I don't. I think it's really knowledge is power, right? I mean, I've been in this business a very, very, very long time. And, you know, I kind of know what works and what doesn't work or what's the right recipe. And and a lot of sense, you know, it's getting the right people to buy in terms of a strategy to help, you know, the funnel of new patients. There are many different aspects that make that occur. And then on the operational side, you know, really managing and giving the therapist and the clinicians the tools to manage at the case level. Right. And, you know, there's a lot of software platforms out there that really people don't take advantage of or don't utilize data and knowledge to help produce results. Right. And we want clinicians spending time with the patients and some of the growth factor. Like I said, it's very incremental and it's very how do I say you know, purposeful in terms of our strategies to kind of measure growth in certain areas. So I'm not an expert in per come back to the actual product being delivered and at what level our patient actually being discharged. Right. And at what level are we retaining patient, though? There's not a high level or dropout factor either.

Paul Martin

Yeah. So I think, you know, in terms of stepping up their game, you're giving them the tools in order for them to step up their game. They don't have to unilaterally or in their own, as you said, kind of second they're not stepping up their game on their own. You're guiding and helping that process. Drew, what do you think are some of the key card characteristics of a company that would thrive by joining active growth?

Andrew Lotsis

Well, I would say that any practice between two and eight locations that that want to be, you know, 20 to 25 locations in a very, very, very short period of time, it really comes down to you don't have to, you know, be a platform of 20, 25 locations. I like working with you know, passionate owners that really want to take that next level and grow their, their current brand. And I'm a big believer of a local market driven brand strategy and somebody that has anywhere from two to eight clinics. That's a good sweet spot for us and giving them the opportunities to be, you know, a hub and spoke around that and giving adjoining practices the opportunity to grow that brand and that local market. You know, so larger companies, some of them have a different strategy. I don't necessarily believe that. I believe that if somebody spent the last five, ten, 15 years building up a good name in the community, I think it's strong a strong belief to to keep that local market brand that people are familiar with. So.

Paul Martin

Yeah, really interesting. With the focus of the two to eight clinics, we often say you know, that's kind of the land of of you need resources, you need to really step up, you need more around you to grow through and to that, you know, ten plus. So that's a really interesting focus and it sounds like the 40% growth you guys have gotten very good working with companies like that.

Andrew Lotsis

Yeah, there's an example of a company that partnered with us only and we're only one year into the relationship which was pro staff physical therapy. They had nine locations and just in a short period of time, just after one year, we're up 26% over their 2019 number obviously 20, 20 with a year. But you know I've gone back looking at the numbers yesterday for, you know, and looking at our budget and just a company even that large with my location, we've had a tremendous impact. So a lot of it is really related to, like I said, the marketing aspect and the operational aspect and then looking at the quality of, of, of the leadership that they have and giving the leadership the tools and the structure to help better understand what's happening in their clinic at all times and giving them the tools to help accelerate their own growth. I'm a big believer too, Paul, that since the Samaritans and that's a currency it's been known to, to induce behavior. All of our leadership all of our all of our leadership and from the top down shares in the success of a clinic. I'm not interested in partnering with companies that don't have a Ben Franklin model, I would call it, to where everybody gets rewarded enough from a front desk operations to an aide. There has to be, you know, a.

Paul Martin

True.

Andrew Lotsis

Reward that can be felt if success is the factor. People need to make more money today. And, you know, we, you know, are certainly able to help provide that model and give people the tools to do that.

Paul Martin

You know, as you look at your process, kind of the nuts and bolts of the acquisition process and, you know, the structure of of the deals that you do, how is your process different from, again, kind of the approach used by the larger, larger legacy companies in the industry?

Andrew Lotsis

So we try to structure everything where we want the owners to stay. We want people that want to grow, have the right motivation, and want to really build their brand. And we do buy a portion of of of their their business and they retain a portion. And all the way up through we help organize the compensation packages that everybody is rewarded on the success of the clinic itself. They then retain that portion and take some chips off the table now. But in a sense, when we model out what the growth is and we'll be taking your practice from two to eight locations, the 25 and 30 locations, what the value that that they can generate is life changing for their families. Right. So it's very hard for to be an independent product practice. It's very hard today to get to the size, to be able to offer infrastructure to help drive a business and drive growth itself. You're seeing mass consolidation around the country in health care from hospital system. Just in New Jersey, nine years ago there were 35 health systems. Today there are five health systems, physicians, physicians. Consolidation is really, really taking place, especially in New Jersey, where they're all working for a major health system. They all have own I call them self interest models. Right. So we've done a very good job at transitioning into a direct access model to where it's my hopes and dreams that that we all become champions of direct access that we are the origin of every and each community, the origin of of musculoskeletal delivery system for every local community. We're putting great emphasis on on direct access and getting really, I guess if you can say personalizing the private practice model. We've done a pretty darn good job at that. And that's what we are, not how I would categorize us as fathers away from a corporate to more of a, you know, institutional product practice model to where we're just, you know, you know, an eight lane highway to give them, you know, all the tools they need to deliver the care that they want to deliver and become totally market dominant in every market that we serve. We want to be the number one choice provider in every local market that that's you know, and that's a defined strategy and a defined core purpose of, you know, why we exist and what we do. Many of the large acquirers, there are tremendous amounts of consolidation going on and a lot of great acquirer out there. And I tip my cap to all of them and everybody has their own, you know, recipe for success. And I get it. But at the end of the day, at the end of the day, it's about the quality of the growth that's happening how it's happening. People are great at buying things right now. Everybody's great at buying something when they have no money and somebody else the checkbook. But what happens today after it closes and how do you grow? Right. We don't we don't want to be a barge in the ocean and just sit there right So I think there's a lot of good people out there right now and they're really great abiding. But at the end of the day, you know, how are they really making a difference or, you know, that practice owner, so.

Paul Martin

Sure, sure. No buy and build and align with your partners with that build. Also, Absolutely. Impacting their future as well. So great stuff. Great stuff. You know, culture. A lot of companies will a lot of sellers out there will join a company because of the culture, because of the people. How do you think business owners, former owners, would describe the culture of active pro a year or two down the road after being a part of that?

Andrew Lotsis

Well, I think the number one thing is integrity. We're totally have a total transparency system, and I believe in integrity and you know, and in proven results. Right. So I want everyone to come that does want to partner with us, do a full day of discovery Right. You know, I've been involved recently with some processes where I want the seller. They sometimes try to keep the seller or the buyer away until they get their price. But I kind of like turning the hourglass upside down. I want the seller of the call and spend a day with me and I want them to look under my hood. I want them to look under, you know, under the desk. I want them to look in my drawer. I want them to look at how we run things and what we do how we can make a difference in their business, because people talk a good game and that they don't want to do that. Then it just to me it's like, well, are they all about the money or are they all about trying to make their their practice better and trying to learn what we do, how we do, and if it would be a good fit? Could the worst thing that could happen is that, you know, they're not buying in to what we're putting down, right? I want them to be able to pick up what we're putting down and learn and become totally market dominant. And at the end of the day, you know, I would say that integrity is the number one aspect and proven results. I mean, you know, we're very, very compassionate in terms of our employees are our total infrastructure team is totally dedicated to making everybody successful. Or their best version of themselves that they can be. And we're there to support that. We're there to support that. You know, I'm very hands on you know, at my in my own role, I'm involved in a lot and on a day to day operations of the entire company, and, you know, this is a to me, I want to be down in the rice paddies with everybody else trying to move the business along. And and that's how our whole company operates. And I think that's you know, a potential seller or potential partner can appreciate that that when talking to our partners now, we've done eight acquisitions. And in every instance, like I said, the average growth has been over 40% in 18 months. And I want those potential partners to go and spend even a day with the, the people that have partnered with us and let us show you how we made them successful.

Paul Martin

So yeah, great stuff.

Andrew Lotsis

That's all I thought. I can, you know, it's like it's a big decision of somebody's life and you know, if they're going to let transactional paper go back and forth and determine the the aspect of their next maybe ten or 15 years trade, that's a hard pill to swallow when at the end of the day you really need to see the successful levels of what is happening behind the scenes and how do we do it so that they're successful too. And they're excited then to be on board and know what may be potentially incremental changes are coming. You know, there's other acquirers out there, other potential partners that they, you know, join up with us and we'll leave you alone. And I get that. But that recipe doesn't work well for me anyway, because there are no built in what the growth determination. Right? Kind of like, you know, there's no annuity program here, right? It's kind of like we are what we produce. And at the end of the day, I want to produce for all our partners in a passionate way and make them as successful that they can be, you know?

Paul Martin

So yeah, I mean, I'm hearing you know, you want to work with partners that have hit a ceiling and they just they just can't they can't grow on their own any more. So the recipe you bring to them is that recipe to grow. And then obviously you both win. You both win. Now, Drew, you guys have stayed, you know, very disciplined in your New Jersey geography. How do you look at geography and how do you look in the future? Now for active grow, it's then in the beginning you talked a little bit about some other geographies you're growing in. How do you analyze that and strategize about geography?

Andrew Lotsis

Well, there's two elements of that. We're not anything that's, you know, on the Eastern Seaboard from, you know, the New England area down to, you know, you know, Georgia, you know, we be potentially partner for somebody that that would do that. I think that, you know, we've only been out of the gate for two years now with our private equity firm. And we had this thing called, you know, the coronavirus happened to us and like everyone else in the nation. So I think that we, you know, have focused on New Jersey because it was closer to home and easier to manage through a pandemic that we really haven't been as aggressive in other states because, you know, I could grow another 20 locations in the next two years just in New Jersey and a bit, you know, not only the, you know, the fifth or sixth place number of acquirers in New Jersey. So Jersey just happened to have 9 million people in it. And there's a lot of room for a lot of players. But we're a strong, very strong provider. And I want to remain strong with the consolidation that's here at home. But we're not agnostic to, you know, potential partners in the region. You know, a lot of acquirers you know, are well, you know, there's really no state to state synergy right. At all. I mean, in any in any aspect of it, it's really fun. A really strong local market provider in a given area and growing out from there. And, you know, this year we have we're in a big de novo push this year in New Jersey. We have 16 of those on the docket this year. And we developed a whole real estate department to match or some key locations. And so so we've been here and doing a good job and we're just flat. 42 locations this year we'll see see over 500,000 visits a share with just 42 locations. So we have our hands full here. But you know, we are potentially looking at to other acquisitions in other states that are between the two to a location aspect and grow that footprint. Yeah.

Paul Martin

Sure. So for a company that's out there preparing for, you know, going into the market looking for a partner, what do you think's most important as far as their preparation yeah.

Andrew Lotsis

So I look at this and I think that it really comes down to what the owner's intention is, right? You know, and being prepared to really communicate what their true intention is, right? Do they really want to stay or do they really want to grow? Oh, they just, you know, in their heart, what do they feel, right? Where do they really want to be and who else do they think that would be the best partner to help them live their dream? And to me, look at the success of everybody, right? Like what success story can you show us in your last ten acquisitions and show me how the last ten acquisitions that you did and how they performed and I want to see the visits when you bought them. And I want to see the visits now today and when you close the deal. So if I'm an acquirer, if I'm getting acquired today, I want to ask that question on the due diligence of my own, and I want to see what they did, how they did it, and what the proof in their putting was and how they grew their company and what what those aspects were. So I think that's an important element. If I'm sitting on the other side of the table now, you know, what are you going to do for me and how are you going to do it? Right. So don't show it. Kind of like show me kind of attitude, right? Like show me, you know, so yeah, great.

Paul Martin

Great point. Great point. Because, you know, as you know, as a seller, you're getting asked all the questions and you feel like you're on a witness stand. But I think what you're saying is show me what you've done with other partners. Show me what progress they have made because that's going to be me someday. And, well, what's going to happen when I get on your platform?

Andrew Lotsis

Yeah. And what and like I said, listen, our platform is for everybody because, you know, we're involved in helping you grow. We are a growth accelerator. That is what we are. And if somebody, you know, I mean, doesn't feel like like they're getting, you know, the best advice from from their representatives, if they don't want you to do what I'm asking, then the person representing you should be representing you. Right. As you know, because this is the biggest decision of your life, and you need to know, you know, who you're getting married to. This is a marriage, right? And at the end of the day, I want to know, do you want to have kids or do you not want to have kids? Right. Right. Like we're getting married. Like what? You know, like what you know, I've got a. Family to grow. You want a big family? The wedding sounds great. You know what I mean? Like, and we're gonna have a great band at the wedding, but, you know, after you get married and the band's going home and you got to go home, it's like, whoa, whoa. What are we doing here? You know, what are we building? You know? What do you mean? You want to live in a country? I thought you wanted to live in the city, right?

Paul Martin

So simple.

Andrew Lotsis

Well, we laugh now about it, but people are asking those questions, and they're like, oh, well, I have, you know, a half million dollars to be better. And, you know, show me in l.a. Why and i'll sign and a like. But I don't even know what your true intentions are. And to me, if i'm selling my business today, I think I don't think you're asking enough hard question were enough honest question to know, you know, great. The money look great up front, but what the day after going to be like, you know, and I want everybody to know that. I want them to come visit. I want them to spend the day with me, spend the day with the team. And, you know, so great advice.

Paul Martin

Really great advice. Drew, again, I thank you so much for coming on and sharing. You are always such a fresh look and you know, you always bring such great information. I appreciate it.

Andrew Lotsis

I had a very good teacher fall, you know, so.

Paul Martin

We look forward to having you back again.

Andrew Lotsis

All right. Thank you.

Paul Martin

And for all of you out there today, you have watched this. If you have questions about the conversation that I had with Andrew lots us today, just click below. Let's talk. Thank you.