By Bill Buccalo, President
Rainbow Rehabilitation Centers
We have seen a significant amount of consolidation recently within the post-acute brain injury rehabilitation market in Michigan. This follows a trend we’ve seen with hospitals over the last few decades. Over the past three years alone, more than a dozen brain injury rehabilitation companies have been involved in a transaction. A number of small- to medium-sized programs have sold to or traded between larger national programs, while other local programs have either merged or are now working in collaborative ventures.
This is unprecedented activity that is likely being driven by timing on a few fronts.
Investible cash from large investors is at a high point in the cycle making it easier to get a deal and presumably at higher prices for sellers. Following the recession, there was a dearth of buyers and a large buildup of cash. Now that the markets have stabilized, buyers are jumping in with gusto in Michigan and beyond.
The demand for services for individuals with brain injuries increased significantly in the late 1980s and 1990s, resulting in a surge in provider organization startups. Many of these new service providers were established by an individual owner and operated successfully for many years. Now some 20 to 30 years later, while demand continues to grow, a large number of owners are nearing the end of their careers and succession planning is critical to ensure they get value for their life’s work.
Selling outright may seem more appealing to some rather than getting into an earn-out situation, where the ultimate retirement plan is based on the success of the individuals involved in the earn-out as well as the reliability of the primary funding source.
Which brings me to the last point.
Michigan’s auto no-fault insurance system, the primary funding source for brain injury treatment and care, has been changing significantly over recent years.
Through a variety of Appellate and Supreme Court decisions, the benefits available to accident victims today are materially different and less than the benefits available 10 years ago.
Additionally, the changes in claims handling practices of insurance companies and the use of serial independent medical exams to determine patients’ ongoing benefit eligibility have rendered the clinical and business practice of providing rehabilitation services more difficult to navigate while success is less certain. For some business owners, these realities can be an additional deterrent to staying the course.
Despite the activity going on around us, Rainbow is focused on organic growth through development of new programs from scratch such as our more recent Vocational Rehab Campus, Farmington Hills Treatment Center, and the new Southfield Center project currently underway. We also evaluate acquisition opportunities. We look for good companies that make sense for Rainbow and also for the seller, such as our strategic purchase of Functional Recovery in 2009. We are not interested in growth for the sake of growth. Rather, whether growth is organic or through acquisition, we strive to create a stronger company that can best serve patients by improving our competencies, capabilities, service offerings, and locations. At the same time, growth assists in controlling the overall costs of care via economies of scale that come from a larger organization.
I believe a combination of the availability of cash, a large group of providers nearing the end of active careers, along with the realities of a changing marketplace, have heavily influenced the volume of merger and acquisition activity Michigan.
In the near term, I anticipate the trend to continue despite ongoing efforts in the legislature to make reforms to the current auto no-fault insurance system. Rainbow remains focused on excellence in patient care. ❚
