18 GHP / Q4 2018 , By Karen Dawaf Harron, Director of Livingstone Partners The UK Physiotherapy Market is Ripe for Consolidation The physiotherapy market is poised for a surge in growth in 2019. Traditionally a highly fragmented market, the sector is ripe for consolidation via transformational M&A and private equity investment, both of which are unlocking opportunities for value. From urgent in-person care to innovative technology solutions for both public and private businesses, the market includes a wide range of services and the demand is leading to an upsurge in investment in UK businesses. In the US, between 2012 and 2017, the number of deals involving retail health companies soared by 34% and the UK and Nordic markets have seen the greatest proliferation of retail health deals . Recent deal activity in the UK has proved there is appetite for scale and consolidation and interest in the sector has expanded beyond a niche set of investors. A recent example is Sano Physiotherapy’s acquisition of Physio Direct Sherwood Limited, a Nottinghamshire- based provider of physiotherapy and sports massage services. Post-merger Sano now operates with 100 full-time staff which enables it to meet patient demands running excess of 150,000 appointments a year. Meanwhile activity in the US market saw Agility Health selling its US-based operations to Alliance Physical Therapy Management with the transaction valuing at $45m, a deal that was led by Livingstone Partners. Momentum in the sector shows no signs of abating. Physiotherapy-led services are increasingly in demand. With an aging population (set to expand by 4 million over the next 10 years) driving higher incident rates (30% of the UK’s over 65s experience a fall at least once a year costing the NHS around £2.3bn a year), outsourced physiotherapy services could save the NHS an estimated £275 million a year. Clinical commissioning groups currently outsource almost a third of their physiotherapy services and the opportunities for private providers are growing. A recent report by the Centre for Health and the Public Interest has uncovered that the amount spent in the private sector by local commissioning bodies and NHS trusts has increased by 50%, rising from £6.6bn in 2009 to £10bn in 2014. Increased focus on wellness and preventative treatments from the public will also support long-term revenue growth. Additionally, the sector should be able to weather Brexit and other economic fluctuations as ‘needs-based’ services tend to be defensible. In the corporate world, two thirds of organisations now operate wellbeing programs as part of their benefits packages and consumers are increasingly willing to self-refer and self- fund treatments of this nature. As employers seek to give competitive benefits to their staff, physiotherapy, osteopathic and chiropractic treatments are gaining popularity. In fact, a staggering £1.3 billion has been reported to come out of business to consumer directed physiotherapy services, as employers begin to offer these under corporate schemes or as part of employee benefit packages . For example, in 2013, John Lewis Partnership (JLP) recruited Physio Med to provide employees with a ‘Physiotherapy Advice Line’ service which provides employees with on- site face-to-face treatment and advice. In the spring of 2016, JLP estimated that, based on the 2,324 partners who engaged with the service during the year before, it saved around 41,000 working days and delivered an estimated saving of more than £2.6 million. In order to meet increasing demand and to achieve a successful expansion, well-built digital and operating platforms are key. From efficient booking systems to safely stored patient and clinician data, the technology to meet market needs is in- development. In fact, Deloitte predicted the UK digital health industry’s value would reach £2.9 billion in 2018, with digital health systems accounting for the largest market in the UK . As these providers begin to diversify and broaden their digital service offerings, investors, both domestic and international, have ample opportunity to drive value and transform performance. Technology can also play an important role in retaining and recruiting clinicians and staff within the physiotherapy sector who are critical to success and growth in the long-term. These trained professionals should remain central to the strategic business plan as clinician buy-in plays a critical role in the management and added-value to business success. Technology which enables improved patient experience, quality of care and better patient outcomes are important initiatives – all of which will help boost profitability. This year saw Morneau Shepell, a Toronto-based technology company, acquire LifeWorks Corporation, a UK-based employee assistance program (EAP) and wellness provider. LifeWorks by Morneau Shepell will now deliver its Employee Support Solutions products and services to customers across the globe. As pressure on UK public health increases, investment in outsourced business will likely grow. The UK has strong credentials in the physiotherapy sector and even more traditional providers are ready for consolidation and value creation. Consolidation will enable front- footed providers to be at the vanguard of the UK market, and as they achieve sufficient scale they will likely attract a broader international audience of investors and buyers.