Call Invite | April 29, 2021 @ 2pm ET | FAII | Best Idea Long

Background

Fortress Value Acquisition Corp II (FAII) entered into a definitive agreement to combine with ATI Physical Therapy.  The deal comes at a time when the existing public comparison trades at a 20X EV/EBITDA and into what we think is a multi-year market acceleration following the pandemic.  ATI is a market consolidator through a solid de novo and acquisition strategy.  In addition, there is an opportunity to extend physical therapy to remote sites such as the patient home, using remote sensors, telemedicine, and other digital health technologies.

Thesis

We believe patients deferred medical care throughout 2020 and into 2021 due to the SARS-CoV-2 pandemic.  Surveys and other measurements indicate 30-40% of patients were deferring care because of fears of contracting COVID. Many of these visits indirectly impact the demand for Physical Therapy.  Additionally, social distancing reduced exposure to group activities such as team sports that lead to injuries that are treated with PT.

Valuation 

The current valuation is 20X and 14X 2021 and 2022 EBITDA estimates, respectively.  Given the upside to EBITDA from a return to trend + pent-up demand, we expect an additional 30% upside to 2022 EBITDA estimates. At 14X and 20X EV/EBITDA our higher estimates, the shares will trade at $13 and $19 versus the current price of $10.05.

CATALYSTS

• We believe the first few reported quarters will reveal upside and a high level of conservatism embedded in current guidance.  Expectations are for a return to trend by 2022, well below our estimates. 
• Management has guided to a steady de novo growth strategy, but also considers multi-site acquisitions and we expect the announcement of medium to large deals to be a positive catalyst.  
• We've developed tracking data that we believe indicates trends in demand for Healthcare broadly, and physical therapy specifically.  These updates on a weekly and monthly basis should prove useful in forecasting near term results.
• We regularly interview and publish notes in our Executive Insights reports and will regularly touch on topics directly related to Physical Therapy trends and the US Medical Economy.

Risks

• There have been periods within the last 5 years where Healthcare Services companies, including ATI's publicly traded comp USPH, have traded consistently at a lower EV/EBITDA multiple range of 10-15X.
• 15-20X may prove too optimistic.
• Pent- up demand may not materialize for US Medical Economy or the broader economy, both of which would be negative for FAII/ATI.

All data available upon request. Please reach out to  with any inquiries.

Thomas Tobin
Managing Director


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William McMahon
Analyst


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Justin Venneri
Director, Primary Research


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