The ASC market was ripe with transactions last year, and 2017 is expected to have similar activity, according to the HealthCare Appraisers 2017 ASC Valuation Survey.
The survey includes responses on a variety of topics from 24 ASC companies representing more than 700 surgery centers across the U.S.
Acquisition trends
1. Last year, ASC companies were searching for potential acquisitions for growth; 17 percent currently have 11 to 30 ASCs while another 26 percent of respondents reported 31 or more ASCs under ownership.
2. Around 60 percent of ASC company respondents acquired centers last year:
• Forty-one percent acquired one to five centers
• Nine percent acquired six to 10 centers
• Ten percent acquired 11 or more centers
3. Acquisition activity will likely remain high in 2017, as 78 percent of respondents reported they plan to acquire centers this year; 43 percent plan to purchase one to five centers and 26 plan on purchasing six to 10 centers. Nine percent reported they were likely to purchase 16 or more centers in 2017.
Multiples
4. Prevailing valuation multiples for minority interest in single-specialty ASCs were reported as:
• Twenty-eight percent of respondents: 2 to 3.9 times EBITDA
• Fifty percent of respondents: 4 to 4.9 times EBITDA
• Twenty-two percent of respondents: 5 to 6.9 times EBITDA
5. Prevailing valuation multiples for controlling interest in single-specialty ASCs were reported as:
• Twenty-three percent of respondents: 4 to 5.9 times EBITDA
• Seventy-three percent of respondents: 6 to 7.9 times EBITDA
6. Prevailing valuation multiples for minority interest in multispecialty ASCs were reported as:
• Twenty-five percent of respondents: 2 to 3.9 times EBITDA
• Sixty-three percent of respondents: 4 to 5.9 times EBITDA
• Twelve percent of respondents: 6 to 7.9 times EBITDA
7. Prevailing valuation multiples for controlling interest in a multispecialty ASC were reported as:
• Twenty-five percent of respondents: 4 to 5.9 times EBITDA
• Seventy-five percent of respondents: 7 to 7.9 times EBITDA
8. The valuation multiples for the single and multispecialty ASCs were "reasonably consistent" to the multiples reported in the 2016 survey. However, a majority of respondents in this year's survey would pay a premium for ASCs with a certificate of need.
Sale process
9. Half of the respondents use a formula to determine minority interest transactions with new or existing physician investors; another 32 percent obtain an independent fair market value appraisal.
10. Minority interest sale takes three to six months on average for 55 percent of the respondents when dealing with a new physician. However, when selling controlling interest to an ASC, 56 percent say it takes six months to one year to complete the process.
11. Half of the respondents report selling controlling ASC interest to a hospital or health system.
12. Almost half — 48 percent — report earnings growth per year is expected to grow 3.1 percent to 6 percent for the first several years after the transaction; just 19 percent expect growth exceeding 12 percent over that time period.
Competition
13. Forty-three percent of respondents said competition for acquisitions increased last year; 14 percent saw a decrease and 43 percent reported no change from 2015.
14. Seventy-three percent of respondents reported owning equity in all the freestanding entities they manage.