Here are 10 observations and predictions on the ambulatory surgery center acquisition market, according to VMG Health's ValueDriver ASC Survey 2011. In compiling the survey, VMG spoke with leaders of the 20 of the largest ASC management and operating companies in the United States.
1. Compared to acquisition activity in 2010, ASC operators said their level of activity in 2011 will:
Increase: 63 percent
Decrease: 6 percent
Remain the same: 31 percent
2. Sixty-nine percent of respondents said they expect acquisition values to be unchanged in 2011. Twenty-five percent thought values would be lower, and 6 percent thought they would be higher.
3. Sixty-three percent of respondents thought physician expectations regarding acquisition multiples have remained unchanged. Twenty-five percent thought they had decreased, and 13 percent thought they had increased.
4. ASC operators' preferred ownership structure was majority equity ownership (41 percent), followed by minority equity ownership (29 percent) and minority equity ownership with hospital partner (29 percent).
5. ASC operators targeted the following types of ASCs as part of their 2010 acquisition strategy:
ASCs with a proven history of successful performance: 44 percent
Underperforming ASCs primed for a turnaround: 37 percent
De novo ASC development: 19 percent
6. The most common determinant of offering price in acquisitions was risk-adjusted multiple of EBITDA (41 percent), followed by third-party fair market value opinion (26 percent), discounted cash flow analysis (21 percent) and standard multiple of EBITDA (7 percent).
7. Following the presentation of a letter of intent, 59 percent of respondents said they rarely adjust their offer price. Thirty-five percent said they often adjust their office price, while 6 percent said they never do.
8. Respondents listed the most common changes in the ASC acquisition market over the last five years as:
1. Higher levels of due diligence are being conducted on acquisition targets.
2. Operating/management companies are increasingly looking to partner with health systems.
3. Higher likelihood of offering a lower price to an ASC with substantial risk characteristics.
4. Greater competition for acquisitions.
9. Following an acquisition, respondents listed the greatest benefit their management company provides as:
1. New physician identification and recruitment.
2. Improved efficiency (process improvement and expense reduction).
3. Partnership restructure or re-syndication.
4. Improved managed care contracting.
10. As compared to 2009, acquisition values in 2010 were unchanged, according to 56 percent of respondents. Thirty-one percent said values were lower, and 13 percent said they were higher.
VMG information comes from VMG Health's ValueDriver ASC Survey 2011. VMG Health is a leading valuation and transaction advisory firm in healthcare. To receive a complimentary copy of VMG Health's ValueDriver ASC Study 2011, click here.
1. Compared to acquisition activity in 2010, ASC operators said their level of activity in 2011 will:
Increase: 63 percent
Decrease: 6 percent
Remain the same: 31 percent
2. Sixty-nine percent of respondents said they expect acquisition values to be unchanged in 2011. Twenty-five percent thought values would be lower, and 6 percent thought they would be higher.
3. Sixty-three percent of respondents thought physician expectations regarding acquisition multiples have remained unchanged. Twenty-five percent thought they had decreased, and 13 percent thought they had increased.
4. ASC operators' preferred ownership structure was majority equity ownership (41 percent), followed by minority equity ownership (29 percent) and minority equity ownership with hospital partner (29 percent).
5. ASC operators targeted the following types of ASCs as part of their 2010 acquisition strategy:
ASCs with a proven history of successful performance: 44 percent
Underperforming ASCs primed for a turnaround: 37 percent
De novo ASC development: 19 percent
6. The most common determinant of offering price in acquisitions was risk-adjusted multiple of EBITDA (41 percent), followed by third-party fair market value opinion (26 percent), discounted cash flow analysis (21 percent) and standard multiple of EBITDA (7 percent).
7. Following the presentation of a letter of intent, 59 percent of respondents said they rarely adjust their offer price. Thirty-five percent said they often adjust their office price, while 6 percent said they never do.
8. Respondents listed the most common changes in the ASC acquisition market over the last five years as:
1. Higher levels of due diligence are being conducted on acquisition targets.
2. Operating/management companies are increasingly looking to partner with health systems.
3. Higher likelihood of offering a lower price to an ASC with substantial risk characteristics.
4. Greater competition for acquisitions.
9. Following an acquisition, respondents listed the greatest benefit their management company provides as:
1. New physician identification and recruitment.
2. Improved efficiency (process improvement and expense reduction).
3. Partnership restructure or re-syndication.
4. Improved managed care contracting.
10. As compared to 2009, acquisition values in 2010 were unchanged, according to 56 percent of respondents. Thirty-one percent said values were lower, and 13 percent said they were higher.
VMG information comes from VMG Health's ValueDriver ASC Survey 2011. VMG Health is a leading valuation and transaction advisory firm in healthcare. To receive a complimentary copy of VMG Health's ValueDriver ASC Study 2011, click here.