At a session at the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference, Luke Lambert, CEO, Ambulatory Surgery Centers of America, shared 10 steps to sell your surgery center.
1. Build consensus among the owners. The first step to any sale of an ambulatory surgery center is to build consensus among the center's owners. According to Mr. Lambert, some of the most common reasons for owners to sell include: to diversify assets; to reduce exposure to debt guarantees if the center is not performing well; to gain strategic benefits of some buyers, such as hospitals' ability to increase reimbursement or recruit; and advantageous tax rates. That is, owners are taxed at the rate for capital gains today rather than the tax rate for their future income over time, which is higher. Pricing is also typically a key factor. For example, centers on a growth trajectory will garner better pricing, which could help gain agreement among owners for a sale.
2. Enter into confidentiality agreements with potential buyers (2 weeks). Make a list of all potential buyers, including local hospitals, industry buyers such as Amsurg, Surgical Care Affiliates, etc., and turnaround buyers, such as ASCOA. Then, approach the potential buyers and have them sign off on confidentiality agreements.
3. Create and distribute facility book (3-4 weeks). This often runs concurrent with obtaining confidentiality agreements and should include a summary of center, such as the number of ORs, equipment inventory and physicians. Information on whether the center is leased or owned, how anesthesia is run, the payor environment and competition in the market should also be disclosed. Mr. Lambert recommended sharing any information with the potential buyers they desire. "What stands you in good stead is to be straightforward," he said, adding this approach helps keep the buyer confident in the transaction.
4. Collect and analyze proposals (3-6 weeks). Once proposals are received, put them into a comparison grid to make an apples-to-apples comparison in terms of pricing, percentage of ownership, physician proceeds, governance and any management fees. After this is complete, select 2-3 suitors to present in person.
5. Meet with strongest suitors (3-4 weeks). During this step, the potential buyers will visit the center and present their proposed terms to the sellers.
6. Negotiate and sign the letter of intent (1-3 weeks). According to Mr. Lambert, this is usually non-binding but lays out the business terms. "Focus on what the most important points are," he said. "If you consider too many points, you never get to the first step, which is getting the letter of intent."
7. Due diligence (1-2 months). During this period, the buyer performs extensive due diligence, which involves a review of all financial information on the center and often includes site inspections and chart audits. During this time, the sellers should also perform due diligence by checking the buyer's references and contacting colleagues who may have done business with the buyer.
8. Negotiate purchase, management and operating agreements (1 month). Mr. Lambert recommends assigning three or so surgeons to closely manage the sale process and provide input to their attorney.
Mr. Lambert listed a number of provisions he said are "worth negotiating for," including:
10. Fund the transaction (1 day).
Mr. Lambert said the total time for a transaction is typically 5-8 months
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1. Build consensus among the owners. The first step to any sale of an ambulatory surgery center is to build consensus among the center's owners. According to Mr. Lambert, some of the most common reasons for owners to sell include: to diversify assets; to reduce exposure to debt guarantees if the center is not performing well; to gain strategic benefits of some buyers, such as hospitals' ability to increase reimbursement or recruit; and advantageous tax rates. That is, owners are taxed at the rate for capital gains today rather than the tax rate for their future income over time, which is higher. Pricing is also typically a key factor. For example, centers on a growth trajectory will garner better pricing, which could help gain agreement among owners for a sale.
2. Enter into confidentiality agreements with potential buyers (2 weeks). Make a list of all potential buyers, including local hospitals, industry buyers such as Amsurg, Surgical Care Affiliates, etc., and turnaround buyers, such as ASCOA. Then, approach the potential buyers and have them sign off on confidentiality agreements.
3. Create and distribute facility book (3-4 weeks). This often runs concurrent with obtaining confidentiality agreements and should include a summary of center, such as the number of ORs, equipment inventory and physicians. Information on whether the center is leased or owned, how anesthesia is run, the payor environment and competition in the market should also be disclosed. Mr. Lambert recommended sharing any information with the potential buyers they desire. "What stands you in good stead is to be straightforward," he said, adding this approach helps keep the buyer confident in the transaction.
4. Collect and analyze proposals (3-6 weeks). Once proposals are received, put them into a comparison grid to make an apples-to-apples comparison in terms of pricing, percentage of ownership, physician proceeds, governance and any management fees. After this is complete, select 2-3 suitors to present in person.
5. Meet with strongest suitors (3-4 weeks). During this step, the potential buyers will visit the center and present their proposed terms to the sellers.
6. Negotiate and sign the letter of intent (1-3 weeks). According to Mr. Lambert, this is usually non-binding but lays out the business terms. "Focus on what the most important points are," he said. "If you consider too many points, you never get to the first step, which is getting the letter of intent."
7. Due diligence (1-2 months). During this period, the buyer performs extensive due diligence, which involves a review of all financial information on the center and often includes site inspections and chart audits. During this time, the sellers should also perform due diligence by checking the buyer's references and contacting colleagues who may have done business with the buyer.
8. Negotiate purchase, management and operating agreements (1 month). Mr. Lambert recommends assigning three or so surgeons to closely manage the sale process and provide input to their attorney.
Mr. Lambert listed a number of provisions he said are "worth negotiating for," including:
- Who dilutes their ownership when bringing in new partners
- Retirement provisions
- Representations and warranties qualified. "The way they're worded can put people on the hook for more than needed," he said.
- Working capital adjustment and calculation
- Caps on pass-through expenses under management agreement
- Indemnification base, caps and limits
- Physician approval/first right of refusal before selling to local hospital
- Cash required at closing
- Tail insurance to cover any liabilities the center incurred prior to the new owner joining the center
- Non-compete terms
- Staff privileges and physician say in who is selected as the administrator or director of nursing, for example
10. Fund the transaction (1 day).
Mr. Lambert said the total time for a transaction is typically 5-8 months
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