The following article was written by Jon Vick, president of ASCs Inc. Learn more about ASCs Inc here.
It is a seller's market for ASCs. Over 30 ASC management companies and many local hospitals are competing to invest in surgery and endoscopy centers. While the ASC management companies will almost always place a higher value on an ASC than a hospital will, a strategy that has proven to be successful is to first negotiate the best possible deal with an ASC management company to establish the fair market value for the ASC, then let your corporate partner bring the hospital in as a minority, non-managing partner. This results in the best of both worlds: an ASC management company that has expertise in managing ASCs and the goal of increasing profits and distributions, and a hospital partner with potential referrals and better paying contracts.
In most cases, there will be several ASC management companies that stand out as leading potential "strategic" corporate partners for your center, based on the needs of the center, the goals of the physicians, and the expertise required to increase center profits. While more companies may be interested in investing in your center, it is important that your corporate partner bring more to the table than just cash. Some partnerships fail because of misalignment of goals or lack of company expertise to help the center grow and increase profits. In fact, some partnerships have resulted in decreased distributions due to lack of adequate management by the ASC corporate partner. So the first goal of physicians wishing to sell an interest in their center should be to identify several of the best ASC management companies that can help their center grow and become sustainably more profitable. This proven expertise is what a "strategic" corporate partner should bring to the table.
Once the best corporate partner candidates have been identified, their interest must be solicited and their appropriateness as your partner proven. Here are 12 questions that will help you learn what to expect from the proposed partnership:
1. Our center is seeking a strategic partner that can help build our ASC business and make it substantially more profitable. What strategic advantages do you bring to the table, and how will these benefit our center and the physician-partners? What are your company's proven strengths?
2. What are your expectations from your proposed investment in our center, and how will these expectations benefit the current partners?
3. Will you create a business plan for our center, and when will a draft be available to review with the partners?
4. What contracts do you currently have in our market, and how will these benefit our center?
5. What is your philosophy regarding partnerships with hospitals? Will you be interested in bringing in a hospital as a partner in our center? How will this benefit our center?
6. How will you value our center, and from what date will the valuation be determined? How will you value out-of-network revenue? How will our liquid assets and A/R be treated in the valuation?
7. If the physicians have been receiving a management fee and/or buying supplies in advance to take advantage of buying opportunities, how will the management fees and/or value of advance purchases be reflected in the valuation of the center?
8. What management services will you provide, and how will these benefit our center, and at what cost? What same-store revenue growth have your centers experienced? What bottom line growth, after payment of management fees, have your centers experienced?
9. What will you do to increase distributions to the physician-partners? When do you expect to see improved financial results?
10. How and when will new physician-partners and new services be added?
11. What control will the physician-partners have? Discuss ASC governance and how decisions will be made.
12. What will be the timetable to close once we have signed your LOI?
Responses to the above questions should be provided in writing by the companies being solicited so that the physician-partners have a record of what is presented during the meetings leading up to the signing of an LOI. Prior to signing a LOI, we strongly recommend that the sellers discuss the experience of other physicians who have partnered with the companies to confirm that the promises made before the LOI is signed were met after the deal was closed.
Related Articles on Transactions and Valuation:
San Antonio Eye Center to Add Clinic to Existing Surgery Center
Phoebe Sumter Medical Center Receives First LEED Silver Medical Campus Certification in Georgia
Regional Medical Center of Memphis Looking to Add Surgery Center, Improve Facilities
It is a seller's market for ASCs. Over 30 ASC management companies and many local hospitals are competing to invest in surgery and endoscopy centers. While the ASC management companies will almost always place a higher value on an ASC than a hospital will, a strategy that has proven to be successful is to first negotiate the best possible deal with an ASC management company to establish the fair market value for the ASC, then let your corporate partner bring the hospital in as a minority, non-managing partner. This results in the best of both worlds: an ASC management company that has expertise in managing ASCs and the goal of increasing profits and distributions, and a hospital partner with potential referrals and better paying contracts.
In most cases, there will be several ASC management companies that stand out as leading potential "strategic" corporate partners for your center, based on the needs of the center, the goals of the physicians, and the expertise required to increase center profits. While more companies may be interested in investing in your center, it is important that your corporate partner bring more to the table than just cash. Some partnerships fail because of misalignment of goals or lack of company expertise to help the center grow and increase profits. In fact, some partnerships have resulted in decreased distributions due to lack of adequate management by the ASC corporate partner. So the first goal of physicians wishing to sell an interest in their center should be to identify several of the best ASC management companies that can help their center grow and become sustainably more profitable. This proven expertise is what a "strategic" corporate partner should bring to the table.
Once the best corporate partner candidates have been identified, their interest must be solicited and their appropriateness as your partner proven. Here are 12 questions that will help you learn what to expect from the proposed partnership:
1. Our center is seeking a strategic partner that can help build our ASC business and make it substantially more profitable. What strategic advantages do you bring to the table, and how will these benefit our center and the physician-partners? What are your company's proven strengths?
2. What are your expectations from your proposed investment in our center, and how will these expectations benefit the current partners?
3. Will you create a business plan for our center, and when will a draft be available to review with the partners?
4. What contracts do you currently have in our market, and how will these benefit our center?
5. What is your philosophy regarding partnerships with hospitals? Will you be interested in bringing in a hospital as a partner in our center? How will this benefit our center?
6. How will you value our center, and from what date will the valuation be determined? How will you value out-of-network revenue? How will our liquid assets and A/R be treated in the valuation?
7. If the physicians have been receiving a management fee and/or buying supplies in advance to take advantage of buying opportunities, how will the management fees and/or value of advance purchases be reflected in the valuation of the center?
8. What management services will you provide, and how will these benefit our center, and at what cost? What same-store revenue growth have your centers experienced? What bottom line growth, after payment of management fees, have your centers experienced?
9. What will you do to increase distributions to the physician-partners? When do you expect to see improved financial results?
10. How and when will new physician-partners and new services be added?
11. What control will the physician-partners have? Discuss ASC governance and how decisions will be made.
12. What will be the timetable to close once we have signed your LOI?
Responses to the above questions should be provided in writing by the companies being solicited so that the physician-partners have a record of what is presented during the meetings leading up to the signing of an LOI. Prior to signing a LOI, we strongly recommend that the sellers discuss the experience of other physicians who have partnered with the companies to confirm that the promises made before the LOI is signed were met after the deal was closed.
Related Articles on Transactions and Valuation:
San Antonio Eye Center to Add Clinic to Existing Surgery Center
Phoebe Sumter Medical Center Receives First LEED Silver Medical Campus Certification in Georgia
Regional Medical Center of Memphis Looking to Add Surgery Center, Improve Facilities