Aaron Murski, senior manager with VMG Health, discusses surgery center merger and acquisition activity in 2012.
Q: What do you see as the major trends in merger and acquisition activity in 2012?
Aaron Murski: ASC merger and acquisition activity in 2011 was strong, with transactions happening across the size spectrum. This should definitely continue into 2012, as appetite for growth remains strong among the management companies, considering the continued maturation of the ASC industry. In addition, as marginally performing ASCs evaluate their strategic options, there should be plenty of opportunities for marginal ASCs to affiliate or re-syndicate.
Q: Who will be the major players? Do you predict more acquisition activity by hospitals, management companies or other contenders?
AM: There shouldn't be any surprises here — it will likely be "the usual suspects", i.e. management companies driving the acquisitions. Hospitals, to the extent there is an opportunity on or near their campus or in their market, would love to affiliate with ASCs, but it's sometimes more challenging for hospitals to get deals done in competitive bidding situations due to capital constraints or other concerns.
We are seeing, in certain markets, an increase in management companies exiting management and ownership of ASCs. This is happening in cases where the ASC is marginally performing, or, for strategic reasons, the ASC really does need to affiliate with a local hospital partner or different management company to thrive.
Q: How do you think valuation will change in 2012?
AM: Valuations levels should generally remain the same, with maybe a wider range of multiples for minority ownership transactions due to the low-growth environment at typical ASCs in most markets. I would expect that strong ASCs would still be priced aggressively, consistent with last year.
Q: Are you seeing ASCs form partnerships with other centers?
AM: With the general lack of availability of new physician-investors to drive growth, it can make sense for ASCs in some markets to consolidate and save on the expense side. This makes fairly obvious intuitive sense, and the leadership at most ASCs who have the opportunity to evaluate a merger with another local ASC get excited about the idea. However, practically speaking, actually getting two groups of physician-investors together to hammer out details — from the valuation to the staffing synergies — can be incredibly challenging and time-consuming. So while these opportunities are out there and are happening, you likely will not see a tremendous increase in these kinds of deals anytime soon.
Q: What about management companies themselves? Do you predict more consolidation among the major developers/operators in the industry?
AM: Yes, I think further consolidation among management companies is inevitable. I would not be surprised by some activity here this year, but I do not expect there to be a large number of management company transactions in the near future. While there is some variation in strategy among management companies relating to level of ASC ownership, management model and the types of deals they pursue, eventually the smaller or more regional players will be become part of the growth story for larger operators.
Learn more about VMG Health.
Related Articles on ASC Transactions and Valuations:
Debate Intensifies Over Proposed Alaska Surgery Center in Kenai
Illinois Surgery Centers Present New Options for Patients
New PA Surgery Center for Geisinger Health System Coming to Patton Township
Q: What do you see as the major trends in merger and acquisition activity in 2012?
Aaron Murski: ASC merger and acquisition activity in 2011 was strong, with transactions happening across the size spectrum. This should definitely continue into 2012, as appetite for growth remains strong among the management companies, considering the continued maturation of the ASC industry. In addition, as marginally performing ASCs evaluate their strategic options, there should be plenty of opportunities for marginal ASCs to affiliate or re-syndicate.
Q: Who will be the major players? Do you predict more acquisition activity by hospitals, management companies or other contenders?
AM: There shouldn't be any surprises here — it will likely be "the usual suspects", i.e. management companies driving the acquisitions. Hospitals, to the extent there is an opportunity on or near their campus or in their market, would love to affiliate with ASCs, but it's sometimes more challenging for hospitals to get deals done in competitive bidding situations due to capital constraints or other concerns.
We are seeing, in certain markets, an increase in management companies exiting management and ownership of ASCs. This is happening in cases where the ASC is marginally performing, or, for strategic reasons, the ASC really does need to affiliate with a local hospital partner or different management company to thrive.
Q: How do you think valuation will change in 2012?
AM: Valuations levels should generally remain the same, with maybe a wider range of multiples for minority ownership transactions due to the low-growth environment at typical ASCs in most markets. I would expect that strong ASCs would still be priced aggressively, consistent with last year.
Q: Are you seeing ASCs form partnerships with other centers?
AM: With the general lack of availability of new physician-investors to drive growth, it can make sense for ASCs in some markets to consolidate and save on the expense side. This makes fairly obvious intuitive sense, and the leadership at most ASCs who have the opportunity to evaluate a merger with another local ASC get excited about the idea. However, practically speaking, actually getting two groups of physician-investors together to hammer out details — from the valuation to the staffing synergies — can be incredibly challenging and time-consuming. So while these opportunities are out there and are happening, you likely will not see a tremendous increase in these kinds of deals anytime soon.
Q: What about management companies themselves? Do you predict more consolidation among the major developers/operators in the industry?
AM: Yes, I think further consolidation among management companies is inevitable. I would not be surprised by some activity here this year, but I do not expect there to be a large number of management company transactions in the near future. While there is some variation in strategy among management companies relating to level of ASC ownership, management model and the types of deals they pursue, eventually the smaller or more regional players will be become part of the growth story for larger operators.
Learn more about VMG Health.
Related Articles on ASC Transactions and Valuations:
Debate Intensifies Over Proposed Alaska Surgery Center in Kenai
Illinois Surgery Centers Present New Options for Patients
New PA Surgery Center for Geisinger Health System Coming to Patton Township