Given that many physicians who have sold their ASCs to a strategic partner (ASC management company, hospital or private equity firm) have done so by themselves, physician-owners of ASCs may be interested in better understanding what goes into a successful transaction and what to look out for.
Here, Jon Vick, founder and president of ASCs Inc., and Jim Freund, partner at ASCs Inc., answer questions for physician owners about selling their business.
Question: Let’s start by asking what makes selling a surgery center challenging?
Jon Vick and Jim Freund: For a seller this is likely the first and only time that you will go through such a transaction. Prospective buyers have a great deal of transactional experience and this puts the sellers at a distinct disadvantage. While there isn’t a lot the sellers can do to gain useful experience, there are a number of things that you can do to better position yourself for success. Another item that is challenging is that transactions have gotten significantly more complex, buyers are doing more due diligence and the process often takes more than a year to complete, so being prepared for that will be to your benefit.
Q: If you have decided to sell, what is the first step for a successful transaction?
JV and JF: The first step is to clearly identify your goals both as individuals and as an organization and then to determine how a strategic partner can help you realize your goals. Whether you want to realize a significant liquidity event, need a partner that will help your center grow, want to partner with a local hospital but not give up control, want to recruit additional physician partners, need help moving in-network, or any one of the myriad of reasons you may want to sell an interest in your organization, it is important to be in agreement as to why you want to sell.
What is the second step?
JV and JF: No matter what your goals, you will want to position your center optimally for a potential sale or partnership. This means cleaning up any issues that you may have with your center from a clinical, operational and business perspective and making sure you are able to present your center in optimal light. You will need to collect 3-years of your financial statements and be prepared to provide information on your surgery center and its business from inception to today, and summarize its growth opportunities.
Q: Who are the likely buyers? In the past it was most often to a national ASC management company. Now it is often a local hospital or a private equity firm. The main question: who would be the best strategic partner for your center?
JV and JF: A great question and while most groups likely have been approached by multiple prospective buyers, the bottom line is that while you may want to work with a specific group or a hospital, unless you run a competitive bidding process you will likely not end up with the best result. It is important to bring everyone who would potentially be a good partner to the table and consider all of them before making a decision. This is your only chance to evaluate every prospective buyer and doing your due diligence is extremely important. Following the same evaluation process with every prospective buyer will tell you what the fair market value of your center is, and which buyer will place the highest value on your center. This will provide you with the information needed for you or your advisors to negotiate on your behalf.
Q: What multiple should an owner expect to get paid for their center?
JV and JF: When it comes to the financial elements of a sale remember there is no fixed multiple of EBIDTA that a buyer will pay, nor do buyers base their decisions on appraisals. The elements that determine the value of your business include:your case mix and physician makeup, ASC location and condition, ASC credentials, size& capacity, growth trajectory, profitability, and more. Ultimately the market will determine the value of your center. Again, creating a competitive environment will provide you with the most leverage as you or your advisors manage the process.
Q: On that note, how do physicians ultimately decide who to sell to?
JV and JF: You will determine during the interview phase and by speaking with physicians who are partnered with the prospective buyers which strategic partner has the right resources and is most capable of helping you achieve your goals. You will want to select a partner that you are comfortable with, that is going to help you realize your goals, that brings the most long-term value to your organization, and that has negotiated fairly, openly and honestly with you to create a mutually beneficial agreement. Keeping in mind that these will be your partners for many years, we always believe that while there is a focus on realizing the best financial outcome, that the non-financial component to any transaction is often equally if not more important.
Q: Any final thoughts?
JV and JF: Appoint one physician to be the lead contact and an executive (CEO or Administrator most often) who is responsible for managing the process with regular updates on progress with each of the potential buyers. Require that your executive lead provide a “Tracking Summary” of progress through the process and comparative summaries of the terms being offered so you can tell at a glance which companies are offering the best price and terms. You should compare all of the prospective buyers based on the same criteria. The selling physicians should keep an open mind throughout the process – at the onset you really don’t know who is going to offer you the best deal and provide the needed resources for you to accomplish your goals. Check the physician references to make sure that the potential buyer has met the commitments promised to other centers. And lastly, always remember at the end of the day you have no obligation to sell your center or practice unless the time, and the price, are right.
About ASCs Inc. –
ASCs Inc. is a leading ASC advisory firm, focused exclusively on representing physician-owners who are considering selling an interest in their ASCs, affiliated practices and real estate. Since 1998 ASCs Inc. has enabled the owners of more than 250 businesses to realize maximum value for their ASC assets.