We are seeing significant interest in surgery center M&A from the buyer community based on new criteria. For many years we saw buying almost exclusively by national ASC management companies that would partner with independent physicians who had created significant value in their ASCs. Today we see strong demand also coming from private equity (PE) firms, as well as payors and healthcare systems that recognize the value that surgery centers can add to their businesses.
With market forces aimed at driving down healthcare costs, owners of surgery centers are well-positioned to take advantage of this trend with value-based care, bundling, and consumer-focused healthcare that increases ASC value. ASCs host more complex procedures with similar or better clinical outcomes than other sites of care at significantly lower costs, making ASCs attractive to patients and payors alike.
To maximize success in the evolving market, ASCs can often benefit from being part of a larger organization that give them access to resources and the advantages of “scale” that are unavailable to independent ASCs. These include better payor contracts, supply purchasing power, operational infrastructure, advanced technology, revenue cycle, finance, data analysis and accounting services, human resources and more.
For physician-owners who are considering selling an interest in their center and/or affiliated practices, buyers now include ASC management companies, hospitals and healthcare systems and PE firms, and these competing buyers are paying competively higher multiples. However, to realize the maximum value centers must meet each individual buyer’s criteria which usually includes being in-network with the major payors for most cases, having multiple younger physician-partners, or partners close to retirement with succession plans in place, and growth opportunities. Strong acquisition candidates should have well-documented growth strategies, be in a desirable geographic location, have a facility that is in excellent physical condition, and that have resolved major operational or legal issues before going to market.
Virtually every surgery center owner has been approached by multiple entities that have an interest in acquiring your center or practice. If you decide to explore selling an interest in your organization it is important to understand that this process is extremely time consuming (often lasting more than a year) and complex, and unless you have done this multiple times you can’t realistically expect to realize an optimum outcome. Having an advisor, broker or investment banker that specializes in surgery center sales will enable you to leverage their expertise on your behalf. The sales process involves understanding the buying organizations long-term goals, doing an in-depth analysis of the operational, clinical and financial components of your business, creating a detailed confidential information memorandum (CIM) designed to portray your organization in the best possible light, introducing this to the most qualified and likely buyers, creating an auction process designed to generate competitive financial offers and to ensure that you have terms that are beneficial to the physician-owners, and ultimately creating a successful long-term partnership.
This process enables you to have expert representation every step of the way and mitigates your risk. At the end of the day it is up to you to decide whether or not to move forward with a transaction and if the deal is not right you can simply walk away and have little or no financial obligation but you will have unprecedented insight into your business.
As a footnote, if you own your ASC/MOB real estate, there are currently many qualified buyers seeking to invest in ASC/MOB real estate. When physicians own their ASC/MOB real estate they have an opportunity to sell and leaseback the property with no change in rent and no personal guarantees of the long-term lease at a very attractive profit. For example, a 10,000 sf ASC paying $360,000 in annual rent would have a sale and leaseback value today of over $5.0 million, with the sellers retaining control of the property. Most sale and leaseback transactions attract multiple competitive offers within 30 days and a deal can close in as little as 60-90 days. A 1031 exchange will shelter the sellers from capital gains taxes.
Jonathan C. Vick, the founder and President of ASCs Inc., has assisted in development, merger, and strategic acquisition transactions for over 500 physician-owned ambulatory surgery (ASCs), endoscopy centers (ECs) and surgical hospitals since 1984. He advises on ASC and EC sales, real estate sales and leasebacks, valuations, and mergers & acquisitions and can be reached at 760-751-0250 or jonvick2@ascs-inc.com. More information can be obtained at: www.ascs-inc.com.