Jim Freund has spent almost 30 years as a partner with several leading ASC focused firms and heads up business development for Merritt Healthcare Advisors. He has an extensive background in surgery center business operations and technology along with a deep understanding of development, mergers and acquisitions and strategic partnerships related to surgery centers and their associated practices.
Here, Mr. Freund discusses trends in surgery center transactions and how physician owners can optimize their results.
Q: Let’s start with when should a physician consider selling an interest in their center?
Jim Freund: We don’t believe there is a single right answer to this question. There are a lot of factors that go into selling an interest in a business and while at some point virtually every facility will consider selling, the timing of that and determining the best approach will vary for every facility. We attempt to take an objective look at the entire business, gathering detailed information about the owners and their goals, infrastructure as well as gain an understanding of the financials, the organization, their history and plans for the future.
Q: What is the most common mistake ASC owners make when selling an interest in their center?
JF: I think there are really two mistakes that we most commonly see. The first is that physicians wait until their business is declining before selling. Hindsight is 20/20 but from our perspective it is always a good idea to have an independent advisor examining many of the items we discussed above to understand where you are in the life cycle of your business and understand the implications of selling.
The second is when physician owners sell their businesses themselves, often with less than an optimal outcome. It takes a significant amount of experience and expertise, and time and knowledge, which is required when selling an ASC and/or affiliated practices and ending up with the best result. Without the experience of dozens of transactions, it is not possible to optimize deal terms with buyers – you simply cannot know what optimal terms are without experience.
Q: Can you expand on why you don’t believe a physician can best represent themselves when selling their center?
JF: Physicians are trained to treat patients and in the ASC space we are fortunate to have some of the absolute best doctors in the world. In addition, due to the entrepreneurial nature of our business, most have strong business acumen at the operational level. However, buyers have a level of expertise and sophistication that comes from doing hundreds of transactions that physicians simply do not have. Transactional experience provides a tremendous advantage. Simply knowing current multiple levels, what buyers look for, how far they will go in sharing governance, what are reasonable management fees, etc.
It is often beneficial to have someone who will consider every aspect of the transaction, put together the most effective marketing vehicle for the sale of an interest in the business and then create the a competitive environment designed to ensure that you will end up with the best financial and non-financial outcome. Selling your business is a long and arduous process, typically taking anywhere from nine months to over a year to close. There is a process that every transaction must go through, it starts by gathering all of the data, spending significant time meeting and analyzing the business from a historical, present and future state, and then creating an effective Confidential Information Memorandum (CIM). From there interest is solicited, meetings are set up, bids are received and evaluated and a demand for the center is created. During this process we are not only aligning the prospective partners from a financial perspective but equally important are the non-financial factors (governance, management) that will impact how you work together for years to come. Then we go through a selection process, followed by a due diligence process. By the time a buyer gets to do their diligence, we have examined all aspects of a facility and addressed potential problem areas. It is a grueling process that requires discipline and patience to manage it effective.
Q: What should physicians be looking for in a prospective partner?
JF: Selling an interest in your surgery center is about finding the right partner or partners to help owners realize goals. There are a variety of prospective buyers, from hospital to strategic, and each bring their own benefits to a potential relationship. Within each of these categories there are most often a variety of options for owners to consider; hospitals, management companies and private equity firms each bring specific elements to a potential transaction and discerning the best potential partners early on and then creating a plan to bring your business to market is critical. A partner can help improve contracting, provide physician recruitment, strengthen referral resources, leverage buying power to help you get better pricing on supplies and equipment, support your back office functions, improve clinical initiatives and much more. The bottom line is that a partner can not only help you realize a significant financial event but they can also help you to become a better surgery center.
Q: How can physician owners end up with the best result?
JF: By working with an advisor who has the necessary transactional experience, is licensed to manage these specific engagements and has actual experience running and managing ASCs, owners will be in a position to facilitate the best outcome.
As with any other decision, like selling your house or selecting a financial consultant, you want someone who will look out for your best interest, that you respect and enjoy working with, that has an exceptional reputation and track record, and have an open and honest relationship with. This is potentially the most important business transaction of a physician’s professional life, you need to make the right choice and best position yourself for success. The right advisor should help you end up with a significantly better outcome than you could have on your own.