When physician-owned ambulatory surgical centers experience initial success, they often reach a point of needing investment capital to accelerate their growth and facilitate long-term stability.
During Becker's 28th Annual Meeting: The Business & Operation of ASCs, during a session sponsored by Merritt Healthcare Advisors, Chris Carlesi, vice president at Merritt, discussed reasons for considering an investment partner, business models of potential buyers, transaction and valuation considerations and how to complete a successful deal.
Four key takeaways were:
1. ASCs may want to find an investment partner to meet financial, economies of scale and growth goals. "These three pillars for considering a partnership are all linked," Mr. Carlesi said. "Financial reasons bleed into economies of scale, which bleeds into growth."
- Financial. Partners can provide monetization at high multiples, mitigate potential future cash flow risks, help grow the business and share in upside through retained equity.
- Economies of scale. A partnership can facilitate enhanced payer contracts and purchasing negotiations as well as provide an opportunity to access technologies and expertise.
- Growth. Finally, a strong partnership can increase patient referrals, provide access to a large network, facilitate succession planning and fuel geographical expansion.
2. While private equity firms do make direct investments in ASCs, most investors or buyers are health systems or strategic firms backed by private equity. Private equity firms that make investments are ultimately looking for a return on their investment. While health systems and strategic investors are also seeking a return, they have other motivations.
Health systems are focused on care delivery, clinical integration, market share and long-term relationships. Health systems care about quality, patient safety and value-based reimbursement.
On the other hand, strategic investors provide an alternative to health systems and are more focused on certain clinical services and delivery models. They are not as constrained by legal and regulatory requirements. They often focus on readily scalable and capital-intensive services.
3. During transaction and valuation discussions, consider ASC physician goals. According to Mr. Carlesi, buyers should not want to come in and change everything. "Physicians don't like change," he said. "You've already done a good job to get there so far; buyers are just there to help you get a little bit further."
ASC physicians usually want to maintain their independence. "If physicians don't want to be independent, they'd go work for a hospital system," he added. "They not only want to keep that independence, but they want to work with somebody who will emphasize that mindset."
4. Engage a healthcare banking advisor to facilitate the process and timeline. "Valuation and terms are almost always better if you have an advisor and a good attorney involved," Mr. Carlesi said. The process will likely include initial due diligence, marketing to buyers, interview and selection, final negotiation and final due diligence before closing the transaction. "It's a different world; it's easy to fall into paralysis by analysis," he said. "Sometimes, it’s in your best interest to take a step back and let someone who specializes in these types of transactions take a look and help."
By enlisting the help of an expert advisor like Merritt Health Advisors, physician-owned ASCs can successfully negotiate the terms and valuation that are best for their specific organization to facilitate future growth and to achieve other personal and organizational goals.