In this period of economic challenges, there may be many reasons a physician might want to cash out some of his investment in an ASC. Further, given the credit crunch, younger physicians who want to take the opportunity to buy into an ASC might have a hard time raising the capital.
In this period of economic challenges, there may be many reasons a physician might want to cash out some of his investment in an ASC. Further, given the credit crunch, younger physicians who want to take the opportunity to buy into an ASC might have a hard time raising the capital.
“During a year-plus of R&D of the market, we discovered that there are an awful lot of young doctors who want to buy into outpatient facilities like ASCs, but run into difficulty trying to get money from the bank because they’re just out of med school, or are early in their careers and have not built a substantial net worth” says D. Shannon LeRoy, the CEO and managing director of Physicians Capital. “We can underwrite the ASC they’re buying into and fairly and accurately predict the distributions. We don’t collateralize personal assets or involve any co-signers; we loan the physician the money based on the future cash flow he expects to receive from the ASC.”
As the company began to gain a foothold with the model last fall, it discovered that there are other financing situations specific to physician-owned businesses with unmet needs. Physicians thinking about selling their ownership interests, in particular, needn’t feel restricted to three options: remaining all-in, getting out entirely or selling a chunk of the ASC to a corporate partner.
“If some doctors want to take some money off the table, they now have the alternative of borrowing a like amount of capital, but not giving up ownership,” says Mr. LeRoy. “In general terms, it’s a loan instead of a sale. The reason we can do that is we don’t have the constraints of traditional lenders; we come up with our own reasons for lending not dictated by the Fed.
“Heretofore, there really hasn’t been much of an option for a physician to borrow the same amount of capital he could get for his sale. Traditional lenders don’t generally look favorably upon a loan just to put money in your pocket; they like to make loans for cash-flow-producing assets, such as a building or equipment.”
That’s not to say there aren’t many reasons to sell a part of your ASC to a corporate partner,
notes Doug Lewis, managing director of Physicians Capital.
“Some physicians need better management, some feel as if they’re out there by themselves and need a corporate partner to negotiate contracts and the like,” he says. “There are a number of reasons to come to the conclusion you want or need a corporate partner. But for physicians who have a good center and good management, who just want to take a little money off the table, this is an opportunity for that.”
Mr. LeRoy gives the example of a physician-owned surgery center that was generating $1 million in cash flow annually. The physicians wanted to do two things: borrow some money against the ASC to buy the building their practice and the ASC are in, and get some cash for personal needs.. A bank was willing to loan them the money for the real estate purchase, but “wanted to tie them up like a pretzel with personal collateral and was unwilling to give them as much money as needed,” says Mr. LeRoy.
Another option is freeing up cash for working capital in joint-venture development deals between corporate partners and physicians.
“Let’s say a group needs $3.5 million to do an endoscopy center; typically, the physicians and corporate partner need to put up one-third of that and finance the balance with a traditional lender,” says Mr. LeRoy. “Here, we might put up that third or some portion of that third for the corporate partner, letting them stretch the equity already raised and not have to go back to the well for expensive capital. We can do that based on the strength of the company and the pro forma of the center.”
The core of the business, however, remains helping ASCs recruit new physicians by providing loans for the new physicians to buy in.
“Let’s say the ASC is bringing in new docs, and you can project that, based on the ASC’s history, his 10 percent share is going produce $100,000 in annual cash distributions,” says Mr. LeRoy. “Most ASC companies will sell interests in the center anywhere at a 2 to 4 multiple of that cash distribution; we finance that $200,000 to $400,000 on a five-year term loan basis. We’re not particularly concerned with the individual’s circumstances, because we know $100,000 is plenty of money to service that debt.
“Banks don’t value the individual ownership interest fairly. They look at income coming out of the ASC, the individual personal assets and his credit score. Not that we don’t care about that, but we underwrite the ASC fundamentally by looking at the business and the cash flow. That’s something all the players big and small say is much-needed and hard to come by.”
Contact Stephanie Wasek at stephanie@beckersasc.com.
“During a year-plus of R&D of the market, we discovered that there are an awful lot of young doctors who want to buy into outpatient facilities like ASCs, but run into difficulty trying to get money from the bank because they’re just out of med school, or are early in their careers and have not built a substantial net worth” says D. Shannon LeRoy, the CEO and managing director of Physicians Capital. “We can underwrite the ASC they’re buying into and fairly and accurately predict the distributions. We don’t collateralize personal assets or involve any co-signers; we loan the physician the money based on the future cash flow he expects to receive from the ASC.”
As the company began to gain a foothold with the model last fall, it discovered that there are other financing situations specific to physician-owned businesses with unmet needs. Physicians thinking about selling their ownership interests, in particular, needn’t feel restricted to three options: remaining all-in, getting out entirely or selling a chunk of the ASC to a corporate partner.
“If some doctors want to take some money off the table, they now have the alternative of borrowing a like amount of capital, but not giving up ownership,” says Mr. LeRoy. “In general terms, it’s a loan instead of a sale. The reason we can do that is we don’t have the constraints of traditional lenders; we come up with our own reasons for lending not dictated by the Fed.
“Heretofore, there really hasn’t been much of an option for a physician to borrow the same amount of capital he could get for his sale. Traditional lenders don’t generally look favorably upon a loan just to put money in your pocket; they like to make loans for cash-flow-producing assets, such as a building or equipment.”
That’s not to say there aren’t many reasons to sell a part of your ASC to a corporate partner,
notes Doug Lewis, managing director of Physicians Capital.
“Some physicians need better management, some feel as if they’re out there by themselves and need a corporate partner to negotiate contracts and the like,” he says. “There are a number of reasons to come to the conclusion you want or need a corporate partner. But for physicians who have a good center and good management, who just want to take a little money off the table, this is an opportunity for that.”
Mr. LeRoy gives the example of a physician-owned surgery center that was generating $1 million in cash flow annually. The physicians wanted to do two things: borrow some money against the ASC to buy the building their practice and the ASC are in, and get some cash for personal needs.. A bank was willing to loan them the money for the real estate purchase, but “wanted to tie them up like a pretzel with personal collateral and was unwilling to give them as much money as needed,” says Mr. LeRoy.
Another option is freeing up cash for working capital in joint-venture development deals between corporate partners and physicians.
“Let’s say a group needs $3.5 million to do an endoscopy center; typically, the physicians and corporate partner need to put up one-third of that and finance the balance with a traditional lender,” says Mr. LeRoy. “Here, we might put up that third or some portion of that third for the corporate partner, letting them stretch the equity already raised and not have to go back to the well for expensive capital. We can do that based on the strength of the company and the pro forma of the center.”
The core of the business, however, remains helping ASCs recruit new physicians by providing loans for the new physicians to buy in.
“Let’s say the ASC is bringing in new docs, and you can project that, based on the ASC’s history, his 10 percent share is going produce $100,000 in annual cash distributions,” says Mr. LeRoy. “Most ASC companies will sell interests in the center anywhere at a 2 to 4 multiple of that cash distribution; we finance that $200,000 to $400,000 on a five-year term loan basis. We’re not particularly concerned with the individual’s circumstances, because we know $100,000 is plenty of money to service that debt.
“Banks don’t value the individual ownership interest fairly. They look at income coming out of the ASC, the individual personal assets and his credit score. Not that we don’t care about that, but we underwrite the ASC fundamentally by looking at the business and the cash flow. That’s something all the players big and small say is much-needed and hard to come by.”
Contact Stephanie Wasek at stephanie@beckersasc.com.