1. Build consensus among the owners. The first step to any sale of an ambulatory surgery center is to build consensus among the center's owners. Some of the most common reasons for owners to sell include: to diversify assets; to reduce exposure to debt guarantees if the center is not performing well; and to gain strategic benefits of some buyers, such as hospitals' ability to increase reimbursement or recruit, according to Luke Lambert, CEO of Ambulatory Surgery Centers of America. Pricing is also typically a key factor. For example, centers on a growth trajectory will garner better pricing, which could help gain agreement among owners for a sale.
2. Determine your goals. In addition to presumed goals of continuing to run a profitable, efficient and economical center, center leaders should agree on other goals to be reached from a sale. Other goals may include improving your contracts, expanding the center, adding more partners and/or specialties and increasing distributions, said Jon Vick, president of ASCs Inc. As many centers now have a few partners who are approaching retirement age, another goal should be a planned exit strategy for individual partners through a buy-out formula in your operating agreement or the sale of a portion of the center that would benefit and provide a future exit strategy for all partners.
Here you have a number of choices, such as:
• Sell a minority interest to gain management expertise
• Sell a majority interest to maximize total return and to gain management expertise
• Sell to an ASC management company or a hospital, or both, to maximize total return, improve contracts and generate increased distributions
Each choice results in a different outcome in terms of immediate cash received, future sale of residual interests, on-going distributions, management of the center, payor contracts and control of the center, he said.
3. Be an engaged seller. Seller disengagement is a major concern for major ownership acquisitions. Buyers have to assess who they are buying from and who they are buying out. Some hospitals buy 100 percent ownership of a physician-owned ASC, only to have case volumes decrease immediately following the sale. Sellers should expect non-compete requirements whether they are being partially or wholly liquidated.
Seller disengagement is also a factor for distressed ASCs that have not been distributing cash flow for some time. In a distressed center, some physician investors may be more interested in recouping what they can of their original investment than participating in a long, possible turnaround.
4. Consider management companies as potential buyers. Matt Searles, managing director of Merritt Healthcare, said he has seen more surgery centers seeking management company buyers than hospital buyers. "In my world, it's been 80 percent management companies and 20 percent hospitals," he said. Blayne Rush, president of Ambulatory Alliances, has seen a similar balance, with approximately 30 percent of surgery centers seeking hospital buyers. Management companies are familiar with the buying process and are able to move more quickly to sign contracts, whereas hospitals take longer.
5. Don't wait until retirement to sell. No one wants to buy a center where the main producers are about to disappear, Mr. Vick said. He encourages ASC owners to start seeking a sale at least five years before the key partners want to retire so the buyer will be able to count on several years of productivity from these physicians. "Waiting until less than five years before you want to retire is a formula for disappointment," he said. "You will not get top value for your center."
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2. Determine your goals. In addition to presumed goals of continuing to run a profitable, efficient and economical center, center leaders should agree on other goals to be reached from a sale. Other goals may include improving your contracts, expanding the center, adding more partners and/or specialties and increasing distributions, said Jon Vick, president of ASCs Inc. As many centers now have a few partners who are approaching retirement age, another goal should be a planned exit strategy for individual partners through a buy-out formula in your operating agreement or the sale of a portion of the center that would benefit and provide a future exit strategy for all partners.
Here you have a number of choices, such as:
• Sell a minority interest to gain management expertise
• Sell a majority interest to maximize total return and to gain management expertise
• Sell to an ASC management company or a hospital, or both, to maximize total return, improve contracts and generate increased distributions
Each choice results in a different outcome in terms of immediate cash received, future sale of residual interests, on-going distributions, management of the center, payor contracts and control of the center, he said.
3. Be an engaged seller. Seller disengagement is a major concern for major ownership acquisitions. Buyers have to assess who they are buying from and who they are buying out. Some hospitals buy 100 percent ownership of a physician-owned ASC, only to have case volumes decrease immediately following the sale. Sellers should expect non-compete requirements whether they are being partially or wholly liquidated.
Seller disengagement is also a factor for distressed ASCs that have not been distributing cash flow for some time. In a distressed center, some physician investors may be more interested in recouping what they can of their original investment than participating in a long, possible turnaround.
4. Consider management companies as potential buyers. Matt Searles, managing director of Merritt Healthcare, said he has seen more surgery centers seeking management company buyers than hospital buyers. "In my world, it's been 80 percent management companies and 20 percent hospitals," he said. Blayne Rush, president of Ambulatory Alliances, has seen a similar balance, with approximately 30 percent of surgery centers seeking hospital buyers. Management companies are familiar with the buying process and are able to move more quickly to sign contracts, whereas hospitals take longer.
5. Don't wait until retirement to sell. No one wants to buy a center where the main producers are about to disappear, Mr. Vick said. He encourages ASC owners to start seeking a sale at least five years before the key partners want to retire so the buyer will be able to count on several years of productivity from these physicians. "Waiting until less than five years before you want to retire is a formula for disappointment," he said. "You will not get top value for your center."
More Articles on Transactions and Valuations:
7 Thoughts on ASCs Taking Hospital Partners
Crozer-Keystone Health System Acquires Surgery Center of Pennsylvania
73% of Surgical Specialists See More Integration With Hospitals