8 Steps to Maximize Price When Selling an ASC
Joan Dentler, president and CEO of Outpatient Strategies and ASC Strategies, discusses the key steps for physician owners when selling part or all of their surgery center to a hospital or corporate partner.
1. Focus on the value of your center to the future buyer. Whether the future buyer of the surgery center is a hospital or management company, you want to focus on what the facility could provide them. Even though the surgery center may have been very busy and profitable for physician partners in the past, focusing on the past doesn't make the center valuable in the future.
"Make it easy for the potential buyers to see how the purchase would benefit them," says Ms. Dentler. "No buyer really cares how good of an investment the surgery center has been for you."
Instead, focus on where opportunities lie in the future for the buyer and discuss any strategic advantages the surgery center would have for its new owners. If the new owner is a management company, they could bring better vendor contracts, reduce expenses or help the center recruit new surgeons to increase patient volume for enhanced revenue. If the potential new owner is a hospital, the surgery center could alleviate crowded operating rooms with out the cost of new construction or introduce them into a new market.
2. Tailor your presentation to its audience. Selling to a management company is different from selling to a hospital, and different qualities appeal to each entity. Management companies are looking for ways they can improve the center to increase revenue and profitability while hospitals are more concerned with the strategic advantage a center could bring to the marketplace.
"Surgeons often want to talk about how much money the center has made them and how great it is, but if it's already so great then the management company may not see any opportunity there," says Ms. Dentler. "Show management companies where the growth will be. Show them how far you've taken the center and then how they can help you take it to the next level."
From the hospital perspective, surgeons can gain leverage through logistical merits. The value of the surgery center would be the highest if the center is within 35 miles from the hospital campus, so the facility can be receive provider-based designation from CMS.
"Hospitals will want to know if the facility meets the specifications to become a provider based department of the hospital," says Ms. Dentler. "Most management companies now want to partner with hospitals as well. Even if the management company is buying the surgery center, they are looking to see if it would fit into the portfolio to sell to the hospital sometime in the future."
If the surgery center is outside of the 35-mile radius, the hospital could keep it a free-standing ASC and consider itself expanding into a new market. "Some hospitals want to buy an ASC in a competing market and put their flag in the ground," says Ms. Dentler. "If it is successful, they may build physician offices and other ancillary services around it."
If the center includes high-volume or noteworthy surgeons in the community, that can add value to a hospital wanting to align with those physicians. Finally, if the surgery center is operating in a certificate of need state, the value to both hospitals and management companies increases dramatically.
3. Spark interest from multiple potential buyers. Surgery centers looking to sell should have multiple potential buyers to bid up the price. If buyers aren't already knocking at your doorstep, create a simple prospectus and send it out to several parties, including:
• Private investors
• Management companies
• Hospitals and health systems
All these may be interested in acquiring all or part of the center. "It's never a good idea to take the first and only offer you receive without doing at least a little more 'fishing' for other interested buyers," says Ms. Dentler. "The best situation for owners is to have multiple suitors who end up in a bidding war."
4. Highlight opportunities to grow. If there is unused capacity at your surgery center, discuss how the ORs could be filled in the future. Identify surgeons who aren't currently involved with the center but could bring cases in the future. "Have a list ready for the hospital or management company to show them you've done your homework," says Ms. Dentler. "Give them the opportunity to see which surgeons in the community could potentially bring business there in the future."
If the center is at capacity, identify places where you can cut costs. However, it's important to confirm that any cost cutting won't come at the expense of quality. "Show the buyer where the ASC could cut without sacrificing quality," says Ms. Dentler. "For example, with the addition of a management agreement the center should be able to reduce administrative staff."
Providing additional ways the center could drive case volume under new ownership also allows the buyer to see potential in the future.
5. Reassure buyers you won't leave the center. Buyers are often worried that they'll cut a big check to the physicians for the center and as soon as the transaction is final, the surgeons will retire or spend more time on the golf course than in the operating room. "Give the buyer confidence that existing surgeons aren't going anywhere," says Ms. Dentler. "The buyer is looking forward and wants to know how the next 10 years will go."
If the senior surgeons who currently drive patient volume are nearing retirement, give the buyer insight into your succession planning. There should be physicians prepared to take over an aging surgeon's caseload once he retires.
6. Have your own valuation performed. Physicians often balk at the expense of performing their own valuation of the center, especially if the buyer provides one. However, each valuation expert is different and bringing multiple perspectives to the table can make a difference when it comes time for negotiations.
"The valuation company that the buyer uses will be reputable, but you still want to do your own valuation," says Ms. Dentler. "Three different companies could look at the center three different ways. Surgeons are often swayed by people coming in and offering them a big check. They should spend a little of that money for a valuation and have experts on their side."
However, surgeons must be realistic about what their surgery center is worth. Demanding a higher price than the center's worth will drive others away. "Understand and be realistic about the value of your center to a potential buyer," says Ms. Dentler. "Don't let ego or emotion get in the way of a good business deal. As I tell clients, it is similar to a person thinking their house is more valuable because they raised their children there; it doesn't work that way."
7. Remember that it's a seller's market. Right now, the ASC industry is in a seller's market, so you may not need to pay extra for a broker. "Doctors need to know it's a seller's market and there is no shortage of buyers out there," says Ms. Dentler. "Be wary of high broker fees that are based on a percentage of the sales price and take money out of the owners' sale proceeds. It's a seller's market in the ASC industry, so finding interested buyers isn't difficult. In many cases, you don't need a broker's help to create interest or identify potential buyers for your center."
Another area of negotiation should be any services agreements that are required by the buyer as part of the sale. These are typically for things like management, billing and/or IT services "Be sure you understand exactly what the scope of services will be, how they will be delivered to the center," says Ms. Dentler. "The ASC industry has matured and here are now many different ways services can be provided and fees for these services are structured these days — e.g. declining or capped fees, shorter contract terms, performance incentives, ect."
8. Look at how the agreement after taxes and how it impacts individual physicians. Each physician should have their personal counsel and tax advisors analyze the deal before making it final.
Just having one surgeon go through the deal isn't good enough because it may impact each surgeon differently. "Make sure the partners review the final deal with their personal attorneys and tax advisors so that everyone truly understands all of the personal implications of the sale and has taken into account the 'after-tax' amount of the final offer," says Ms. Dentler. "Ask your tax advisor if there is a different way to structure the sale so it's better for the sellers."
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