Outlook for Investment and M&A Activity in the ASC Sector
1. Hospitals are looking to buy ASCs. Hospitals’ strategy as a whole is to shift to the most low-cost and efficient setting, said Surgery Partners’ Ms. Heald. She has seen more and more hospitals look into purchasing ASCs and reaching out with purchasing proposals. “They’re really being aggressive about wanting to get into the ASC space,” she said.
In an industry increasingly focused on efficiency, “it would be ridiculous for a hospital to think they could be a long-term player without [an ASC],” said Tenet’s Mr. Chirillo.
2. ASC prices have remained relatively stable. Although the number of hospital buyers has increased, the number of ASCs looking to sell has increased as well. ASCs have been looking increasingly to hospital buyouts for pricing help, especially as the industry moves toward more managed care arrangements and physician connections, said Merritt’s Mr. Searles.
Because both buyers and sellers have increased, prices have remained more or less the same. “They’re all coming to the table,” said Ms. Heald, “and prices are the same they were a few years ago.”
3. Valuation at an EBITDA multiple of 7 or higher still happens. “A prime property with [service line] diversity and a strong EBITDA — that would be worth every bit of seven-plus,” said Tenet’s Mr. Chirillo, who has acquired many ASCs in his career. To help get this strong of a deal, Principle Valuation’s Adam Lynch advised physicians to recruit professionals to help determine the proper valuation, “to avoid surprises at the bargaining table.”
While Mr. Chirillo is not currently entertaining any ASC acquisitions at an EBITDA multiple of 8, “I wouldn’t be surprised if that was the case for some centers,” he said.
4. Regional markets, not just EBITA, matter to potential buyers. Potential buyers of ASCs are very interested in the competitors, patient population and payer mix in the ASC’s market. All the panelists agreed a low-revenue center can be attractive to a buyer if there’s potential for success within its current market.
“We look at the center’s track record and volume and look for opportunities for growth,” said Ms. Heald. “Even for a center with a margin of 10 percent — if we can add something to that, then it might make a tremendous amount of sense.”
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