ASC Transactions & Valuation Issues
Setting Share Price for Prospective Physician-Investors: Q&A With Greg Koonsman of VMG Health
Greg Koonsman is a senior partner at VMG Health, a valuation and financial advisory firm.
Q: My ASC is looking to bring in some physician-investors but we think the fair market value of what they would need to invest may scare off some good candidates. What can we legally do to lower the value and attract these physicians?
Greg Koonsman: There is nothing you can do legally to reduce the value of the ASC. But keep in mind that a minority shareholder — as this prospective shareholder would probably be — would have 30-40 percent lower payment on a pro-rata basis than a major shareholder, such as a hospital or management company.
That's because a smaller shareholder would have less influence over the operation. There is little this physician would be able to do, as an investor, to hurt or harm the ASC. Therefore the amount of money this physician would be required to invest would be lower per share than what a large investor would pay. The rate for the small investor would be something like four to 4.5 times EBITDA versus about 6.5 times for a large investor.
Other factors could drive up the price per share, such as age of the current physician-owners. Physicians approaching retirement are liable to leave the ASC soon, puttig the center's future into question. Another factor would be concentration of ownership in a few hands. If something happened to these investors, it would have grave repercussions for the fate of the ASC. Likewise, a single-specialty ASCs would have a higher risk, since it is more exposed to changes in reimbursement for the one specialty than a multi-specialty ASC that is reimbursed across a diversity of medical specialties.
Learn more about VMG Health.
Read more insight from VMG Health leadership:
- 9 Points on Transactions and Valuations of ASCs
- Is There 'Hidden Value' in a Poorly Performing ASC?
- 3 Surprising Factors That Impact an ASC's Value
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