What is the Outlook for ASC Investment and M&A Activity?At the 19th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 25, Jason Cagle, JD, senior vice president, acquisitions and general counsel, United Surgical Partners International; Todd Mello, MBA, partner, HealthCare Appraisers; and Matt Searles, MBA, managing director, Merritt Healthcare, discussed the outlook for investment and merger and acquisition activity in the ASC sector in a roundtable session moderated by Scott Becker, JD, CPA, publisher of Becker’s ASC Review and a partner at law firm McGuireWoods.
While Mr. Mello said the level of activity has been steady and fairly consistent over the last few years, there has been an uptick in the number of deals where hospitals are purchasing ASCs and converting them to hospital outpatient departments.
Mr. Cagle agreed, saying that ASC M&A activity hasn't significantly "spiked up or down" in the past year.
In terms of pricing for deals, Mr. Searles says he doesn't anticipate value multiples for deals going up significantly in the near term: "The basic methodology for valuing has not changed," he said.
The multiple that guides the sale price is influenced by several factors. A center with "premium assets," as Mr. Cagle describes it, can demand higher multiples. For example, an ASC in a certificate of need market, with young and committed physicians and in-network contracts would be more attractive than one in a highly competitive market with out-of-network contracts, he said.
Mr. Mello noted that a center's growth opportunity greatly influences a deal's pricing; "premium assets" suggest an environment for growth. In regard to physicians specifically, Mr. Mello says 10-15 physicians is really the "sweet spot" in terms of the number of practicing physicians at the center. He cautioned though that the overall price is really about the more holistic picture of the center.
To state it simply, the value of offers a center receives reflects the bidders' predictions for its future. It's all about "what the future looks like, what the risks are," said Mr. Cagle.
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